FORM
10-K




SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549




x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF


1934
for the Fiscal Year ended July 31, 2008




 ̈ TRANSITION REPORT UNDER
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT


OF
1934




For the
transition period from ________ to ________.




TISSERA,
INC.


(Exact
name of registrant as specified in its charter)





BERT
Logic, Inc.


(Former
Name of Registrant)




Washington
            91-2034750(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      of organization)
            Identification
      No.)Avner
      2 Herzlia, Israel
            46602(Address
      of principal executive offices)
            (Zip
      Code)




Amos
Eiran, Chairman of the Board and CEO


Herzlia
Business Park


Herzlia,
46733 Israel






(Address,
including zip code, and telephone number, including area code, of registrant's
principal executive offices)




Securities
registered under Section 12(b) of the Exchange Act:





Title
      of Each Class
              Name
      of each Exchange on Which RegisteredCommon
      Stock ($0.0001 Par Value)
              NonePreferred
      Stock ($0.0001 Par Value)
              None




Securities
registered under Section 12(g) of the Exchange Act: None




Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x No  ̈




Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB x.




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.




Large
accelerated filer  ̈
Accelerated filer  ̈
Non-accelerated filer  ̈ Smaller Reporting
Company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes   ̈    
No  x




As of
December 11, 2008, the number of shares outstanding of the registrant's Common
Stock, $0.0001 par value (the only class of voting stock), was
45,591,809.









TABLE OF
CONTENTS





ITEM
      NUMBER AND CAPTION
                      PAGEPART
      I1.
      Description of Business
                      12.
      Description of Property
                      53.
      Legal Proceedings
                      54.
      Submission of Matters to a Vote of Security Holders
                      5PART
      II5.
      Market for Common Equity and Related Stockholder Matters
                      56.
      Selected Financial Data
                      68.
      Management's Discussion and Analysis or Plan of Operation
                      68.
      Financial Statements
                      99.
      Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                      99A(T).
      Controls and Procedures
                      99B.
      Other Information
                      10PART
      III10.  Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) ofThe
      Exchange Act
                      1011.
      Executive Compensation
                      1112.
      Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholders
                      1313.
      Certain Relationships and Related Transactions, and Director
      Independence
                      1414.
      Principal Accountant Fees and Services
                      1415.
      Exhibits
                      15SIGNATURES
                      17




2




PART
I




ITEM
1. DESCRIPTION OF BUSINESS




History




Tissera,
Inc. (the "Company") was incorporated under the laws of the State of Washington
on May 31, 2000 as Bert Logic, Inc. Our Internet address is
www.tissera.com.




On
September 4, 2003, the former president of Bert Logic Inc. completed a share
purchase agreement with the Company's existing shareholders, who purchased
15,000,000 shares of the then issued and outstanding 18,036,000 of the Company's
Common shares. In connection with the consummation of the transaction, the
president of the Company resigned as president and sole director of the Company.
Pursuant to the agreement, the Company entered into an amended license agreement
to sell Bit Error Rate Testers on a worldwide non-exclusive basis. In exchange,
the Company obtained forgiveness of the remaining promissory note of $10,299,
and accrued interest of $2,436. Also, in connection with the transaction, the
former president of the Company agreed to forgive his shareholders' loan, in the
amount of $2,442.




Following
the share purchase agreement dated September 4, 2003, the management of the
Company has decided to discontinue all activities related to the sales of Bit
Error Rate Testers, used for the integrity and reliability of communication
channels. The discontinuation of their activity was accounted for under the
provision of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets".




On
October 8, 2003, the Company entered into a research and license agreement (the
"Research Agreement") with Yeda Research and Development Company Limited
("Yeda"), described in greater detail below.




On
October 9, 2003, the Company's Board of Directors resolved to change the name of
the Company from Bert Logic, Inc. to "Tissera, Inc.".




On
October 27, 2003, the Company incorporated a wholly-owned subsidiary in Israel,
Tissera Ltd.




We need
to raise additional funds on an immediate basis in order to meet our operating
requirements and to fulfill our business plan as well as satisfy the working
capital loans that mature in January 2009. Pending the raise of additional
capital, since August 2008, we have significantly curtailed our product design,
development and marketing efforts and released all of our non-management
employees. As of the date of this report, we have on staff only our Chief
Executive Officer and Chief Financial Officer. If we are unable to raise capital
on an immediate basis, we will be forced to either restructure or cease
operations entirely. These conditions raise substantial doubt about our ability
to continue as a going concern.




Recent
Developments




Issuance
of Securities





On July
8, 2008, we entered into a Bridge Loan Agreement, dated as of June 18, 2008,
which contemplated an aggregate purchase price of up to
$1,650,000  with several accredited investors. On that date we
completed our initial closing of $200,000 with one investor. Investors who were
participants in the Company’s transaction in 2006 were given the first
opportunity to participate in the Financing; to the extent such investors’
subscriptions are less than the maximum, the Company may accept other investors
as well. Additional subscriptions could have been accepted through December 15,
2008.





In
connection with each closing of the financing, the Company issued to the
investor a Bridge Note (the “Note”) with an original issue discount of 14%. The
Note will be payable on the earlier of (i) January 4, 2009 (the “Scheduled
Maturity Date”), which is 180 days from the Initial Closing, or (ii) the
consummation of the transaction in which the Company receives, on a cumulative
basis, gross proceeds of at least $2,000,000. The principal of the Note will be
convertible through the Scheduled Maturity Date at a conversion price of $0.10
per share.





Additionally,
in connection with each closing of the Financing, the Company issued to the
relevant Investors warrants (the “Warrants”) to purchase a number of shares of
the Company’s common stock equal to 200% of the number of shares into which the
Investor’s Note would be convertible on that relevant closing date. The Warrants
will be exercisable until July 31, 2013, at an exercise price of $0.185 per
share, and are exercisable on a cashless basis.





Under the
terms of the Bridge Loan Agreement, the Company is required to pay to the
investor a penalty for any non-timely filings of periodic reports under The
Exchange Act of 1934, as amended. In respect of the filing of this annual report
on Form 10-K for the year ended July 31, 2008, the total amount of such penalty
is approximately $64,000.




1




General




We
develop, test and intend to commercialize solid organ transplantation therapies
based on an approach employing organ-specific precursor tissues. Our future
approach involves harvesting embryonic mammalian tissue at the most appropriate
stages after stem cells have committed to becoming organ-specific precursor
tissues and transplanting them in target human organ systems. The optimal
windows for embryonic tissue transplantation have been defined by Prof.
Reisner's lab at the Weizman Institute. We entered into a Research and License
Agreement with Yeda, whereby Yeda procures the performance of research at the
Weizman Institute of Science, under the supervision of Professor Yair Reisner of
the Department of Immunology. Pursuant to the Company's agreement with Yeda,
Yeda provided the Company with a worldwide, exclusive license to develop,
manufacture and sell products for solid organ transplantation from embryonic
tissue based on research conducted under the supervision of Professor Reisner of
the Department of Immunology of the Weizmann Institute of Science. The license
shall expire in each country with respect to each product at the later of (i)
the expiration of the patents covering such product in the country of sale, or (ii) 15
years from the date of receipt of FDA New Drug Approval in the United States for
such product, or the equivalent in any other country in which the products are
sold.




For the
year ended July 31, 2008 we did not generate revenues and generated net losses
of $1,865,000 as compared to no revenue and net losses in the amount of
$1,715,000 for the year ended July 31, 2006.




We are at
development stage and devoting substantially all of our efforts toward
conducting R&D activities, raising capital, pursuing regulatory approval,
recruiting personnel and building infrastructure.




Pending
the raise of additional working capital by us, we have significantly curtailed
all design, development activities.




Organ
Transplantation




General




Yeda is
the commercial arm of the Weizmann Institute of Science. The Yeda Research
Agreement provides the Company with the license to market and sell products for
solid organ transplantation from embryonic tissue based on research conducted at
the Weizmann Institute of Science under the supervision of Prof. Reisner in
accordance with the Research Agreement. The Company intends to market and sell
products for solid organ transplantation from embryonic tissue based on research
conducted by Prof. Reisner's lab at the Weizmann Institute of Science. The
Company believes this technology will provide effective alternatives to current
kidney, liver and pancreas transplants and provide therapies for a number of
unmet medical needs in large markets. However, due to budgetary constraints, the
Company has taken the decision to concentrate all its efforts on the development
of its pancreatic transplantation technology for the treatment of
insulin-dependent diabetes and not to pursue other organ applications for the
time being .Yeda has filed several patent applications with the United States
Patent and Trademark Office in accordance with the Research
Agreement.




About
the Product




Technologies
involving the utilization of stem cells from early human embryos or adults are
being researched and developed as a source of early stage cells that could be
isolated, grown in culture and used to replace tissues impaired by many
devastating diseases. In 1998, scientists first developed a procedure whereby
they were able to isolate embryonic stem cells from early human embryos and grow
them in culture. Embryonic stem cells were viewed as a new source of tissue that
could be used to replace cells or tissues that are damaged or destroyed by
various diseases. However, scientists have not been able to overcome the
difficulties involved in replicating nature and controlling the growth and
differentiation of stem cells in the laboratory.




Embryonic
stem cell research was delayed due to the inability to determine which organ a
cell would develop into. At a certain point in embryonic development, stem cells
differentiate and commit to a particular development pathway leading to the
formation of a specific organ. Unfortunately, it could not be determined which
cells were going to develop into a specific organ. As a result of embryonic stem
cells tendency to develop in a disorganized fashion that could not be
controlled, the scientific community was not able to develop any real world uses
for embryonic stem cells.




Prof.
Reisner, through his research at the Weizmann Institute of Science, has learned
to identify kidney, liver, pancreatic and other precursor tissues found in the
developing embryo. Prof Reisner intends to continue to identify additional organ
precursor tissues as well. In their initial experiments, Prof. Reisner's team
harvested kidney precursor tissue from human and porcine embryos which was then
implanted in mice. The approach developed in Prof. Reisner's lab preserves the
natural state of harvested tissue. Tissue is harvested from aborted embryos and
then implanted in the recipient. Tissues are tested for control purposes;
however, cells are not isolated, cultured, expanded or genetically engineered.
This approach takes embryonic tissue and transplants it in a recipient where it
matures into appropriate functional tissue. By using committed organ-specific
precursor cells, uncontrolled differentiation is avoided. By taking tissue at
the earliest time after cells commit to a pathway, immune response is minimized.
Further, cells are not altered through culturing and manipulation in ways that
may reduce their integration in the host.




Implanting
healthy embryonic tissue into humans, tissue which will mature and produce
missing proteins, is believed to be a therapy for many diseases where a specific
protein is not being produced in sufficient quantities (i.e. type I diabetes,
hemophilia, etc.). Ideally, human embryonic tissue would be used for treating
diseased human patients. However, in some countries, most notably the United
States, there are objections on ethical grounds to using tissue from aborted
embryos. Furthermore, pigs may be a preferred source of tissue for certain
clinical applications. Pigs can be raised in controlled environments and
typically gestate five to ten embryos in each pregnancy. Embryonic porcine
tissue can be made available as needed. Human tissue produces human proteins
that may have a better therapeutic potential than porcine tissue that produces
somewhat different proteins. In treating some diseases, these differences may be
significant.




2




The
Company intends to market and sell products for solid organ transplantation from
embryonic tissue based on research conducted by Prof Reisner's lab in accordance
with the Research Agreement. The Company believes that the use of early
organ-committed tissues may be appropriate for treating many serious diseases.
The Company's current target is insulin dependent diabetes. The Company, through
its commercialization of research conducted pursuant to the Research Agreement,
intends to provide readily available on demand solutions for patients waiting
for transplant organs that will reduce the need for long term use of
immunosuppressive drugs and will involve minimally invasive surgical procedures
that are normally associated with transplants. The Company understands there are
numerous regulatory approvals which will be needed before the above can be put
into place.




Plan
of Operation




The
Company has licensed the right to develop products for solid organ
transplantation from embryonic tissue from Yeda and entered an agreement to
sponsor research in Prof. Reisner's laboratory at the Weizmann Institute of
Science for three years. On April 10,, 2006 the research agreement was prolonged
for an additional year until April 9, 2007. On April 10, 2007 the research
agreement was prolonged until April 9, 2008. On July 10, 2008, an additional
agreement was signed with Yeda, providing for the extension of the research for
one more year, starting on April 10, 2008 and ending on April 9, 2009. Prof.
Reisner's team is continuing the development of the application employing
pancreatic precursor tissues. The team is actively engaged in experiments of
implanting pancreatic precursor tissues harvested from pig embryos into diabetic
monkeys. This will allow scientists to monitor the growth, function and
therapeutic value of precursor tissues in a large animal, to develop appropriate
surgical techniques, to optimize the amount of tissue transplanted and to
determine the most suitable use of immunosuppressive drugs.




The
License




Subject
to raising additional working capital, we  plan to develop, test and
intend to commercialize solid organ transplantation therapies based on an
approach employing organ-specific precursor tissues. Our future approach
involves harvesting embryonic mammalian tissue at the most appropriate stages
after stem cells have committed to becoming organ-specific precursor tissues and
transplanting them in target human organ systems. The optimal windows for
embryonic tissue transplantation have been defined by Prof. Reisner's lab at the
Weizman Institute.




On
October 8, 2003, we entered into a Research and License Agreement (the "Research
Agreement") with Yeda. The agreement relates to the rights of our company to
have the license from Yeda related to research conducted and to be conducted at
the Weizmann Institute of Science, under the supervision of Professor Reisner of
the Department of Immunology, and relates to an invention comprising methods of
organ transplantation utilizing developing pancreatic and other tissues. The
License granted to us shall expire in each country with respect to each product
at the later of the following:




·
            the expiration of the patents
      covering such product in the country of sale;
  or




·
            15 years from the date of receipt
      of FDA New Drug Approval (in the United States), or the equivalent in any
      other country in which the products are
  sold.




In
addition, Yeda may terminate the Research and License Agreement if we are in
breach thereof and Yeda may, at its option, terminate the Research and License
Agreement, in whole or in part, or make it non-exclusive if we fail to reach
certain commercialization and development goals as set out in the Research and
License Agreement. Yeda is entitled to unilaterally amend the license so that it
is non-exclusive or terminate the license in the event that we fail to achieve
commercialization of at least one product within certain time limits, fail to
commence various phases of clinical trials within certain time limits or fail to
sell a product after certain milestones. Further, if we contest the validity of
the patents, Yeda may terminate the license. In the event that Yeda would like
to pursue sponsored research with respect to, or the commercialization of, a
given product that would otherwise be subject to the Research and License
Agreement that we have not already commenced developing, then Yeda may provide
us with notice of its intention. Upon receipt of such notice, we will then have
three months to submit a product development program. If we do not submit such
program, the license will be terminated with respect to said given
product.




As part
of the Research and License Agreement, on February 24, 2005, the Company agreed
to issue to Yeda the following:




·
            a warrant, exercisable at an
      aggregate exercise price of US $900 to purchase up to 2.23% of the issued
      and outstanding shares of common stock of our company immediately
      following the exercise of such warrant;
  and




·
            a warrant, exercisable at an
      aggregate exercise price of US $1,100 to purchase up to 2.67% of the
      issued and outstanding shares of our company immediately following the
      exercise of such warrant.




3




However,
the Research and License Agreement provides that the maximum number of shares of
common stock that Yeda may exercise into for each warrant is 3,010,699 and
3,612,839, respectively (in each case as such number of shares of common stock
shall be appropriately adjusted in the event of stock splits, stock dividends,
capital reorganizations, reclassifications, recapitalizations and the like as
well as issuances or sales by us of shares for par value only, for consideration
less than par value and for no consideration, all in accordance with the terms
and conditions of said warrant, which shall be satisfactory to Yeda and us). The
share amounts described above are adjusted to reflect the three for one split,
but not the other adjustment events described above that have occurred through
the date hereof. Each such warrant shall be exercisable for a period beginning
on the date of its issuance and ending at the later of the
following:




·
            one year following the
      termination of the Research and License Agreement;
    and




·
            October 7,
      2013.




We also
agreed to pay or have paid to Yeda the following:




·
            with regard to the first year of
      the research period (commencing on April 9, 2003), we paid the amount of
      US $450,000 of which a non-refundable installment of US $450,000 was paid
      on December 23, 2003. This amount is in addition to the $450,000 paid to
      Yeda in connection with researched performed by Yeda during the first
      year;




·
            with regard to the second year of
      research we paid an amount of US $900,000 of which $225,000 was paid on
      April 23, 2004; $225,000 was paid on July 8, 2004; $225,000 was paid on
      October 8, 2004; and $225,000 was paid on January 10,
      2005;




·
            with regard to the third year of
      research we paid an amount of US $900,000 of which $225,000 was paid on
      April 18, 2005; $225,000 was paid on July 11, 2005; $225,000 was paid on
      October 12, 2005 and $225,000 was paid on January 9,
      2006.




·
            Pursuant
      to the third addendum of the Research Agreement dated April 11, 2006, with
      regard to the fourth year of research we paid an amount of US $600,000 of
      which $150,000 was paid on May 2, 2006, $150,000 was paid on July 19,
      2006, $150,000 was paid on October 13, 2006 and $150,000 was paid on
      January 17, 2007. Further, the termination of the research period was
      extended from April 10, 2006 to April 9,
2007.




·
            Pursuant
      to the fourth addendum of the Research Agreement dated April 1, 2007, with
      regard to the fifth year of research we committed to pay an amount of
      $400,000 of which $100,000 was paid on April 10, 2007, $100,000 was paid
      on July 10, 2007 and $100,000 was paid on October 11,  2007. The
      termination of the research period was extended from April 9, 2007 to
      April 9, 2008.




·
            Pursuant
      to the fifth addendum of the Research Agreement dated July 10, 2008, with
      regard to the sixth year of research we committed to pay an amount of
      $200,000 of which $50,000 was paid on July 10, 2008, The termination of
      the research period was extended from April 10, 2008 to April 9,
      2009.





We have
also agreed that within one year from the date of the Research and License
Agreement, we will submit a development program to Yeda for its approval, and
eventually a progress report every 6 months, in every December and June. In
agreement with Yeda, the product development plan was submitted to Yeda in
September 2005, and eventual progress reports were submitted at the appropriate
dates. The last progress report was timely submitted in June 2008. We further
undertook to use our best efforts to commercialize the licensed products. We
also agreed to pay Yeda a license fee as follows:




$50,000
per year commencing from the end of the license period, which has been extended
until April 9, 2009;




·
            4% of net sales of all products
      covered by the Research and License
  Agreement;




·
            33% of all sublicense fees for
      all agreements entered into within one year of the Agreement;
      and




·
            16% of all sublicense fees for
      all agreements entered into after such one year
    period.




Industry




There are
numerous companies developing drugs or devices to slow down or halt the
progression of kidney and liver disease, to treat diabetes and to care for
genetic diseases. These companies are developing traditional chemical compounds,
new biological drugs, cloned human proteins and other treatments, which are
likely to impact the markets which the Company is targeting.




There are
a number of companies developing cell therapies. Among them, there are those
that are using genetically-engineered, non genetically-engineered cells, fetal
cells, adult cells, progenitor cells, mature cells, human cells and non-human
cells. The Company is aware of two companies that have been involved in fetal
porcine cell transplant. Alexion Pharmaceuticals was developing fetal porcine
cell treatments. Alexion's annual report states that is looking for a corporate
partner and is no longer investing in their cell therapy program. Diacrin, Inc.
was active in developing fetal porcine cell therapies for liver and cardiac
applications. Diacrin had begun phase I studies for a number of applications. It
showed positive phase I results for a Parkinson's disease therapy but failed to
show convincing phase II results. In August 2003, Diacrin merged with GenVec,
Inc. and it is not clear which, if any, of the porcine cell therapies will be
continued.




4




There are
a number of companies using adult stem cells or adult precursor cells. These
companies must first isolate the adult stem cells from surrounding tissue and
then grow them in culture in order to arrive at the number of cells required for
therapeutic use. Growing adult stem cells generally requires the extensive use
of growth factors or genetic engineering techniques. Some of these companies
have had moderate success developing cell therapies (e.g. Genzyme's Carticel for
knee cartilage repair) although they have not yet been able to engineer a
functional organ structure.




Dr. Marc
Hammerman at the Washington University in St. Louis has been active in
developing kidney disease therapies based on transplanted embryonic
kidney-precursor cells and has been granted a patent, titled "Chimeric Kidney",
by the US Patent and Trademark Office in connection with this research. A
British company, Intercytex Ltd., has licensed this technology and is sponsoring
research in Dr. Hammerman's laboratory. This same company has also filed a
related PCT application titled "Kidney Formation". In addition, Dr. Hammerman
has been active in developing diabetes mellitus therapies based on transplanted
embryonic endocrine pancreas-precursor tissues and has filed a US patent
application, titled "Chimeric Pancreas", in connection with this research. As it
was felt by us that the above-mentioned patent and patent applications might
have a negative impact on our potential to develop our products, we have
commissioned an expert legal opinion on the matter from a leading office of
patent attorneys. This opinion has been delivered to us, and on its basis, we
now do not believe that either Dr. Hammerman's patent and patent application or
Intercytex' patent application should restrict Tissera's freedom to implement
its pancreatic and/or kidney product development.




We
believe, based on information currently available to us, that Dr. Hammerman's
research will not impact our potential liver, spleen and other organ
applications which, as previously stated, are currently inactive.




Employees




We
currently have on our staff two officers. Mr. Amos Eiran serves as Chairman of
the Board and CEO, Mr. Alex Werber serves as our Chief Financial officer. We
currently use consultants, attorneys and accountants as necessary.




ITEM
2. DESCRIPTION OF PROPERTY




Our
executive offices were  at 8 Maskit St. 4th floor, Herzlia Israel
where we occupied 1,000 square feet of office space until our lease expired in
April 2008. Under our lease we paid $20,357 and $21,762 for each of fiscal 2008
and 2007, respectively.




Our work
is currently conducted out of Mr. Eiran’s residence.




ITEM
3. LEGAL PROCEEDINGS




From time
to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company's
business.




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




During
the forth quarter ended 2008, the Company did not submit any matters to a vote
of security holders through the solicitation of proxies or
otherwise.




PART
II




ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




Market
Information




The
Company's common stock is currently traded on the OTC Bulletin Board under the
symbol "TSSR". The Company's common stock began being quoted on August
27, 2002.




The table
below sets forth the high and low sales prices for the Company's common stock
for the relevant calendar quarters of  2007 and 2008. The quotations
below reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions:





Fiscal 2008
                        
                        
                        Fiscal 2007Quarter Ended
                        
                        High
                        
                        
                        Low
                        
                        
                        High
                        
                        
                        LowFirst
                        
                        $
                        0.085
                        
                        
                        $
                        0.06
                        
                        
                        $
                        0.11
                        
                        
                        $
                        0.06Second
                        
                        $
                        0.07
                        
                        
                        $
                        0.04
                        
                        
                        $
                        0.24
                        
                        
                        $
                        0.08Third
                        
                        $
                        0.03
                        
                        
                        $
                        0.011
                        
                        
                        $
                        0.115
                        
                        
                        
                        0.095Fourth
                        
                        $
                        0.001
                        
                        
                        $
                        0.045
                        
                        
                        $
                        0.111
                        
                        
                        
                        0.045





5




Holders




As of
December 4, 2008, there were approximately 60 shareholders of record holding a
total of 45,591,809 shares of common stock. The holders of our common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of shareholders. Holders of the common stock have no preemptive rights and
no right to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common
stock.




Dividends




There
have been no dividends declared since the inception of the Company and there are
no restrictions on the ability to pay dividends on common equity or that are
likely to do so in the future. The payment of dividends is within the discretion
of the Board of Directors and will depend on the Company's earnings, capital
requirements, financial condition, and other relevant factors. There are no
restrictions that currently limit the Company's ability to pay dividends on its
Common Stock other than those generally imposed by applicable state
law.





ITEM
6.  SELECTED FINANCIAL DATA





Not
Applicable




ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, CHANGES IN
FINANCIAL CONDITION AND RESULTS OF OPERATIONS




This
annual report on Form 10-K contains forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. You should not place undue reliance on
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "intends", "expects",
"plans", "anticipates", "believes", "estimated", "predicts", "potential", or
"continue" or the negative of such terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties, and other factors that may cause the Company's actual results,
levels of activity, performance, or achievements to be materially different from
any future results, levels of activity, performance, or achievements expressed
or implied by such forward-looking statements. These factors include, among
other things, those discussed in this annual report on Form 10-K and in the
Company's other filings with the SEC. Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable,
forward-looking statements are inherently uncertain, and the Company cannot
guarantee future results, levels of activity, performance, or achievements. The
Company is under no duty to update any of the forward-looking statements in this
annual report on Form 10-K to conform forward-looking statements to actual
results. All forward-looking statements should be considered in light of these
risks and uncertainties.





Overview





We were
incorporated under the laws of the State of Washington on May 31, 2000. We
develop, test and intend to commercialize solid organ transplantation therapies
based on an approach employing organ-specific precursor tissues. Our approach
involves harvesting embryonic mammalian tissue at the most appropriate stage
after which stem cells commit to becoming organ-specific precursor tissues and
transplanting them in target human organ systems. The optimal windows for
embryonic tissue transplantation were defined by Prof. Reisner's lab at the
Weizman Institute. On October 8, 2003, we entered into a Research and License
Agreement with Yeda, whereby Yeda procures the performance of research at the
Weizman Institute of Science, under the supervision of Professor Reisner of the
Department of Immunology. We have a world wide license that shall expire in each
country with respect to each product at the later of (i) the expiration of the
patents covering such product in the country of sale, or (ii) 15 years from the
date of receipt of FDA New Drug Approval in the United States for such product,
or the equivalent in any other country in which the products are
sold.




We are at
development stage and devoting substantially all of our efforts toward
conducting R&D activities, raising capital, pursuing regulatory approval,
recruiting personnel and building infrastructure. Our former line of business
was selling bit error testers. Our license in connection with bit error testers
expired in May 2004.




We need
to raise additional funds on an immediate basis in order to meet our operating
requirements and to fulfill our business plan as well as satisfy the working
capital loans that mature in January 2009. Since August 2008, we have
significantly curtailed all of our product design, development and marketing
efforts and released all of our non-management employees. As of the date of this
report, we have on staff only our Chief Executive Officer and Chief Financial
Officer. If we are unable to raise capital on an immediate basis, we will be
forced to either restructure or cease operations entirely. While we continue to
attempt to raise funds, we have no funding commitment and assurance can be given
that we will be able to raise funds. These conditions raise substantial doubt
about our ability to continue as a going concern.




6




Research
and License Agreement




On
October 8, 2003, we entered into a Research and License Agreement (the "Research
Agreement") with Yeda. The agreement relates to the rights of our company to
have the license from Yeda related to research conducted and to be conducted at
the Weizmann Institute of Science, under the supervision of Professor Reisner of
the Department of Immunology, and relates to an invention comprising methods of
organ transplantation utilizing developing pancreatic and other tissues. The
License granted to us shall expire in each country with respect to each product
at the later of the following:




·
            the expiration of the patents
      covering such product in the country of sale;
  or




·
            15 years from the date of receipt
      of FDA New Drug Approval (in the United States), or the equivalent in any
      other country in which the products are
  sold.




In
addition, Yeda may terminate the Research and License Agreement if we are in
breach thereof and Yeda may, at its option, terminate the Research and License
Agreement, in whole or in part, or make it non-exclusive if we fail to reach
certain commercialization and development goals as set out in the Research and
License Agreement. Yeda is entitled to unilaterally amend the license so that it
is non-exclusive or terminate the license in the event that we fail to achieve
commercialization of at least one product within certain time limits, fail to
commence various phases of clinical trials within certain time limits or fail to
sell a product after certain milestones. Further, if we contest the validity of
the patents, Yeda may terminate the license. In the event that Yeda would like
to pursue sponsored research with respect to, or the commercialization of, a
given product that would otherwise be subject to the Research and License
Agreement that we have not already commenced developing, then Yeda may provide
us with notice of its intention. Upon receipt of such notice, we will then have
three months to submit a product development program. If we do not submit such
program, the license will be terminated with respect to said given
product.




As part
of the Research and License Agreement, on February 24, 2005, the Company agreed
to issue to Yeda the following:




·
            a warrant, exercisable at an
      aggregate exercise price of US $900 to purchase up to 2.23% of the issued
      and outstanding shares of common stock of our company immediately
      following the exercise of such warrant;
  and




·
            a warrant, exercisable at an
      aggregate exercise price of US $1,100 to purchase up to 2.67% of the
      issued and outstanding shares of our company immediately following the
      exercise of such warrant.




However,
the Research and License Agreement provides that the maximum number of shares of
common stock that Yeda may exercise into for each warrant is 3,010,699 and
3,612,839, respectively (in each case as such number of shares of common stock
shall be appropriately adjusted in the event of stock splits, stock dividends,
capital reorganizations, reclassifications, recapitalizations and the like as
well as issuances or sales by us of shares for par value only, for consideration
less than par value and for no consideration, all in accordance with the terms
and conditions of said warrant, which shall be satisfactory to Yeda and us). The
share amounts described above are adjusted to reflect the three for one split,
but not the other adjustment events described above that have occurred through
the date hereof. Each such warrant shall be exercisable for a period beginning
on the date of its issuance and ending at the later of the
following:




·
            one year following the
      termination of the Research and License Agreement;
    and




·
            October 7,
      2013.




We also
agreed to pay or have paid to Yeda the following:




·
            with regard to the first year of
      the research period (commencing on April 9, 2003), we paid the amount of
      US $450,000 of which a non-refundable installment of US $450,000 was paid
      on December 23, 2003. This amount is in addition to the $450,000 paid to
      Yeda in connection with researched performed by Yeda during the first
      year;




·
            with regard to the second year of
      research we paid an amount of US $900,000 of which $225,000 was paid on
      April 23, 2004; $225,000 was paid on July 8, 2004; $225,000 was paid on
      October 8, 2004; and $225,000 was paid on January 10,
      2005;




·
            with regard to the third year of
      research we paid an amount of US $900,000 of which $225,000 was paid on
      April 18, 2005; $225,000 was paid on July 11, 2005; $225,000 was paid on
      October 12, 2005 and $225,000 was paid on January 9,
      2006.




·
            Pursuant
      to the third addendum of the Research Agreement dated April 11, 2006, with
      regard to the fourth year of research we paid an amount of US $600,000 of
      which $150,000 was paid on May 2, 2006 and $150,000 was paid on July 19,
      2006, $150,000 was paid on October 13, 2006 and $150,000 was paid on
      January 17, 2007. Further, the termination for the research period was
      extended from April 10, 2006 to April 9,
2007.




7




·
            Pursuant
      to the fourth addendum of the Research Agreement dated April 1, 2007, with
      regard to the fifth year of research we committed to pay an amount of
      $400,000 of which $100,000 was paid on April 11, 2007, $100,000 was paid
      on July 10, 2007 and$100,000 was paid on October 11,  2007. The
      termination of the research period was extended from April 9, 2007 to
      April 9, 2008.




·
            Pursuant
      to the fifth addendum of the Research Agreement dated July 10, 2008, with
      regard to the sixth year of research we committed to pay an amount of
      $200,000 of which $50,000 was paid on July 10, 2008, The termination of
      the research period was extended from April 10, 2008 to April 9,
      2009.


We have
also agreed that within one year from the date of the Research and License
Agreement, we will submit a development program to Yeda for its approval, and
eventually a progress report every 6 months, in every December and June. In
agreement with Yeda, the product development plan was submitted to Yeda in
September 2005, and eventual progress reports were submitted at the appropriate
dates. The last progress report was timely submitted in June 2008. We further
undertook to use our best efforts to commercialize the licensed products. We
also agreed to pay Yeda a license fee as follows:




·
            $50,000 per year commencing from
      the end of the license period, which has been extended until April 9,
      2008;




·
            4% of net sales of all products
      covered by the Research and License
  Agreement;




·
            33% of all sublicense fees for
      all agreements entered into within one year of the Agreement;
      and




·
            16% of all sublicense fees for
      all agreements entered into after such one year
    period.




RESULTS OF OPERATIONS - FISCAL YEAR
ENDED JULY 31, 2008 COMPARED TO THE FISCAL YEAR ENDED JULY 31, 2007 REVENUES AND
COSTS OF GOODS SOLD




We are in
a development stage and, therefore, have no revenues and cost of goods
sold.




OPERATING
EXPENSES




Operating
expenses for the year ended July 31, 2008 amounted to $938,000 compared to $1,
865,000 for the year ended July 31, 2007. This decrease is attributed mainly to
a decrease in research and development expenses related to Yeda (see Note 2 -
Research Agreement), to a decrease in expenses related to options and warrants
granted to employees and service providers totaling $106,000 in the year ended
July 31, 2008 as compared to $430,000 in the year ended April 31, 2007 and a
cancellation of provision made in the previous years related to a former chief
executive officer of the Company in the amount of approximately $430,000and
recorded this cancellation in the statement of operations as general and
administrative income.





The
research and development expenses amounted to $608,000 for the year ended July
31, 2008compared to $1,073,000 for the year ended July 31, 2007.  This
decrease in the research and development expenses is attributed to a decrease in
expenses related to Yeda which were decrease from approximately $400,000 in the
year ended July 31, 2007 compared to $300,000 in the year ended July 31, 2008
and to a decrease in expenses related to options and warrants granted to
employees and service providers which amounted to $5 in the year ended July 31,
2008 compared to $280,000 in the year July 31, 2007.




The
Company had general and administrative expenses of $249,000 during the year
ended July 31, 2007 compared to $812,000 for the year ended July 31,
2007.  The decrease is attributed to a cancellation of provision made
in the previous years related to a former CEO of the Company in the amount of
approximately $430,000 and to a decrease in expenses related to shares, options
and warrants granted to employees and service providers. The expenses related to
shares, options and warrants granted to employees and services providers
amounted to $150,000 in the year ended  July 31, 2007 as compared to
$101,000 in the year ended July 31, 2008.




NET
LOSS




As a
result of the above, we incurred a net loss of $938,000 for the year ended July
31, 2008, compared to a net loss of $1,865,000 for the year ended July 31,
2007.




LIQUIDITY
AND CAPITAL RESOURCES




Our cash
equivalents and short term deposits were $88,000 as of July 31, 2008, compared
to $999,000 as of July 31, 2007. We had a negative working capital of $344,000
as of July 31, 2008, compared to positive working capital of $597,000 as of July
31, 2007.




8




As noted
above, we need to raise additional funds on an immediate basis in order to meet
our operating requirements and to fulfill our business plan as well as satisfy
the working capital loans that mature in January 2009. We also owe to an
investor approximately $64,000 in penalties in respect of the non-timely filing
of this report. We continue in our efforts to raise funds. However, we may not
be successful in our efforts to raise additional funds. Even if we are able to
raise additional funds through the issuance of debt or other means, our cash
needs could be heavier than anticipated in which case we could be forced to
raise additional capital. At the present time, we have no commitments for any
additional financing, and there can be no assurance that, if needed, additional
capital will be available to us on commercially acceptable terms or at all.
These conditions raise substantial doubts as to our ability to continue as a
going concern, which may make it more difficult for us to raise additional
capital when needed. Additional equity financings are likely to be dilutive to
holders of our Common Stock and debt financing, if available, may involve
significant payment obligations and covenants that restrict how we operate our
business.





Due to
our being a development stage company and not having generated revenues, in the
consolidated financial statements for the year ended July 31, 2008, we included
an explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our consolidated financial statements contain additional note
disclosures describing the circumstances that lead to this
disclosure.





APPLICATION
OF CRITICAL ACCOUNTING POLICIES




Going
Concern




Our
period financial statements have been prepared on the going concern basis, which
assumes the realization of assets and liquidation of liabilities in the normal
course of operations. The financial statements have been prepared assuming we
will continue as a going concern. However, certain conditions which exist are
raising doubt about our ability to continue as a going concern. We have suffered
recurring losses from operations and have accumulated deficit during the
development stage of approximately $31,135,000 since inception through the
period ended July 31, 2008.




ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
Applicable




ITEM
8. FINANCIAL STATEMENTS




The
financial statements are attached hereto following the signature page beginning
on page F-1.




ITEM
9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




None.




ITEM
9A(T).CONTROLS AND PROCEDURES




EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES.




We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and our Chief Financial
Officer  to allow timely decisions regarding required disclosure based
closely on the definition of "disclosure controls and procedures" in Rule
13a-15(e).




As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on the
foregoing, our President and Chief Executive Officer concluded that our
disclosure controls and procedures were effective.




MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
reporting purposes in accordance with accounting principles generally accepted
in the United States. Because of inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Our management,
including our principal executive officer who also serves as our principal
financial and accounting officer, conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on his evaluation under the framework in Internal Control -  Integrated
Framework , our management concluded that our internal control over
financial reporting was effective as of July 31, 2008.




9




This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this Annual Report.




During
the year ended July 31, 2008, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.




ITEM
9B. OTHER INFORMATION




None.




PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT




The
Company's directors hold office until the annual meeting of shareholders next
held after their election. The officers and directors of the Company are as
follows:





Name
                    
                    
                    Age
                    
                    
                    PositionAmos
      Eiran
                    
                    
                    71
                    
                    
                    Chief
      Executive Officer and Chairman of the Board of
DirectorsAlex
      Weber
                    
                    
                    53
                    
                    
                    Chief
      Financial Officer and Chief Accounting OfficerMeir
      Segev
                    
                    
                    55
                    
                    
                    DirectorPeretz
      Shmuel
                    
                    
                    67
                    
                    
                    Director





Amos
Eiran




Amos
Eiran was appointed on September 7, 2004 as the Chairman of the Board and as the
Acting Chief Executive Officer of the Company. On March 13, 2006 Amos Eiran was
appointed as Chief Executive Officer. Mr. Eiran serves as Chairman of Atudot, a
major Israeli pension fund, and Chairman of the Investments Committee of Clal
Insurance Group, an Israeli insurance company. He also serves as a director of
Deleck Oil Exploration. Mr. Eiran has been a director for Medis Technologies
Ltd. (Nadaq: MDTL) since 1992 and is also a director of two of its subsidiaries,
Medis Inc. and Medis El. Through the summer of 2002, Mr. Eiran served as the
Chairman of the Industrial Cooperation Authority, the agency in charge of the
buy-back and offset programs of the State of Israel, for seven years. Mr. Eiran
was Director General of the Prime Minister's office during Yitzhak Rabin's first
term as Prime Minister. Prior to and after his term with the Prime Minister's
office, he was Director General and Chairman of Mivtahim, the largest pension
fund in Israel. From 1993 to 1995, Mr. Eiran served as a director for XTL
Biopharmaceuticals Ltd., a company presently traded on the London Stock
Exchange. Mr. Eiran received a bachelor's degree in Liberal Arts from American
University in Washington D.C. in 1968, a master's degree in History from Tel
Aviv University in 1974, a diploma in business administration from Harvard
University in 1963 and a diploma in investments from the Wharton Business School
in 2002.




Alex
Werber




Alex
Werber serves as our Chief Financial Officer. From August 2002 to the present,
Mr. Werber is Chief Financial Officer of Global Energy Inc, Mr, Werber has
worked as a financial services consultant where he has provided a wide range of
outsourced financial services. In addition, since September 2000 till March
2007, Mr. Werber has served as the Audit Committee Chairman of the Board of
Directors of Crow Technologies Ltd., a manufacturer of security products. From
October 2001 to August 2002, Mr. Werber was the Chief Financial Officer of
CTMotion Ltd. a developer and deplorer of mobile internet and location-based
services. In addtion, Mr. Werber served as a business developer for Nokrom
Technologies, which specializes in retain financial services, insurance and
telecommunications sectors. From November 1996 to March 2000, Mr. Werber served
as the Vice President of Finance for Vcon Telecommunications, a developer and
manufacturer of video conferencing systems. Mr. Werber is a Certified Public
Accountant and received his Bachelor of Arts in Economics and Accountancy from
Tel Aviv University and did his post graduate study in Accounting at Tel Aviv
University.




Meir
Segev




Meir
Segev is a director of our company. Meir Segev was appointed as a director of
Pluristem Inc. on March 18, 2003 and also serves as the Chief Executive Officer
of ISC Holdings Ltd. Mr. Segev graduated from University of Haifa and received
his Bachelor of Arts degree in political science in 1997. From 1997 to 2002, Mr.
Segev served as the Headquarters Division Head of Shabak, the Israel Security
Agency. He was primarily responsible for the management and strategic planning
of resources and budget for the entire Headquarters Division of
Shabak.




10




Shmuel
Peretz




Shmuel
Peretz was appointed on November 29, 2004 as a director and as a Chairman of the
Audit Committee of the Board. Mr. Pertez has held several top management
positions Israel Aircraft Industry (IAI) among them the CEO of IAI and President
of IAI Europe. Mr. Petetz served as director on several companies including
Elta, Magal, Elcint and others. Mr. Peretz in 1982, received a MBA degree from
the New York Institution of Technology, in 1963 he received a BA in Economics
from the Hebrew University, Jerusalem.





Board
Meetings Structure





The Board
met three times during the year ended July 31, 2008. Each director who served
during the 2008 fiscal year attended all of the meetings of the Board and of the
committees of the Board of which he was a member.





The Board
does not have a formal policy with respect to Board members attendance at annual
stockholder meetings, though it encourages directors to attend such
meetings.





The
Company has not, to date, implemented a policy or procedure by which its
stockholders can communicate directly with its directors. Due to the small size
of the Company and its resources, the Company believes that this is
appropriate.





Audit
Committees





The Board
has an Audit Committee. The Audit Committee is primarily responsible for
overseeing the services performed by the Company’s independent auditors and
internal audit department evaluating the Company’s accounting policies and its
system of internal controls and reviewing significant financial transactions.
The Audit Committee is comprised of two members: Messrs. Smuel Peretz and Meir
Segev. The Company believes that each member of the Audit Committee meets the
independence criteria set out in Rule 4200(a)(15) of the Marketplace Rules of
the National Association of Securities Dealers and the rules of the and other
requirements of the SEC. The Board of Directors has determined that
Mr.  Smuel Peretz  qualifies as an "audit committee
financial expert" as defined in the rules of the SEC.





The Audit
Committee metfour times in 2008.




Code
of Ethics




The
Company adopted a Code of Ethics for its officers, directors and employees.




Section 16(a) Beneficial
Ownership Compliance




Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers, and persons who own more then 10 percent of the
Company's Common Stock, to file with the SEC the initial reports of ownership
and reports of changes in ownership of common stock. Officers, directors and
greater than 10 percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.




Specific
due dates for such reports have been established by the Commission and the
Company is required to disclose any failure to file reports by such dates during
fiscal year 2008. Based solely on its review of the copies of such reports
received by it, or written representations from certain reporting persons that
no Forms 5 were required for such persons, the Company believes that during the
fiscal year ended July 31, 2008, there was no failure to comply with Section
16(a) filing requirements applicable to its officers, directors and ten percent
stockholders.




ITEM
11. EXECUTIVE COMPENSATION





The
following table sets forth information for the fiscal year ended July 31,
2008 concerning compensation of (1) all individuals serving as principal
executive officer during the fiscal year ended July 31, 2008, (2) all
individuals serving as principal financial officer during the fiscal year ended
July 31, 2008, and (3) the two other employees who were serving as executive
officers as of July 31, 2008 and whose total compensation exceeded $100,000
(collectively, the "Named Executive Officers"):




11


SUMMARY
COMPENSATION TABLE




Name & Principal
                                    Position
                                  
                                  Year
                                  
                                  Salary
                                    ($)
                                  
                                  
                                  Bonus
                                    ($)
                                  
                                  
                                  Option
                                    Awards($)
                                    (1)
                                  
                                  
                                  All Other
                                    Compensation
                                    ($)
                                  
                                  
                                  Total ($)Amos
      Eiran
                                  
                                  2008
                                  
                                  $
                                  212,500
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  212,500Chief
      Executive Officer
                                  
                                  2007
                                  
                                  $
                                  180,000
                                  
                                  
                                  $
                                  30,000
                                  
                                  
                                  $
                                  24,750
                                  
                                  
                                  
                                  
                                  
                                  $
                                  234,750Uri  Elmaleh
                                  
                                  2008
                                  
                                  $
                                  165,420
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  12,000
                                  
                                  
                                  $
                                  177,420Former
      Vice president of Research (2)
                                  
                                  2007
                                  
                                  $
                                  123,300
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  131,097
                                  
                                  
                                  $
                                  12,000
                                  
                                  
                                  $
                                  266,397Alex
      Werber
                                  
                                  2008
                                  
                                  $
                                  144,273
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  12,000
                                  
                                  
                                  $
                                  156,2732007
                                  
                                  $
                                  107,600
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  54,585
                                  
                                  
                                  $
                                  12,000
                                  
                                  
                                  $
                                  174,185




(1)
Amounts in this column reflect the expense recognized by the Company for
accounting purposes calculated in accordance with FASB Statement of Financial
Accounting Standards No. 123R (“FAS 123R”) with respect to employee stock
options issued during 2007.


Mr.
Elmaleh resigned on May 1, 2008.




Employment
Agreements




We and
Amos Eiran are parties to an employment agreement dated as of September 21,
2004, pursuant to which Mr. Eiran was employed as our Chief Executive Officer.
Under the agreement, Mr. Eiran was paid during 2008 an annual salary of
$212,500. By its terms, the agreement provides that it continues in effect until
terminated by either party upon 90 days’ notice to the other.






We and
Uri Elmaleh were parties to an employment agreement dated as of July 1, 2004,
pursuant to which Mr. Elmaleh served as our Vice President. Under the agreement,
Mr. Eiran was paid during 2008 an annual salary of $177,420. Mr. Elamleh
resigned on May 1, 2008




We and
Alex Weber are parties to an employment agreement dated as of December 7, 2003,
pursuant to which Mr. Weber is employed as our Chief Financial Officer. Under
the agreement, Mr. Weber was paid during 2008 an annual salary of $156,273. By
its terms, the agreement provides that it continues in effect until terminated
by either party upon 90 days’ notice to the other.




Each of
these agreements includes certain customary confidentiality and non-compete
provisions that prohibit the executive from competing with us for one year, or
soliciting our employees for one year, following the termination of his
employment.





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END - JULY 31, 2008





Option Awards
                            
                            Stock AwardsMarketNumber of
                            
                            
                            Value ofNumber of
                            
                            
                            Number of
                            
                            
                            
                            
                            
                            
                            Shares or
                            
                            
                            Shares orSecurities
                            
                            
                            Securities
                            
                            
                            
                            
                            
                            
                            Units of
                            
                            
                            Units ofUnderlying
                            
                            
                            Underlying
                            
                            
                            Option
                            
                            
                            
                            Stock that
                            
                            
                            Stock thatUnexercised
                            
                            
                            Unexercised
                            
                            
                            Exercise
                            
                            
                            
                            have not
                            
                            
                            Have NotOptions
                            
                            
                            Options (5)
                            
                            
                            Price
                            
                            Option
                            
                            Vested
                            
                            
                            VestedExpirationName
                            
                            # Exercisable
                            
                            
                            # Unexercisable
                            
                            
                            $
                            
                            Date
                            
                            
                            #
                            
                            
                            $Amos
      Eiran
                            
                            
                            1,500,000
                            
                            
                            
                            -
                            
                            
                            
                            0.30
                            
                            November
      2016
                            
                            
                            -
                            
                            
                            
                            -Uri
      Elmaleh
                            
                            
                            280,000
                            
                            
                            
                            -
                            
                            
                            
                            0.30
                            
                            July
      2009
                            
                            
                            -
                            
                            
                            
                            -Alex
      Weber
                            
                            
                            88,888
                            
                            
                            
                            -
                            
                            
                            
                            0.30
                            
                            December
      2008
                            
                            
                            -
                            
                            
                            
                            -




12




Director
Compensation:




The
following table sets forth information concerning the compensation of the
directors for the fiscal year ended July 31, 2008:





FeesEarned orPaid in
                          
                          
                          OptionCash
                          
                          
                          Awards
                          
                          
                          TotalName
                          
                          $
                          
                          
                          $
                          
                          
                          $Shmuel
      Peretz
                          
                          
                          9,850
                          
                          
                          
                          -
                          
                          
                          
                          9,850Bob
      Pico (1)
                          
                          
                          4,800
                          
                          
                          
                          -
                          
                          
                          
                          4,800Meir
      Segev
                          
                          
                          9,850
                          
                          
                          
                          -
                          
                          
                          
                          9,850




1. Mr.
Pico resigned on April 10, 2008.




ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The
following table sets forth certain information regarding the beneficial
ownership of the stock of the Company as of December 3, 2008, by each
shareholder who is known by the Company to beneficially own more than 5% of the
outstanding common stock, by each director, and by all executive officers and
directors as a group.





Common
                  
                  
                  PercentageName of beneficial owner
                  
                  Shares (1)(2)
                  
                  
                  of ClassAmos
      Eiran, CEO and Director
                  
                  
                  1,500,000
                  (3)
                  
                  
                  3.3
                  %Uri
      Elmaleh, former Vice President
                  
                  
                  280,000
                  (3))
                  
                  
                  *Alex
      Weber, Chief Financial Officer
                  
                  
                  88,000
                  (3)
                  
                  
                  *Shmuel
      Peretz
                  
                  
                  270,540
                  (3)
                  
                  
                  *Meir
      Segev
                  
                  
                  247,995
                  (3)
                  
                  
                  *Platinum
      Partners Value Arbitrage Fund
                    152
      West 57th Street, 54th FloorNew
      York, NY 10019
                  
                  
                  8,643,021
                  (4)
                  
                  
                  18.95
                  %B&W
      Equities LLC
                    4424
      16th Avenue,
                    Brooklyn,
      NY 10019
                  
                  
                  3,345,000
                  (5)
                  
                  
                  7.3
                  %All
      Directors and Officers as a Group
                  
                  
                  2,386,535
                  
                  
                  
                  4.97
                  %




13




*
            Less
      than 1%





(1)
            Unless
      otherwise indicated, the address of each person listed is c/o Tissera Inc.
      Avner
      2 Herzlia, 46602 Israel.





(2)
            Pursuant
      to the rules and regulations of the Securities and Exchange Commission,
      shares of Common Stock that an individual or group has a right to acquire
      within 60 days pursuant to the exercise of options or warrants are deemed
      to be outstanding for the purposes of computing the percentage ownership
      of such individual or group, but are not deemed to be outstanding for the
      purposes of computing the percentage ownership of any other person shown
      in the table. Except as indicated by footnote, and subject to community
      property laws where applicable, to the knowledge of the Company, each
      person listed is believed to have sole voting and investment power with
      respect to all shares of Common Stock beneficially owned by such
      person.





(3)
            Represents
      shares issuable upon exercise of vested
  warrants.





(4)
              Represents
      4,393,021 shares of our common stock and 4,250,000 shares of common stock
      issuable upon conversion of certain convertible securites. The said
      reference securities provide a  limitation on the exercise of
      such warrants, such that the number ofshares
      of common stock that may be acquired by the holder upon exercise of the
      warrants shall be limited to the extent necessary to ensure that following
      such exercise the total number of shares of common stock then beneficially
      owned by the holder does not exceed 4.99% of the total number of issued
      and outstanding shares of common stock (including for
      such  purpose the shares of common stock issuable upon such
      exercise). The disclosure is based on a Schedule 13G filed by the person
      on February 12, 2008(5)
              The
      shares are held by Double U Master Fund LP and Double U Trading LP. Each
      aforementioned fund is a master fund in a master-feeder structure of which
      B&W Equities, LLC serves asthe general partner of the master fund.
      Isaac Winehouse is the manager of B&W Equities, LLC and has ultimate
      responsibility of trading with respect to Double U Master Fund LP and
      Double U Trading LP and may be deemed to have voting and/or dispositive
      power with respect to the Shares. Mr. Winehouse disclaims any beneficial
      ownership of the Shares. The disclosure is baed on a Schedule 13G filed on
      January 17, 2007.




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS




No
director, executive officer or nominee for election as a director of our
company, and no owner of five percent or more of our outstanding shares or any
member of their immediate family has entered into or proposed any transaction in
which the amount involved exceeds $60,000 except as set forth
below.




ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Audit Fees. The aggregate fees
for professional services rendered for the audit of the Company's annual
financial statements for the two years ended July 31, 2008 and 2007 and for the
reviews of the financial statements included in the Company's Quarterly Reports
on Form 10-QSB during that fiscal years were $65,000 in the year ended July 31,
2008 and $70,000 in the year ended July 31, 2007.




Audit Related Fees. The
Company did not engage auditors to provide any other professional services to
the Company during the two fiscal years ended July 31, 2008 and
2007.




All Other Fees. There were no
fees billed by auditors for services rendered to the Company, other than the
services covered in "Audit Fees" for the fiscal years ended July 31, 2008 and
2007.




14


The Audit
Committee has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant's independence and has
confirmed that no conflict exists.


ITEM
15. EXHIBITS





Exhibit
                      No.
                    
                    Page
                      No.
                    
                    Description3.1
                    
                    1
                    
                    Articles
      Of Incorporation of Tissera, Inc. (Incorporated by reference filed with
      the Company's Form SB-2 on November 14, 2000).3.2
                    
                    1By-laws
      of Tissera, Inc.4.1
                    
                    1
                    
                    Specimen
      Share of Common Stock4.2
                    
                    2
                    
                    Form
      of Series E Common Stock Purchase Warrant4.3
                    
                    2
                    
                    Form
      of Series F Common Stock Purchase Warrant4.4
                    
                    3
                    
                    Form
      of Bridge Note4.5
                    
                    3
                    
                    Form
      of Bridge Warrant10.1
                    
                    1
                    
                    Agreement
      Between BERT Logic Inc. and Reach Technologies Inc Dated May 31, 2000 for
      the right to distribute the Reach Technologies Inc. licensed product
      line.10.2
                    
                    4
                    
                    Agreement
      Between BERT Logic Inc. And Reach Technologies Inc Dated May 11, 2001
      amending the Licensing Agreement with Reach Technologies, Inc. dated May
      31, 2000 as it pertains to new territory10.3
                    
                    5
                    
                    Agreement
      Between BERT Logic Inc. And Reach Technologies Inc Dated May 31, 2003
      amending the Licensing Agreement with Reach Technologies, Inc. dated May
      31, 200010.4
                    
                    6
                    
                    Agreement
      Between BERT Logic Inc. And Reach Technologies Inc Dated September 4, 2003
      amending the Licensing Agreement with Reach Technologies, Inc. dated May
      31, 200010.5
                    
                    7
                    
                    Research
      and License Agreement between Yeda Research and Development Company
      Limited and Bert Logic Inc.10.6
                    
                    2
                    
                    Subscription
      Agreement dated December 28, 200610.7
                    
                    3
                    
                    Bridge
      Loan Agreement dated as of July 31, 200814.1
                    
                    8
                    
                    Code
      of Ethics31.1
                    
                    
                    
                    Certification
      of the Acting Chief Executive Officer of Tissera, Inc. pursuant to Section
      302 of the Sarbanes-Oxley Act of
2002




15





31.2
              
              
              
              Certification
      of the Chief Financial Officer of Tissera, Inc. pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232.1
              
              
              
              Certification
      of the Acting Chief Executive Officer of Tissera, Inc. pursuant to Section
      906 of the Sarbanes-Oxley Act of 200232.1
              
              
              
              Certification
      of the Chief Financial Officer of Tissera, Inc. pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002




1.
Incorporated by reference filed with the Form SB-2 filed with the Securities and
Exchange Commission on November 14, 2000.





2.  Incorporated
by reference to the Form 8K Current Report filed with the Securities and
Exchange Commission on December 29, 2006.





3.  Incorporated
by reference to the Form 8K Current Report filed with the Securities and
Exchange Commission on July 15, 2008.





4.
Incorporated by filed with the Company's Form 10-KSB filed with the Securities
and Exchange Commission on March 15, 2001.





5.
Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on June 16, 2003.





6.
Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on September 8, 2003.





7.
Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on September 8, 2003.




8.
Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on October 14, 2003.




16





SIGNATURES


Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




TISSERA,
    INC.By:
                /s/ Amos Eiran
                
                By:
                /s/ Alex WeberAmos
      Eiran
                
                
                Alex
      WeberChief
      Executive Officer
                  (Principal
      Executive Officer)
                
                
                Chief
      Financial Officer
                  (Principal
      Financial Officer)Date: December 15,
      2008
                
                Date:
      December 15, 2008




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





Signature
                              
                              Title
                              
                              Date/s/ Amos Eiran
                              
                              Chief
      Executive
                              
                              December
      15, 2008Officer
      and Chairman ofthe
      Board of Directors/s/ Meir Segev
                              
                              Director
                              
                              December
      15, 2008/s/ Peretz Shmuel
                              
                              Director
                              
                              December
      15,
2008





17


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 AS
OF JULY 31, 2008
 
 IN
U.S. DOLLARS
 
 INDEX
 
 PageReport
      of Independent Registered Public Accounting Firm
                      
                      2Consolidated
      Balance Sheets
                      
                      3Consolidated
      Statements of Operations
                      
                      4Statements
      of Changes in Stockholders' Equity (Deficiency)
                      
                      5
      - 6Consolidated
      Statements of Cash Flows
                      
                      7Notes
      to Consolidated Financial Statements
                      
                      8
      - 27
 
 
  
 
 
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
the shareholders of
 
 TISSERA
INC.
 (A development stage
company)
 
 We have
audited the accompanying consolidated balance sheets of Tissera Inc. ("the
Company") (a development stage company) and its subsidiary as of July 31, 2008
and 2007 and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for each of the years then
ended and for the period from May 31, 2000 (inception) through
July 31, 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements as of
July 31, 2003 and for the period from May 31, 2000 (inception) through July
31, 2003, were audited by other auditors whose report dated September 13,
2003 expressed an unqualified opinion on those statements. The consolidated
financial statements for the period from May 31, 2000 (inception) through
July 31, 2003 included a net loss of $ 105 thousand. Our opinion on
the consolidated statements of operations, changes in stockholders' equity
(deficiency) and cash flows for the period from May 31, 2000 (inception)
through July 31, 2008 insofar as it relates to amounts for prior periods
through July 31, 2003, is based solely on the report of other
auditors.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
 
 In our
opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above, present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiary as of July 31, 2008 and 2007, and the consolidated results of
their operations and cash flows for each of the years then ended and for the
period from May 31, 2000 (inception) through July 31, 2008 in
conformity with accounting principles generally accepted in the Unites
States.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 1c, the
Company is in the development stage and, as such, has incurred recurring
operating losses, has generated an accumulated deficit and has a negative cash
flow from operating activities. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainly.
 
 Tel-Aviv,
      Israel
                
                KOST
      FORER GABBAY & KASIERERDecember
      15, 2008
                
                A
      Member of Ernst & Young
Global
  - 2
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 CONSOLIDATED
BALANCE SHEETS
 U.S.
dollars in thousands, except share and per share data
  July
      31,2008
                                        
                                        
                                        2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                        
                                        $
                                        88
                                        
                                        
                                        $
                                        999Accounts
      receivable and prepaid expenses (Note 4)
                                        
                                        
                                        40
                                        
                                        
                                        
                                        221Totalcurrent assets
                                        
                                        
                                        128
                                        
                                        
                                        
                                        1,220RESTRICTED
      CASH
                                        
                                        
                                        7
                                        
                                        
                                        
                                        5SEVERANCE
      PAY FUND
                                        
                                        
                                        78
                                        
                                        
                                        
                                        47PROPERTY
      AND EQUIPMENT, NET (Note 5)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        7LONG-TERM
      PREPAID EXPENSES (Note 6)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4Totalassets
                                        
                                        $
                                        213
                                        
                                        
                                        $
                                        1,283LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIENCY)CURRENT
      LIABILITIES:Trade
      payables
                                        
                                        $
                                        12
                                        
                                        
                                        $
                                        12Other
      accounts payable and accrued expenses (Note 7)
                                        
                                        
                                        260
                                        
                                        
                                        
                                        611Convertible
      debentures and warrants
                                        
                                        
                                        200
                                        
                                        
                                        
                                        -Totalcurrent liabilities
                                        
                                        
                                        472
                                        
                                        
                                        
                                        623ACCRUED
      SEVERANCE PAY
                                        
                                        
                                        78
                                        
                                        
                                        
                                        64COMMITMENTS
      AND CONTINGENCIES (Note 8)Totalliabilities
                                        
                                        
                                        550
                                        
                                        
                                        
                                        687STOCKHOLDERS'
      EQUITY (DEFICIENCY):Stock
      capital (Note 10) -Common
      stock of $ 0.0001 par value each - Authorized: 100,000,000 shares at
      July 31, 2008 and 2007; Issued and outstanding: 45,591,809 and 44,314,332
      shares at July 31, 2008 and 2007, respectively
                                        
                                        
                                        5
                                        
                                        
                                        
                                        5Preferred
      stock of $ 0.0001 par value each - Authorized: 20,000,000 shares at
      July 31, 2008 and 2007; Issued and outstanding: 0 shares at July 31,
      2008 and 2007
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Additional
      paid-in capital
                                        
                                        
                                        30,793
                                        
                                        
                                        
                                        30,788Deficit
      accumulated during the development stage
                                        
                                        
                                        (31,135
                                        )
                                        
                                        
                                        (30,197
                                        )Totalstockholders' equity (deficiency)
                                        
                                        
                                        (337
                                        )
                                        
                                        
                                        596Totalliabilities and stockholders' equity (deficiency)
                                        
                                        $
                                        213
                                        
                                        
                                        $
                                        1,283
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  - 3
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 CONSOLIDATED STATEMENTS OF OPERATIONS
 U.S.
dollars in thousands, except share and per share data
 
 Year ended
                    July 31,
                  
                  
                  From
                    May 31, 2000
                    (inception date)
                    through
                    July 31,2008
                  
                  
                  2007
                  
                  
                  2008Operating
      expenses:Research
      and development expenses *)
                  
                  $
                  608
                  
                  
                  $
                  1,073
                  
                  
                  $
                  16,745General
      and administrative expenses **)
                  
                  
                  249
                  
                  
                  
                  812
                  
                  
                  
                  14,314857
                  
                  
                  
                  1,885
                  
                  
                  
                  31,059Financial
      expenses (income), net (Note 12)
                  
                  
                  77
                  
                  
                  
                  (37
                  )
                  
                  
                  (85
                  )Loss
      from continuing operations before income taxes
                  
                  
                  934
                  
                  
                  
                  1,848
                  
                  
                  
                  30,974Income
      taxes (Note 9)
                  
                  
                  4
                  
                  
                  
                  17
                  
                  
                  
                  69Loss
      from continuing operations
                  
                  
                  938
                  
                  
                  
                  1,865
                  
                  
                  
                  31,043Loss
      from discontinued operations (Note 1a)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  92Net
      loss
                  
                  $
                  938
                  
                  
                  $
                  1,865
                  
                  
                  $
                  31,135Basic
      and diluted net loss per share
                  
                  $
                  0.021
                  
                  
                  $
                  0.05Weighted
      average number of shares used in computing basic and diluted net loss per
      share
                  
                  
                  45,215,568
                  
                  
                  
                  37,533,510
 
 *)
              Including
      expenses related to options granted to employees and warrants granted to
      Yeda and to service providers in the amount of $ 5 and $ 280 for
      the years ended July 31, 2008 and 2007,
  respectively.
 
 **)
              Including
      expenses related to warrants, options and shares granted to service
      providers, employees and directors in the amount of $ 101 and $
      150 for the years ended July 31, 2008 and 2007, respectively. In
      addition, general and administrative expenses include the cancellation of
      provisions in an amount aggregating approximately $430 for the year ended
      July 31, 2008 (see Note 8c).
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  - 4
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
 U.S.
dollars in thousands, except share data
 
 Deficitaccumulated
                      
                      
                      TotalAdditional
                      
                      
                      Deferred
                      
                      
                      during the
                      
                      
                      stockholders'Stock capital
                      
                      
                      paid-in
                      
                      
                      stock based
                      
                      
                      development
                      
                      
                      equityNumber
                      
                      
                      Amount
                      
                      
                      capital
                      
                      
                      compensation
                      
                      
                      stage
                      
                      
                      (deficiency)Balance
      as of May 31, 2000
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Stock
      issued for cash on May 31, 2000
                      
                      
                      15,036,000
                      
                      
                      
                      2
                      
                      
                      
                      8
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (5
                      )
                      
                      
                      (5
                      )Balance
      as of July 31, 2000
                      
                      
                      15,036,000
                      
                      
                      
                      2
                      
                      
                      
                      8
                      
                      
                      
                      -
                      
                      
                      
                      (5
                      )
                      
                      
                      5Stock
      issued for cash on July 17, 2001
                      
                      
                      3,000,000
                      
                      
                      
                      *)   -
                      
                      
                      
                      40
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      40Contribution
      of capital
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (30
                      )
                      
                      
                      (30
                      )Balance
      as of July 31, 2001
                      
                      
                      18,036,000
                      
                      
                      
                      2
                      
                      
                      
                      63
                      
                      
                      
                      -
                      
                      
                      
                      (35
                      )
                      
                      
                      30Contribution
      of capital
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (39
                      )
                      
                      
                      (39
                      )Balance
      as of July 31, 2002
                      
                      
                      18,036,000
                      
                      
                      
                      2
                      
                      
                      
                      78
                      
                      
                      
                      -
                      
                      
                      
                      (74
                      )
                      
                      
                      6Contribution
      of capital
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (31
                      )
                      
                      
                      (31
                      )Balance
      as of July 31, 2003
                      
                      
                      18,036,000
                      
                      
                      
                      2
                      
                      
                      
                      93
                      
                      
                      
                      -
                      
                      
                      
                      (105
                      )
                      
                      
                      (10
                      )Stock
      issued for cash related to PPM1, net of $ 176 of cash issuance
      expenses
                      
                      
                      1,767,200
                      
                      
                      
                      *)   -
                      
                      
                      
                      2,033
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,033Stock
      issued for cash related to PPM2, net of $ 517 of cash issuance
      expenses
                      
                      
                      3,142,858
                      
                      
                      
                      1
                      
                      
                      
                      4,983
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,984Stock
      based compensation related to warrants granted to service
      providers
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11,429
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11,429Stock
      based compensation related to options granted to employees and
      directors
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,130
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,130Compensation
      related to stock granted to service providers and
employees
                      
                      
                      3,067,090
                      
                      
                      
                      *)   -
                      
                      
                      
                      7,366
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,366Deferred
      stock based compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      163
                      
                      
                      
                      (163
                      )
                      
                      
                      -
                      
                      
                      
                      -Exercise
      of options
                      
                      
                      1,543,766
                      
                      
                      
                      *)   -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      *)   -Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (22,529
                      )
                      
                      
                      (22,529
                      )Balance
      as of July 31, 2004
                      
                      
                      27,556,914
                      
                      
                      
                      3
                      
                      
                      
                      27,197
                      
                      
                      
                      (163
                      )
                      
                      
                      (22,634
                      )
                      
                      
                      4,403Stock
      based compensation related to warrants granted to
investors
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,980
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,980Warrants
      granted to Yeda and to service providers
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (362
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (362
                      )Amortization
      of stock based compensation related to options granted to employees and
      directors
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      176
                      
                      
                      
                      -
                      
                      
                      
                      176Deferred
      stock based compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      44
                      
                      
                      
                      (44
                      )
                      
                      
                      -
                      
                      
                      
                      -Exercise
      of options
                      
                      
                      25,200
                      
                      
                      
                      *)   -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,983
                      )
                      
                      
                      (3,983
                      )Balance
      as of July 31, 2005
                      
                      
                      27,582,114
                      
                      
                      
                      3
                      
                      
                      
                      28,859
                      
                      
                      
                      (31
                      )
                      
                      
                      (26,617
                      )
                      
                      
                      2,214Exercise
      of options
                      
                      
                      232,218
                      
                      
                      
                      *)   -
                      
                      
                      
                      *)   -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      *)   -Warrants
      granted to service providers
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (20
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (20
                      )Amortization
      of stock based compensation related to options granted to employees and
      directors
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      27
                      
                      
                      
                      -
                      
                      
                      
                      27Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,715
                      )
                      
                      
                      (1,715
                      )Balance
      as of July 31, 2006
                      
                      
                      27,814,332
                      
                      
                      
                      3
                      
                      
                      
                      28,839
                      
                      
                      
                      (4
                      )
                      
                      
                      (28,332
                      )
                      
                      
                      506
 
 *)
              Represents
      an amount lower than $ 1.
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  - 5
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
 U.S.
dollars in thousands, except share data
  Deficitaccumulated
                      
                      
                      TotalAdditional
                      
                      
                      Deferred
                      
                      
                      during the
                      
                      
                      stockholders'Stock capital
                      
                      
                      paid-in
                      
                      
                      stock based
                      
                      
                      development
                      
                      
                      equityNumber
                      
                      
                      Amount
                      
                      
                      capital
                      
                      
                      compensation
                      
                      
                      stage
                      
                      
                      (deficiency)Balance
      as of July 31, 2006
                      
                      
                      27,814,332
                      
                      
                      
                      3
                      
                      
                      
                      28,839
                      
                      
                      
                      (4
                      )
                      
                      
                      (28,332
                      )
                      
                      
                      506Reclassification
      of deferred stock-based compensation into additional paid-in capital upon
      adoption of SFAS 123R
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4
                      )
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      -Issuance
      of shares and warrants, net
                      
                      
                      16,500,000
                      
                      
                      
                      2
                      
                      
                      
                      1,422
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,424Shares
      granted to service providers
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      110
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      110Stock
      based compensation related to options granted to employees and
      directors
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      271
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      271Warrants
      granted to Yeda
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      150
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      150Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,865
                      )
                      
                      
                      (1,865
                      )Balance
      as of July 31, 2007
                      
                      
                      44,314,332
                      
                      
                      
                      5
                      
                      
                      
                      30,788
                      
                      
                      
                      -
                      
                      
                      
                      (30,197
                      )
                      
                      
                      596Issuance
      of shares granted to service providers in previous years
                      
                      
                      1,000,000
                      
                      
                      
                      *)   -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Exercise
      of options
                      
                      
                      277,477
                      
                      
                      
                      *)   -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Warrants
      granted to Yeda
                      
                      
                      -
      -
                      
                      
                      
                      -
                      
                      
                      
                      5
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (938
                      )
                      
                      
                      (938
                      )Balance
      as of July 31, 2008
                      
                      
                      45,591,809
                      
                      
                      $
                      5
                      
                      
                      $
                      30,793
                      
                      
                      $
                      -
                      
                      
                      $
                      (31,135
                      )
                      
                      $
                      (337
                      )
 
 *)
              Represents
      an amount lower than $ 1.
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  - 6
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 CONSOLIDATEDSTATEMENTS OF CASH FLOWS
 U.S.
dollars in thousands
  Year ended
                                        July 31,
                                      
                                      
                                      From
                                        May 31, 2000
                                        (inception date)
                                        through
                                        July 31,2008
                                      
                                      
                                      2007
                                      
                                      
                                      2008Cash flows from operating
      activities:Net
      loss
                                      
                                      $
                                      (938
                                      )
                                      
                                      $
                                      (1,865
                                      )
                                      
                                      $
                                      (31,135
                                      )Adjustments
      required to reconcile net loss to net cash used in operating
      activities:Depreciation
                                      
                                      
                                      2
                                      
                                      
                                      
                                      6
                                      
                                      
                                      
                                      33Expenses
      (income) related to warrants granted to Yeda and to service
      providers
                                      
                                      
                                      5
                                      
                                      
                                      
                                      150
                                      
                                      
                                      
                                      11,202Expenses
      related to options granted to employees and directors
                                      
                                      
                                      -
                                      
                                      
                                      
                                      271
                                      
                                      
                                      
                                      1,604Expenses
      related to shares granted to service providers
                                      
                                      
                                      101
                                      
                                      
                                      
                                      9
                                      
                                      
                                      
                                      9,456Interest
      accrued on short-term deposit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (17
                                      )Decrease
      (increase) in accounts receivable and prepaid expenses
                                      
                                      
                                      84
                                      
                                      
                                      
                                      54
                                      
                                      
                                      
                                      (36
                                      )Increase
      in trade payables
                                      
                                      
                                      -
                                      
                                      
                                      
                                      8
                                      
                                      
                                      
                                      12Increase
      (decrease) in other accounts payable and accrued expenses
                                      
                                      
                                      (351
                                      )
                                      
                                      
                                      (15
                                      )
                                      
                                      
                                      260Capital
      loss from
      fixed assets
                                      
                                      
                                      4
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4Increase
      (decrease) in accrued severance pay, net
                                      
                                      
                                      (17
                                      )
                                      
                                      
                                      6
                                      
                                      
                                      
                                      -Net
      cash used in continuing operating activities
                                      
                                      
                                      (1,110
                                      )
                                      
                                      
                                      (1,376
                                      )
                                      
                                      
                                      (8,617
                                      )Net
      cash provided by discontinued operating activities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      75Total
      net cash used in operating activities
                                      
                                      
                                      (1,110
                                      )
                                      
                                      
                                      (1,376
                                      )
                                      
                                      
                                      (8,542
                                      )Cash flows from investing
      activities:Short-term
      deposit, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      844
                                      
                                      
                                      
                                      17Sales
      of property and equipment
                                      
                                      
                                      1
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      10Purchase
      of property and equipment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (47
                                      )Restricted
      cash
                                      
                                      
                                      (2
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (7
                                      )Lease
      deposits
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      (4
                                      )Net
      cash provided by (used in) continuing investing activities
                                      
                                      
                                      (1
                                      )
                                      
                                      
                                      840
                                      
                                      
                                      
                                      (31
                                      )Net
      cash used in discontinued investing activities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (15
                                      )Total
      net cash provided by (used in) investing activities
                                      
                                      
                                      (1
                                      )
                                      
                                      
                                      840
                                      
                                      
                                      
                                      (46
                                      )Cash flows from
      financing activities:Issuance
      of shares and warrants, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,424
                                      
                                      
                                      
                                      8,441Issuance
      of convertible debentures and warrants
                                      
                                      
                                      200
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      200Net
      cash provided by continuing financing activities
                                      
                                      
                                      200
                                      
                                      
                                      
                                      1,424
                                      
                                      
                                      
                                      8,641Net
      cash provided by discontinued financing activities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      35Total
      net cash provided by financing activities
                                      
                                      
                                      200
                                      
                                      
                                      
                                      1,424
                                      
                                      
                                      
                                      8,676Increase
      (decrease) in cash and cash equivalents
                                      
                                      
                                      (911
                                      )
                                      
                                      
                                      888
                                      
                                      
                                      
                                      88Cash
      and cash equivalents at beginning of period
                                      
                                      
                                      999
                                      
                                      
                                      
                                      111
                                      
                                      
                                      
                                      -Cash
      and cash equivalents at end of period
                                      
                                      $
                                      88
                                      
                                      
                                      $
                                      999
                                      
                                      
                                      $
                                      88Non-cash activity:Prepaid
      expenses (see Note 10.2c)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      101
                                      
                                      
                                      $
                                      101
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  - 7
-





TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE
1:- GENERAL
 
 a.
              Tissera
      Inc. ("the Company") was incorporated under the laws of the State of
      Washington on May 31, 2000. The Company is in the development stage.
      The Company is engaged in developing and testing organ transplantation
      therapies based on an approach employing organ-specific precursor
      tissues.
 
 On
September 4, 2003, the former president of the Company (and a former major
shareholder) entered into a share purchase agreement ("the Agreement") with the
Company's shareholders, who purchased 15,000,000 shares of the then issued
and outstanding 18,036,000 shares of the Company's Common stock. In connection
with the agreement, the president of the Company resigned as president and sole
director of the Company.
 
 On
October 8, 2003, the Company entered into a research and license agreement
with Yeda Research and Development Company Limited ("Yeda"), according to which
Yeda provided the Company with a worldwide exclusive license to develop,
manufacture and sell Yeda's tissue transplant technologies. Yeda is entitled to
cancel the agreement under certain conditions determined in the agreement (see
Note 2). The Company currently bases its entire operations on the license
provided from Yeda. Should Yeda terminate the agreement with the Company, the
Company will not be able to continue its current research operations. Regarding
the extension of the research and development agreement, see Note
2.
 
 On
October 9, 2003, the Company's Board of Directors resolved to change the name of
the Company from Bert Logic, Inc. to "Tissera, Inc".
 
 b.
              On
      October 27, 2003, the Company incorporated a wholly-owned subsidiary
      in Israel, Tissera Ltd. ("the subsidiary"), which is engaged in research
      and development.
  - 8
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE
1:- GENERAL
(Cont.)
 
 c.
              Going
      concern considerations:
 
 The
Company's accumulated deficit and net loss as of July 31, 2008 and for the year
ended amounted to $ 31,135 and $938, respectively. The Company's ability to
continue to operate as a going concern is dependent on its ability to generate
sufficient cash flows to meet its obligations on a timely basis, to obtain
additional financing and to ultimately attain profitability. The Company is in
the development stage and, as such, has no revenues (and is not expected to
generate revenues in the near future), has incurred recurring operating losses,
and an accumulated deficit and has a negative cash flow from operating
activities (amounting to $ 1,110 and $ 1,376 for the year ended July
31, 2008 and 2007, respectively). The process of developing commercial products
will require significant additional expenditures for research and development,
maintaining the key technology license, pre-clinical testing and clinical
trials, as well as obtaining regulatory approval. These activities, together
with general and administrative expenses, are expected to result in substantial
operating losses in the foreseeable future.
 
 The
Company needs to raise funds on an immediate basis. Since August 2008, the
Company has significantly curtailed its design, development and marketing
efforts and released all of its non-management employees. As of the date of this
report, the Company has on its staff only its Chief Executive Officer and Chief
Financial Officer. If the Company is unable to raise capital on an immediate
basis, it will be forced to either restructure or cease operations entirely. The
Company is continuing its efforts to raise additional capital in order to resume
its activities and development projects. The Company currently has not
received any financing commitment and there can be no assurance that funds
will be available on terms acceptable to the Company, or at all.
 
 These
conditions raise substantial doubt about the Company's ability to continue to
operate as a going concern. The accompanying financial statements do not include
any adjustments to reflect the possible future effect on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainly.
 
 d.
              Risk
      factors:
 
 The
Company depends on Yeda to conduct its research and development activities. As
discussed in Note 2, the research services are to be provided until April 2009.
Thereafter, the Company will have to negotiate for new research services to be
received, whether, by Yeda or by other service providers. If Yeda fails to
provide the research services or is unwilling to continue to provide research
services after April 2009, at terms that are acceptable to the Company, the
Company may be required to seek alternative sources of research services. A
change in service provider could result in delays in the research activities, an
increase in expense and could adversely affect the Company's results of
operations and cash flows. In addition, as discussed in Note 2, Yeda may
terminate the research and license agreement ("the Agreement") under certain
conditions.
  - 9
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE
2:- RESEARCH
AND LICENSE AGREEMENT
 
 On
October 8, 2003, the Company entered into a research and license agreement ("the
agreement") with Yeda. The Company conducted the research for a period of three
years, at the Weizmann Institute of Science. On April 11, 2006, the Company
signed an agreement with Yeda, extending the research period by one additional
year, until April 2007. In April 2007, the agreement was further extended until
April 2008, and in July 2008, the research period has been extended by one
additional year, until April 2009.  The research relates to an
invention comprising methods of organ transplantation employing nephric tissues.
The license that was granted to the Company shall expire at the later of (i) the
expiration of the patents in the country of sale, or (ii) 15 years from the date
of receipt of FDA new drug approval (in the United States), or the equivalent in
any other country in which the products are sold. In addition, Yeda may
terminate the agreement if the Company fails to achieve certain
commercialization and development milestones, as defined in the agreement.
Currently, the Company complies with all of the terms of the
agreement.
 
 The
Company committed to grant Yeda, within 120 days of the date on which the
agreement is signed, (i) a warrant, exercisable at an aggregate exercise price
of $ 0.9 to purchase up to 2.23% of the issued and outstanding Common stock
of the Company immediately following the exercise of such warrant, and (ii) a
warrant, exercisable at an aggregate exercise price of $ 1.1 to purchase up
to 2.67% of the issued and outstanding shares of the Company immediately
following the exercise of such warrant, provided that the maximum number of
shares of Common stock that Yeda may exercise under the warrants shall be
3,010,699 and 3,612,839, respectively (the number of shares of Common stock
shall be appropriately adjusted in the event of stock splits, stock dividends,
capital reorganizations, reclassifications, recapitalizations and the like as
well as issuances or sales by the Company of shares for par value only, for a
consideration of less than par value and for no consideration, all in accordance
with the terms and conditions of said warrant). Each such warrant shall be
exercisable for a period beginning one year after the date on which the
agreement is signed, and ending at the later of (a) one year following the
termination of the agreement and (b) October 7, 2013. As of the balance sheet
date, 2,349,105 of the Company's shares of Common stock are underlying the
warrants. The warrants are exercisable on a cashless basis.
 
 The fair
value of the warrants was determined based on the number of shares underlying
the warrants as of the balance sheet date. The number of shares underlying the
warrants as of the balance sheet date was determined based on the actual issued
and outstanding shares of the Company and any options to acquire Company's
shares for a nominal consideration, totaling 2,681,305 shares of Common stock.
Each such warrant shall be immediately exercisable until the later of (a) one
year following the termination of the agreement and (b) October 7,
2013.
 
 Prior to
the actual issuance of the warrants, the value of the warrants for recording the
research and development expenses was remeasured at each reporting period based
on the number of shares underlying the warrants as of each reporting period with
the entire change in the fair value of the underlying shares reported in
research and development expenses.
 
 After the
issuance of the warrants, since the warrants entitle the investors to a final
percentage of the Company's shares (up to a certain maximum number of shares),
with each change in the number of the Company's issued and outstanding shares or
the number of options with a nominal exercise price, the fair value of the
additional shares underlying the warrants will be recorded as research and
development expenses. Once the number of shares underlying the warrants will
reach the maximum number of shares that can be issued under the warrants, the
warrants will cease to be further re-measured.
 
 According
to the agreement and addendums, regarding the first, second and third years of
the research period commencing April 9, 2003, the Company paid Yeda an
annual amount of $ 900.
  - 10
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE
2:- RESEARCH
AND LICENSE AGREEMENT (Cont.)
 
 In April
2006, the Company signed a third addendum to the agreement with Yeda extending
the research period by one more year to April 9, 2007. In respect of this fourth
year of research, the Company paid Yeda an amount of $ 600.
 
 In April
2007, the Company signed a fourth addendum to the agreement with Yeda and
committed to pay Yeda an amount of $ 400 to be paid in four equal installments
payable in advance in respect of the fifth year of the research period ending
April 9, 2008. In respect of this fifth year of research, the Company paid Yeda
an amount of $ 400.
 
 In August
2008, the Company signed a fifth addendum to the agreement commencing April
2008, with Yeda and committed to pay Yeda $ 200 to be paid in four equal
installments payable in advance in respect of this six year research for the
period ending April 9, 2009.
 
 The above
annual payments to Yeda were recorded as research and development expenses in
the amount of $ 338 and $ 558 for the years ended July 31, 2008 and 2007,
respectively.
 
 The
Company undertook to make its best efforts to commercialize the licensed
products. The Company also agreed to pay Yeda a license fee of (i) $ 50 per
year, to be paid commencing the first year after the completion of the research
and development period; (ii) 4% of net sales of all products using the licensed
technology; (iii) 33% of all sublicense fees for all agreements entered into
within one year following the agreement date, and (iv) 16% of all sublicense
fees for all agreements entered into after such one-year period.
 
 NOTE
3:- SIGNIFICANT
ACCOUNTING POLICIES
 
 The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States ("U.S. GAAP"). The significant
accounting policies followed in the preparation of the financial statements, on
a consistent basis, are:
 
 a.         Financial
statements in U.S. dollars:
 
 The
functional currency of the Company is the U.S dollar ("dollar") since the dollar
is the currency of the primary economic environment in which the Company has
operated and expects to continue to operate in the foreseeable future. A
majority of the transactions of the subsidiary is recorded including the
Company's finance activity which is dollar nominated, in addition, all of the
subsidiary's revenues from transactions with the Company are generated in
dollars and all intercompany balances are denominated in dollars and a
substantial portion of the subsidiary's costs is incurred in dollars.
Accordingly, management has designated the dollar as the currency of its and its
subsidiary's primary economic environment and thus their functional and
reporting currency.
 
 Transactions
and balances denominated in dollars are presented at their original amounts.
Non-dollar transactions and balances have been remeasured to dollars in
accordance with the provisions of Statement of Financial Accounting Standard No.
52, "Foreign Currency Translation". All transaction gains and losses from
remeasurement of monetary balance sheet items denominated in non-dollar
currencies are reflected in the statement of operations as financial income or
expenses, as appropriate.
  - 11
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE
3:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
 
 
 b.
              Principles
      of consolidation:
  The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary. Intercompany balances and transactions have been
eliminated upon consolidation.
 
 
 c.
              Cash
      equivalents:
 Cash
equivalents are short-term highly liquid investments that are readily
convertible to cash with original maturities of three months or less as of the
date acquired.
 
 d.
              Property
      and equipment:
 
 Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is
calculated by the straight-line method over the estimated useful lives of the
assets.
 The
annual depreciation rates are as follows:
  %Office
      furniture and equipment
              
              
              7Computers,
      software and electronic equipment
              
              
              33Leasehold
      improvements
              
              Over the term of the lease
  e.
              Impairment
      of long-lived assets:
 
 The Company's long-lived assets are
reviewed for impairment in accordance with Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144") whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the assets to the future undiscounted cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds their fair value. During the years ended July 31, 2008 and 2007, no
impairment losses have been identified.
 
 f.
              Research
      and development costs:
 
 Research
and development costs are charged to expenses as incurred.
 
 g.
              Severance
      pay:
 
 The
liability of the subsidiary for severance pay is calculated pursuant to the
Severance Pay Law in Israel, based on the most recent salary of the employees
multiplied by the number of years of employment as of the balance sheet date and
is presented on an undiscounted basis.
 
 The
subsidiary's employees are entitled to one month's salary for each year of
employment or a portion thereof. The Company's liability for all of its
employees is fully provided by monthly deposits with insurance policies and by
an accrual. The value of these policies is recorded as an asset in the Company's
balance sheet.
  - 12
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES
(Cont.)
 
 The
deposited funds may be withdrawn only upon the fulfillment of the obligation
pursuant to Israel's Severance Pay Law or labor agreements. The value of the
deposited funds is based on the cash surrendered value of these policies, and
includes immaterial profits accumulated up to the balance sheet
date.
 
 Severance
expenses (income) for the years ended July 31, 2008 and 2007 amounted to
$ (17) and $ 7, respectively.
 
 h.
              Use
      of estimates:
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
 
 i.
              Accounting
      for share-based compensation:
 
 On
August 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)")
which requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based payment awards made to employees and
directors. SFAS 123(R) supersedes Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), for periods
beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS
123(R). The Company has applied the provisions of SAB 107 in its adoption of
SFAS 123(R).
 
 SFAS
123(R) requires companies to estimate the fair value of equity-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as an
expense over the requisite service periods in the Company's consolidated income
statement. Prior to the adoption of SFAS 123(R), the Company accounted for
equity-based awards to employees and directors using the intrinsic value method
in accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
 
 The
Company adopted SFAS 123(R) using the modified prospective transition method,
which requires the application of the accounting standard starting from
August 1, 2006, the first day of the Company's fiscal year 2007. Under that
transition method, compensation cost recognized in the year ended July 31, 2008,
includes: (a) compensation cost for all share-based payments granted prior to,
but not yet vested as of August 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of Statement 123, and
(b) compensation cost for all share-based payments granted subsequent to
August 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of Statement 123(R). Results for prior periods have not been
restated.
 
 The
Company recognizes compensation expenses for the value of its awards, which have
graded vesting based on the straight line method over the requisite service
period of each of the awards.
  - 13
-
  TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data
 
 NOTE
3:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
 
 Prior to
August 1, 2006, the Company applied the intrinsic value method of
accounting for stock options as prescribed by APB 25, whereby compensation
expense is equal to the excess, if any, of the quoted market price of the stock
over the exercise price at the grant date of the award.
 
 The
Company applies SFAS 123 and EITF 96-18, "Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18") with respect to options and warrants
issued to non-employees. SFAS 123 requires the use of an option valuation model
to measure the fair value of the options at the grant date.
 
 j.
              Basic
      and diluted net loss per share:
 
 Basic net
loss per share is computed based on the weighted average number of shares
outstanding during each year. Diluted net loss per share is computed based on
the weighted average number of shares outstanding during each year, plus the
dilutive potential of the Common stock considered outstanding during the year,
in accordance with Statement of Financial Standard No. 128, "Earnings per
Share." ("SFAS No. 128").
 
 All
outstanding share options and warrants have been excluded from the calculation
of the diluted loss per share for the years ended July 31, 2008 and 2007,
because all such securities have an anti-dilutive effect.
 
 Such
outstanding securities consist of the following:
 
 Year ended
                      July 31,2008Options
                    
                    
                    2,646,206Warrants
                    
                    
                    29,524,612Total
                    
                    
                    32,170,818
 
 k.
              Income
      taxes:
 
 The
Company and its subsidiary account for income taxes in accordance with Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes". This
Statement requires the use of the liability method of accounting for income
taxes, whereby deferred tax asset and liability account balances are determined
based on the differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The Company and its
subsidiary provide a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
 
 In July
2006, the FASB issued FASB Interpretation 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 defines the threshold for recognizing the
benefits of tax return positions in the financial statements as
"more-likely-than-not" to be sustained by the taxing authority. The recently
issued literature also provides guidance on derecognition, measurement and
classification of income tax uncertainties, along with any related interest and
penalties. FIN 48 also includes guidance concerning accounting for income tax
uncertainties in interim periods and increases the level of disclosures
associated with any income tax uncertainties.
  - 14
-





TISSERA
INC. AND ITS SUBSIDIARY


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


U.S.
dollars in thousands, except share and per share data





NOTE
3:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)





Pursuant
to the provisions of FIN 48, the differences between the amounts recognized in
the statements of financial position prior to the adoption of FIN 48 and the
amounts reported after adoption would be accounted for as a cumulative-effect
adjustments recorded to the beginning balance of retained earnings. FIN 48 is
effective for fiscal years beginning after December 15, 2006.





The
Company files U.S. federal income tax returns as well as income tax returns in
Israel jurisdiction and in various foreign jurisdictions. The Company may be
subject to examination by the U.S. Internal Revenue Service ("IRS") for calendar
years 2003 through 2007. The Israeli subsidiary may be subject to examination by
the Israel tax authorities for calendar years 2004 through 2007.





Effective
August 1, 2007, the Company adopted the provisions of FIN 48. The adoption of
FIN 48 had no cumulative effect on tax provisions or on the accumulated deficit
in the Company’s financial statements. There were no changes as of July 31,
2008.





There was
no material amount of interest or penalty recognized in the year ended July 31,
2008. It is the Company's policy to classify the expense related to interest or
penalty to be paid within the tax expense in the statement of
operations.





l.
            Fair
      value of financial instruments:





The
following methods and assumptions were used by the Company and its subsidiary in
estimating their fair value disclosures for financial instruments:





The
carrying values of cash and cash equivalents, short-term deposits, accounts
receivable, trade payables and other accounts payable, approximate their fair
value due to the short-term maturity of these instruments.





m.
            Concentrations
      of credit risks:





Financial
instruments that potentially subject the Company and its subsidiary to
concentrations of credit risk consist principally of cash and cash equivalents
and short term deposits.





Cash and
cash equivalents and short-term deposits are deposited in banks in Israel and in
the United States. Such deposits in the United States may be in excess of
insured limits and are not insured in other jurisdictions. Management believes
that the financial institutions that hold the Company's investments are
financially sound and, accordingly, minimal credit risk exists with respect to
these investments.





The
Company has no off-balance-sheet concentration of credit risk such as foreign
exchange contracts, option contracts or other foreign hedging
arrangements.




- 15
-


TISSERA
INC. AND ITS SUBSIDIARY


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


U.S.
dollars in thousands, except share and per share data




NOTE
3:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)





n.
            Recently
      issued accounting pronouncements:





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" (SFAS 157) which defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements that require
or permit fair value measurements and, accordingly, does not require any new
fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007 for financial assets and liabilities, as well as for any other
assets and liabilities that are carried at fair value on a recurring basis, and
should be applied prospectively. The adoption of the provisions of SFAS 157
related to financial assets and liabilities and other assets and liabilities
that are carried at fair value on a recurring basis is not anticipated to
materially impact the Company’s consolidated financial position and results of
operations. Subsequently, the FASB provided for a one-year deferral of the
provisions of SFAS 157 for non-financial assets and liabilities that are
recognized or disclosed at fair value in the consolidated financial statements
on a non-recurring basis. The Company is currently evaluating the impact of
adopting the provisions of SFAS 157 for non-financial assets and liabilities
that are recognized or disclosed on a non-recurring basis.





In February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159). Under this Standard, the
Company may elect to report financial instruments and certain other items at
fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years
beginning after November 15, 2007. As the Company did not elect the fair value
option in the date of adoption, the Company does not expect the adoption of SFAS
159 will have a material impact on its consolidated financial
statements.





In
March 2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161). SFAS 161 is an amendment of SFAS
133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). To
address concerns that the existing disclosure requirements of SFAS 133 do not
provide adequate information, this Statement requires enhanced disclosures about
an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting. This statement shall be effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the future impacts
and disclosures of SFAS 161.




- 16
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
4:- ACCOUNTS
RECEIVABLE AND PREPAID EXPENSES





July
      31,2008
                    
                    
                    2007Government
      authorities
                    
                    $
                    15
                    
                    
                    $
                    5Prepaid
      expenses
                    
                    
                    25
                    
                    
                    
                    216$
                    40
                    
                    
                    $
                    221





NOTE
5:- PROPERTY
AND EQUIPMENT





Cost:Office
      furniture and equipment
                    
                    $
                    -
                    
                    
                    $
                    2Computer
      software and electronic equipment
                    
                    
                    -
                    
                    
                    
                    29Leasehold
      improvements
                    
                    
                    -
                    
                    
                    
                    6-
                    
                    
                    
                    37Accumulated
      depreciation:Office
      furniture and equipment
                    
                    
                    -
                    
                    
                    
                    *) -Computer
      software and electronic equipment
                    
                    
                    -
                    
                    
                    
                    24Leasehold
      improvements
                    
                    
                    -
                    
                    
                    
                    6-
                    
                    
                    
                    30Depreciated
      cost
                    
                    $
                    -
                    
                    
                    $
                    7





*)
            Represents
      an amount lower than $ 1.





NOTE
6:- LONG-TERM
PREPAID EXPENSES





Long-term
prepaid expenses are composed of long-term lease deposits for the year ended
July 31, 2007.





NOTE
7:- OTHER
ACCOUNTS PAYABLE AND ACCRUED EXPENSES





July
      31,2008
                  
                  
                  2007Government
      authorities
                  
                  $
                  71
                  
                  
                  $
                  359Employees
      and payroll accruals
                  
                  
                  45
                  
                  
                  
                  104Investors
      (1)
                  
                  
                  64
                  
                  
                  
                  -Accrued
      expenses
                  
                  
                  80
                  
                  
                  
                  148$
                  260
                  
                  
                  $
                  611





(1)
            Under the terms of the Bridge
      Loan Agreement (See Note 10f), the Company is required to pay a penalty
      for any non-timely filings of periodic reports under The Exchange Act of
      1934, as amended. In respect of the filing of this annual report on Form
      10-K for the year ended July 31, 2008, the total amount of such penalty is
      approximately $64.





- 17
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
8:- COMMITMENTS
AND CONTINGENCIES





a.
            The
      facilities and vehicles of the Company were rented under operating leases.
      As of July 31, 2008, the Company did not renew any of the lease
      agreements.





b.
            The
      Company's subsidiary obtained a bank guarantee in the amount of $ 5
      to secure a rent agreement.





c.
            On
      September 7, 2004, the Board of Directors decided to terminate the
      employment of the Chief Executive Officer of the Company ("the Former
      CEO"). On December 21, 2004, a claim against the Company was filed
      with the Israeli Labor Court by the Former CEO for a payment of
      approximately $ 141 (NIS 564 thousand) in respect of payments
      allegedly due to her. The Company filed a counterclaim against its Former
      CEO in the amount of approximately $ 2,371 (NIS 9,405
      thousand).





On
      March 31, 2008, the Company and its former CEO reached a settlement which
      was approved by the Israeli court.





According
to the settlement, the former CEO is responsible for paying all taxes and
related costs owed in the United States and Israel in connection with her
profits deriving from the exercise of certain options granted to her by the
Company. The Company shall provide the former CEO with a Form W-2 for the 2004
evidencing any tax payments made by the Company in connection with her exercise
of options.





Moreover,
the reported bonus to the former CEO in the amount of $ 110, which was
previously paid to the former CEO and cancelled by the Company’s board of
directors, will be re-approved. Any applicable taxes related to such bonus, in
excess of the amount of about $ 26, which was already paid by the Company
to the tax authorities in the U.S., shall be borne by, and be the sole
responsibility of, the former CEO.





In
addition, within 14 days of the Israeli court’s approval of the settlement, the
former CEO shall pay the Company about $ 63. In addition, the Company shall
also release to the former CEO her social benefitsfunds.





In view
of the above, the Company cancelled provisions in an amount of approximately
$ 430 and recorded this cancellation in the statement of operations as
general and administrative income.





- 18
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
9:- TAXES
ON INCOME





a.
            Deferred
      income taxes:





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows:




July
      31,2008
                  
                  
                  2007Operating
      loss carryforward
                  
                  $
                  832
                  
                  
                  $
                  970Reserves
      and allowances
                  
                  
                  -
                  
                  
                  
                  27Net
      deferred tax asset before valuation allowance
                  
                  
                  832
                  
                  
                  
                  997Valuation
      allowance
                  
                  
                  832
                  
                  
                  
                  997Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -





As of
July 31, 2008, the Company has provided valuation allowances of $ 832, in
respect of deferred tax assets resulting from tax loss carryforward and other
temporary differences. Management currently believes that since the Company has
a history of losses, it is more likely than not that the deferred tax regarding
the loss carryforward and other temporary differences will not be realized in
the foreseeable future.





b.
            Available
      carryforward tax losses:





As of
July 31, 2008 and 2007, the Company has an accumulated tax loss carryforward of
approximately $ 7,670 and $ 6,838, respectively. Carryforward tax
losses in the U.S. can be carried forward and offset against taxable income in
the future for a period of 20 years. Utilization of U.S. net operating losses
may be subject to substantial annual limitations due to the "change in
ownership" provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net operating
losses before utilization.





c.
            Income
      (loss) before taxes on income consists of the
  following:





Year
      ended July 31,2008
                  
                  
                  2007United
      States
                  
                  $
                  (937
                  )
                  
                  $
                  (1,893
                  )Israel
                  
                  
                  3
                  
                  
                  
                  45$
                  (934
                  )
                  
                  $
                  (1,848
                  )





- 19
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
9:- TAXES
ON INCOME (Cont.)





d.
            Taxes
      on income included in the statement of
  operations:





Year
      ended July 31,2008
                  
                  
                  2007Current
      taxes:Domestic
                  
                  $
                  -
                  
                  
                  $
                  -Foreign
      *)
                  
                  
                  4
                  
                  
                  
                  17$
                  4
                  
                  
                  $
                  17





*)
            In
      2004, the Company signed an agreement with its subsidiary effective as of
      October 27, 2003, according to which the subsidiary will provide research,
      development and other services to the Company. The Company will reimburse
      the subsidiary for expenses on a cost plus 10%
  basis.





e.
            The
      main reconciling item between the statutory tax rate of the Company and
      the effective tax rate is the non-recognition of tax benefits from
      accumulated net operating losses carry forward due to the uncertainty of
      the realization of such tax
benefits.





NOTE
10:- STOCK
CAPITAL





a.
              Common
      stock:Common
      stock confers on its holders the right to receive notice to participate
      and vote in general meetings of the Company, the right to a share in the
      excess of assets upon liquidation of the Company, and the right to receive
      dividends, if declared.Shares
      of Common stock are registered and publicly traded on the Over-the-Counter
      Bulletin Board service of the National Association of Securities Dealers,
      Inc. under the symbol TSSR.





b.
              Bonus
      shares:On
      November 4, 2003, it was resolved to allot a total of 12,024,000
      bonus shares at the rate of three fully-paid bonus shares for each then
      outstanding share. All the shares and per share amounts have been adjusted
      to give retroactive effect to the
allotment.





c.
                  Investments,
      warrants and
options:





1.
            Private
      placements:





a)
            On
      February 1, 2004, the Company completed a private placement ("PPM1") for
      the sale of 1,767,200 units at a price per unit of $ 1.25. Each unit
      consists of one Common share and three Common shares purchase warrants.
      The Company granted the investors 5,301,600 warrants with an exercise
      price in a range of $ 3.75 - $ 6.00 per share. The warrants are
      exercisable within periods that range from six months to three years. The
      contractual life of the warrants ranges from one year to three years. As
      of July 31, 2008, 1,767,200 all warrants have
  expired.





- 20
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
10:- STOCK CAPITAL (Cont.)





b)
            On
      March 18, 2004, the Company completed an additional PPM ("PPM2") for
      the sale of 3,142,858 units at a price per unit of $ 1.75. Each unit
      consists of one Common share and three Common shares purchase warrants
      that were exercisable at a price range of $ 3.75 - $ 6.00 per
      share. The warrants were exercisable within periods that range from six
      months to three years. In order to settle a dispute with the investors in
      March 2005, the Company entered into a Settlement Agreement in which it
      amended the terms of the private offering as
  follows:





The
Company reduced the exercise price of each of the warrants to
$ 0.50.





The
Company extended the period over which the Class A Common Stock Purchase
Warrants can be exercised from one year from March 2004 to one year from the
effective date of the Form SB-2, the SB-2 become effective on September 2,
2005.





The
period over which Class B Common Stock Purchase Warrants and Class C Common
Stock Purchase Warrants remained the same.





In
addition, the Company issued Class D Common Stock Purchase Warrants to purchase
an aggregate of 6,285,716 shares of Common stock. The Class D Common Stock
Purchase Warrants are exercisable for a period of one year from the effective
date of the Form SB-2 at an exercise price of $ 0.15 per share.





In light
of the above, the Company recorded, in 2005, general and administrative expenses
in the amount of $ 1,980, calculated as the difference between the fair
value of the warrants that were granted on March 18, 2004 at the date of the
settlement agreement and the fair value of the warrants granted and modified at
the date of the settlement agreement, in respect of the settlement
agreement.





As of
July 31, 2008, all of the warrants related to the March 18, 2004 private
placements expired.





c)
            In
      2004, the Company granted two finders involved with the Company's first
      PPM, 93,480 fully vested warrants, exercisable until May 2005. On
      October 27, 2005, the Board of Directors has extended the warrants
      exercise period until May 2006 at no consideration. The Company has
      recorded the benefit totaling $ 10 in general and administrative
      expenses. During 2006, the above warrants were
  exercised.





d)
            On
      December 28, 2006, the Company has completed a private placement for
      the sale of 16,500,000 shares of Common stock ("the shares") at a price of
      $ 0.1 per share. For each two shares of Common stock purchased, each
      investor will receive a Series E Common Stock Purchase Warrant to purchase
      one share of Common stock of the Company (the "Series E Warrants") and a
      Series F Common Stock Purchase Warrant to purchase one share of Common
      stock of the Company (the "Series F Warrants"). The Series E Warrants
      shall be exercisable for a period commencing six months from the issue
      date through five years from the issue date at an exercise price of $
      0.165 per share. The Series F Warrants shall be exercisable for a period
      commencing six months from the issue date through five years from the
      issue date at an exercise price of $ 0.1815 per share. The Series E
      Warrants and the Series F Warrants are exercisable on a cashless
      basis.





- 21
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
10:- STOCK CAPITAL (Cont.)





The
Company committed to file a registration statement registering the shares within
180 days after the closing date and have such registration statement declared
effective within 270 days from the closing date. The Company's registration
statement was declared effective as of May 25, 2007.





In
connection with the above closing, the Company paid $ 165 to Burstein &
Lindsay Security Corp. ("the finder") for its services as a finder in connection
with this transaction and agreed to pay the finder 10% of all cash proceeds, if
any, generated as a result of the exercise of the Series E warrants and the
Series F warrants. In addition, the finder also received a Common stock purchase
warrant to purchase 3,300,000 shares of Common stock at an exercise price of
$ 0.10 per share exercisable for a period commencing six months from the
issuance date through five years from the issuance date. These warrants are
exercisable on a cashless basis.





As of
July 31, 2008, all of the warrants related to the December 28, 2006 private
placements, are exercisable.





e)
            On
      December 28, 2006 the Company granted 3,300,000 warrants to finders in
      connection with the issuance of Common stock. The fair value of the
      abovementioned warrants calculated as for the grant date is $ 495. This
      fair value was estimated using the following weighted average
      assumptions:





Risk
      free interest
                  
                  
                  4.85
                  %Dividend
      yields
                  
                  
                  0
                  %Volatility
                  
                  
                  155
                  %Expected
      term (in years)
                  
                  
                  5





f)
            On
      July 8, 2008, the Company entered into a Bridge Loan Agreement, dated June
      18, 2008 (the “Agreement”), which contemplated an aggregate purchase price
      of up to $1,650,000 (the “2008 Financing”) with an accredited investor. On
      that date the Company completed its initial closing of $200,000 (the
      “Initial Closing”). Investors who were participants in the Company’s
      December 2006 transaction were given the first opportunity to participate
      in the Financing; to the extent such investors’ subscriptions are less
      than the maximum, the Company may accept other investors as well.
      Additional subscriptions may be accepted through December 15,
      2008.





In
connection with each closing of the financing, the Company issued to the
relevant Investors a Bridge Note (the “Note”) with an original issue discount of
14% (out of which approximately 6% are issuance expenses). The Notes will be
payable on the earlier of (i) January 4, 2009 (the “Scheduled Maturity Date”),
which is 180 days from the Initial Closing, or (ii) the consummation of the
transaction in which the Company receives, on a cumulative basis, gross proceeds
of at least $2,000,000. The principal of the Note will be convertible through
the Scheduled Maturity Date at a conversion price of $0.10 per
share.





Additionally,
in connection with each closing of the financing, the Company issued or will
issue to the relevant Investors warrants (the “Warrants”) to purchase a number
of shares of the Company’s common stock equal to 200% of the number of shares
into which the Investor’s Note would be convertible on that relevant closing
date. The Warrants will be exercisable until July 31, 2013, at an exercise price
of $0.185 per share, and are exercisable on a cashless basis.




- 22
-


TISSERA
INC. AND ITS SUBSIDIARY


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


U.S.
dollars in thousands, except share and per share data





NOTE
10:- STOCK CAPITAL (Cont.)




The
Warrants and the conversion option within the Note have an anti-dilution
mechanism for any case of future modification in the company’s
equity.


The
Company recorded the Note in fair value in accordance with SFAS 155. In February
2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial
Instruments," an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
155 permits fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation. SFAS
No. 155 is effective for all financial instruments acquired or issued after
August 1, 2007.





The
Company classified the Warrants as a liability according to EITF 00-19 and
recorded the Warrants in fair value.





2.
            Shares
      and warrants to service providers:





a)
                The
      Company granted in prior years 2,429,722 warrants to purchase Common stock
      at an exercise price of $ 0.0001 per share, 150,000 warrants to
      purchase Common stock at an exercise price of $ 0.01 per share, 600,000
      warrants to purchase 600,000 shares of Common stock at an exercise price
      of $ 1 per share and 2,777,000 shares of Common stock at no
      consideration. The warrants and shares were granted to service providers
      and to advisory board members, in exchange for research and development
      services and general and administrative services. 2,763,507 warrants are
      fully vested as of July 31, 2007. In addition, as of July 31,
      2008 and 2007, 277,477 and 138,738 warrants were exercised into 277,477
      and 138,738 shares of Common stock, respectively.The
      Company accounted for such warrants and shares under the provisions of
      EITF 96-18. The fair value of fully vested warrants and shares was
      recorded as research and development expenses and general and
      administrative expenses at the grant date. The fair value of the warrants
      that vest over the three years period is amortized as an expense over the
      vesting period.The
      fair value for these options was estimated at the grant date and at each
      subsequent vesting date using the Black-Scholes option-pricing model with
      the following weighted-average assumptions: expected volatility of 90%,
      risk-free interest rates of 1.5% - 5.34%, dividend yields of 0% and an
      expected life equal to the options' contractual
  life.





b)
            The
      Company granted 2,580,880 warrants to Yeda (see Note 2), out of which
      955,839 and 54,180 were issued during the year ended July 31, 2007 due to
      issuance of Common stock on December 28, 2006 and July 1, 2007,
      respectively.





c)
              On
      June 26, 2007, the Company signed an agreement with a consultant ("the
      Consultant"), effective July 1, 2007 in which the Consultant will provide
      the Company consulting and advisory services in connection with strategic
      business planning, corporate finance, investor support, broker relations
      and related matters ("the Services"), for one year commencing July 1,
      2007.In
      consideration for the services, the Company issued on October 9, 2007 to
      the Consultant 1,000,000 shares of Common stock, par value $ 0.0001 per
      share. As of July 31, 2007, the fair value of the services was recorded at
      the fair value of the share on the agreement's effective date, and the
      relative portion of the expense was recorded in the statement of
      operations during 2007.




- 23
-


TISSERA
INC. AND ITS SUBSIDIARY


(A
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


U.S.
dollars in thousands, except share and per share data





NOTE
10:- STOCK CAPITAL (Cont.)





d)
            A
      summary of warrants to service providers activity as of July 31, 2008, and
      changes during the year ended July 31, 2008, are as
    follows:





Number
      of
                    warrants
                  
                  
                  Weighted-
                    average
                    exercise
                    price
                  
                  
                  Weighted-
                    average
                    remaining
                    contractual
                    term
      (in
                    years)
                  
                  
                  Aggregate
                    intrinsic
                    valueOutstanding
      at August 1, 2007
                  
                  
                  5,880,880
                  
                  
                  $
                  0.06
                  
                  
                  
                  5.19
                  
                  
                  
                  245,184Granted
                  
                  
                  -Exercised
                  
                  
                  -Forfeited
                  
                  
                  -Outstanding
      at July 31, 2008
                  
                  
                  5,880,880
                  
                  
                  $
                  0.06
                  
                  
                  
                  4.19
                  
                  
                  
                  77,246Exercisable
      at July 31, 2008
                  
                  
                  5,880,880
                  
                  
                  $
                  0.06
                  
                  
                  
                  4.19
                  
                  
                  
                  77,246Vested
      and expected to vest
                  
                  
                  5,880,880
                  
                  
                  $
                  0.06
                  
                  
                  
                  4.19
                  
                  
                  
                  77,246





The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company's closing stock price on the last
trading day of the year ended July 31, 2008 and the exercise price, multiplied
by the number of in-the-money options) that would have been received by the
option holders had all option holders exercised their options on July 31, 2008.
This amount changes based on the fair market value of the Company's stock. As of
July 31, 2008, there was no compensation cost related to non-vested warrants
issued to service providers.





3.
            Shares and options to employees and to
  directors:





a)
              The
      Company estimates the fair value of stock options granted using the
      Black-Scholes-Merton option-pricing model. The option-pricing model
      requires a number of assumptions, of which the most significant are,
      expected stock price volatility, and the expected option term. Expected
      volatility was calculated based upon actual historical stock price
      movements over the most recent periods ending on the grant date, equal to
      the expected option term. The expected option term represents the period
      that the Company's stock options are expected to be outstanding and was
      determined based on historical experience of similar options, giving
      consideration to the contractual terms of the stock options. The Company
      has historically not paid dividends and has no foreseeable plans to issue
      dividends. The risk-free interest rate is based on the yield from U.S.
      Treasury zero-coupon bonds with an equivalent term.The
      fair value of the Company's stock options granted to employees and
      directors was estimated using the following weighted average
      assumptions:





Risk
      free interest
                  
                  
                  3.84
                  %Dividend
      yields
                  
                  
                  0
                  %Volatility
                  
                  
                  217
                  %Expected
      term (in years)
                  
                  
                  5Forfeiture
      rate
                  
                  
                  0
                  %





- 24
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
10:- STOCK CAPITAL (Cont.)





During
      the years ended July 31, 2008 and 2007, no options were
      granted.b)
              During
      2004, the Company granted two of its directors 541,080 options to purchase
      541,080 shares of the Company's Common stock at an exercise price of
      $ 1 per share. The options vest over a period of three
      years.During
      2004, 67,635 options were exercised into shares. On October 27, 2005,
      the Board of Directors decided to amend the exercise price of the
      remaining 473,445 options previously granted from $ 1 to $ 0.3
      per share. The options are exercisable into Common stock on a cashless
      basis.The
      Company accounted for such options under the provision of APB 25. Since the
      optionees are entitled to exercise their options on a cashless basis, the
      Company applied variable accounting and the compensation related to the
      options was recorded as research and development and general and
      administrative expenses over the vesting period based on the market price
      of the Company's stock at such reporting period.No
      compensation was recorded since the exercise price of the options is
      higher than the market price of the Company’s Common
  stock.During
      March 2004, the Company granted to certain employees 413,333 options to
      purchase 413,333 shares of the Company's Common stock at an exercise price
      of $ 0.30 per share. The options vest over a period of three
      years.





c)
            On
      May 25, 2004, the Company granted to a certain employee 10,090 fully
      vested shares of Common stock at no
  consideration.





d)
            In
      November 2004, the Company signed an employment agreement with its current
      CEO, according to which, the CEO will be granted 1,500,000 options to
      purchase 1,500,000 shares at an exercise price of $ 0.30 per share.
      The options vested over a period of two years. The Company accounted for
      such options according to the provision of APB
  25.





e)
              In
      February 2005, the Company's Board of Directors decided to grant a
      director, 270,540 options to purchase 270,540 shares of Common stock at an
      exercise price of $ 0.31 per share. The options vested over a period
      of two years commencing March 15, 2005. The Company accounted for such
      options according to the provisions of APB-25 and SFAS 123R (see Note
      3i).As
      of July 31, 2008 and 2007, no options were
      exercised.





- 25
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share data


NOTE
10:- STOCK CAPITAL (Cont.)





f)
            A
      summary of option activity under the Company's Stock Option as of July 31,
      2008 and changes during the year ended July 31, 2008 are as
      follows:





Number
      of
                    options
                  
                  
                  Weighted-
                    Average
                    Exercise
                    price
                  
                  
                  Weighted-
                    average
                    remaining
                    contractual
                    term
      (in
                    years)
                  
                  
                  Aggregate
                    intrinsic
                    value *)Outstanding
      at August 1, 2007
                  
                  
                  2,646,206
                  
                  
                  $
                  0.301
                  
                  
                  
                  1.93
                  
                  
                  
                  -GrantedExercisedForfeitedOutstanding
      at July 31, 2008
                  
                  
                  2,646,206
                  
                  
                  
                  0.301
                  
                  
                  
                  0.92
                  
                  
                  
                  -Exercisable
      at July 31, 2008
                  
                  
                  2,646,206
                  
                  
                  
                  0.301
                  
                  
                  
                  0.92
                  
                  
                  
                  -Vested
      and expected to vest
                  
                  
                  2,646,206
                  
                  
                  
                  0.301
                  
                  
                  
                  0.92
                  
                  
                  
                  -





*)      As
of reporting date, all of the options are out-of-the-money.





The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company's closing stock price on the last
trading day of year ended July 31, 2008 and the exercise price, multiplied by
the number of in-the-money options) that would have been received by the option
holders had all option holders exercised their options on July 31, 2008. This
amount changes, based on the fair market value of the Company's stock. As of
July 31, 2008, there was no unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the Company's stock option
plans.





NOTE
11:- RELATED
PARTIES





In
      January 2007, the Board of Directors granted to the Chief Executive
      Officer a bonus in the amount of $ 30, in consideration of his efforts
      related to the fund raising efforts for the
  Company.





- 26
-


TISSERA
INC. AND ITS SUBSIDIARY
 (A
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 U.S.
dollars in thousands, except share and per share
data




NOTE
12:- FINANCIAL
EXPENSES (INCOME), NET





Year
      ended July 31,2008
                    
                    
                    2007Income:Interest
      income
                    
                    $
                    (26
                    )
                    
                    $
                    (48
                    )Expenses:Interest
      expenses
                    
                    
                    36
                    
                    
                    
                    -Exchange
      rate differences
                    
                    
                    67
                    
                    
                    
                    11$
                    77
                    
                    
                    $
                    (37
                    )








- 27
-