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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
D.C. 20549

FORM 10-K

(Mark One)

|                                                                                           |                                                           
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------
|xANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                                                           | For the fiscal year ended June 30, 2009                   
|                                                                                           |                                                           
|oTRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                           | For the transition period
 from [         ]
to [         ]
|                                                                                           |                                                           
|                                                                                           | Commission file
 number 001-31392                         

|                                                 
|-------------------------------------------------
|PLURISTEM THERAPEUTICS INC.                      
|                                                 
|(Name
 of registrant as specified in its charter)

|                                                                 |  |                                      
|---------------------------------------------------------------- |  | -------------------------------------
|Nevada                                                           |  | 98-0351734                           
|                                                                 |  |                                      
|(State
 or other jurisdiction of incorporation or organization)  |  | (I.R.S.
 Employer Identification No.)
|                                                                 |  |                                      
|MATAM Advanced Technology Park, 
 Building No. 20, Haifa, Israel |  | 31905                                
|                                                                 |  |                                      
|(Address
 of principal executive offices)                        |  | (Zip
 Code)                          

Registrants telephone
number 011-972-74-7107171

Securities registered
pursuant to Section 12(b) of the Act:

|                                 |  |                                           
|-------------------------------- |  | ------------------------------------------
|Title
 of each class             |  | Name
 of each exchange on which registered
|Common Stock, par value $0.00001 |  | Nasdaq Capital Market                     
|                                 |  |                                           

Securities registered
pursuant to Section 12(g) of the Act:

|                 
|-----------------
|None.            
|                 
|(Title
 of class)

Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.

Yes o No x


Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.

Yes o No x


Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 o


Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files).

o  Yes  o  No


Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment
to this Form 10-K.           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. (Check one):

|                                               |                     |                        
|---------------------------------------------- | ------------------- | -----------------------
|Large accelerated filer o                      | Accelerated filer o | Non-accelerated filer o
|Smaller reporting company x                    |                     |                        
|(do not check if a smaller
 reporting company) |                    

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).

Yes o No x


State the aggregate market
value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or
the average bid and asked prices of such common equity, as of the last business
day of the registrants most recently completed second fiscal quarter.

$4,528,717

Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of the
latest practicable date.

15,796,181 as of September
10, 2009

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TABLE
OF CONTENTS

|            |                                                                                                                |  |     
|----------- | -------------------------------------------------------------------------------------------------------------- |  | ----
|            |                                                                                                                |  | Page
|PART I      |                                                                                                                |  | 4   
|Item 1.     | Business                                                                                                       |  | 4   
|Item 1A.    | Risk
 Factors                                                                                                  |  | 9   
|Item 1B.    | Unresolved
 Staff Comments                                                                                     |  | 19  
|Item 2.     | Properties                                                                                                     |  | 19  
|Item 3.     | Legal
 Proceedings                                                                                             |  | 19  
|Item 4.     | Submission
 of Matters to a Vote of Security Holders                                                           |  | 19  
|PART II     |                                                                                                                |  | 20  
|Item 5.     | Market For
 Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
 of Equity Securities |  | 20  
|Item 6.     | Selected
 Financial Data                                                                                       |  | 21  
|Item 7.     | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                         |  | 21  
|Item 7A.    | Quantitative
 and Qualitative Disclosures About Market Risk                                                    |  | 25  
|Item 8.     | Financial
 Statements and Supplementary Data                                                                   |  | 26  
|Item 9.     | Changes
 in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 28  
|Item 9A(T). | Controls
 and Procedures                                                                                       |  | 28  
|Item 9B.    | Other
 Information.                                                                                            |  | 29  
|PART III    |                                                                                                                |  | 29  
|Item 10.    | Directors,
 Executive Officers and Corporate Governance                                                        |  | 29  
|Item 11.    | Executive
 Compensation                                                                                        |  | 33  
|Item 12.    | Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters               |  | 37  
|Item 13.    | Certain
 Relationships and Related Transactions, and Director Independence                                     |  | 40  
|Item 14.    | Principal
 Accounting Fees and Services                                                                        |  | 40  
|PART IV     |                                                                                                                |  | 42  
|Item 15.    | Exhibits                                                                                                       |  | 42  

- 2 -

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Our financial statements are
stated in thousands United States Dollars (US$) and are prepared in accordance
with United States Generally Accepted Accounting Principles (U.S. GAAP).

In this annual report,
unless otherwise specified, all dollar amounts are expressed in United States
dollars.

As used in this annual
report, the terms we, us, our, the Company, and Pluristem mean
Pluristem Therapeutics Inc. and our wholly owned subsidiary, unless otherwise
indicated.

CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS

The
statements contained in this Annual Report on Form 10-K that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and other federal securities laws.
Such forward-looking statements may be identified by, among other things, the
use of forward-looking terminology such as believes, intends, plans expects,
may, will, should, or anticipates or the negative thereof or other
variations thereon or comparable terminology, and similar expressions are intended to
identify forward-looking statements. We remind readers that forward-looking
statements are merely predictions and therefore inherently subject to
uncertainties and other factors and involve known and unknown risks that could
cause the actual results, performance, levels of activity, or our achievements,
or industry results, to be materially different from any future results,
performance, levels of activity, or our achievements, or industry results,
expressed or implied by such forward-looking statements. Such forward-looking
statements appear in Item 1  Business and Item 7  Managements Discuss and
Analysis of Financial Condition and Results of Operations, as well as
elsewhere in this Annual Report and include statements regarding the following: the
expected development and potential benefits from our products in treating
various medical conditions, progress in our efforts to continue with clinical
trials and achieve regulatory approvals, the potential market demand for our
products, our expectations regarding our short- and long-term capital
requirements, our outlook for the coming months and information with respect to
any other plans and strategies for our business.

The factors discussed herein, including those risks described in Item
1A. Risk Factors, and expressed from time to time in our filings with the
Securities and Exchange Commission could cause actual results and developments
to be materially different from those expressed in or implied by such
statements. The forward-looking statements are made only as of the date of this
filing, and we undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.

- 3 -

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PART I

Item 1. Business.

Corporate History

We develop and intend to
commercialize, cell therapy production technologies and products. We were
incorporated in the State of Nevada under the name A.I. Software, Inc. on May
11, 2001. On June 10, 2003, we acquired from the Weizmann Institute of Science
and the Technion-Israel Institute of Technology 100% of the issued and
outstanding shares of a research and development company based in Israel called
Pluristem, Ltd., which is now our wholly owned subsidiary.

On June 25, 2003, we changed
our name from A.I. Software, Inc. to Pluristem Life Systems, Inc. From May
2003 until March 2006, our business was focused on the development of cell
therapy production technologies for license to medical scientists and
practitioners for their use in producing cell therapy products for sale. In
March 2006, we changed our business model to focus on developing this
technology in order to produce cell therapy products that we would sell
ourselves. In July 2006, we achieved a breakthrough in our preclinical study of
bone marrow transplantation: the preclinical study showed that by adding our
PLX cells (PLacenta eXpanded cells) to umbilical cord blood (UCB) stem cells
during bone marrow transplantation (BMT), hematopoietic stem cell engraftment in
mice showed up to a 500% increase in engraftment after irradiation and
chemotherapy. In January 2008,we achieved favorable results in demonstrating a
revascularization effect after using our proprietary PLX-PAD cells for the
treatment of limb ischemia associated with peripheral artery disease (PAD). In
April 2008, an additional pre-clinical study utilizing our proprietary PLX
cells in treating ischemic stroke showed statistical significance utilizing
functional as well as anatomical endpoints.

On November 23, 2007, we
changed our name to Pluristem Therapeutics Inc.

On December 10, 2007, our
shares of common stock began trading on the NASDAQ Capital Market under the
symbol PSTI. The shares were previously traded on the OTC Bulletin Board under
the trading symbol PLRS.OB. On May 7, 2007, our shares also began trading on
the Frankfurt Stock Exchange, under the symbol PJT.

In March 2009, the U.S. Food
and Drug Administration cleared our Investigational New Drug application to initiate
a Phase I clinical trial for the treatment of critical limb ischemia using our
PLX-PAD product.

In June 2009, the Paul
Ehrlich Institute (PEI), the German competent authority in the European Union,
approved our clinical trial application (CTA) and granted approval for us to
begin clinical trials with our proprietary placental-derived adherent stromal
cell product, termed PLX-PAD.

In July 2009, the first
patient was enrolled in a Phase I clinical trial of our PLX-PAD product at the
Franziskus-Krankenhaus Hospital, Berlin.

In September 2009, we began
enrolling patients in the U.S. for a Phase I clinical trial of our PLX-PAD
product. The Phase I study is designed to evaluate the safety of PLX-PAD in
patients with critical limb ischemia (CLI). On September 23, 2009 we announced the dosing of the first patient in the U.S. with our PLX-PAD product.

Our Current Business

Pluristem Therapeutics Inc.
is a bio-therapeutics company dedicated to the commercialization of
non-personalized (allogeneic) cell therapy products for the treatment of
several severe degenerative, ischemic and autoimmune disorders. The Company is
developing a pipeline of products, stored ready-to-use, that are derived from
human placenta, a non-controversial, non-embryonic, adult stromal cell source.

These placental adherent
stromal cells (ASCs) are grown in the Companys proprietary PluriX
three-dimensional bioreactor, which imitates the natural microstructure of bone
marrow and does not require supplemental growth factors or other exogenous
materials.

- 4 -

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Pluristems first product in
development, PLX-PAD, is intended to improve the quality of life of millions of
people suffering from peripheral artery disease (PAD). The Company is in
process of identifying its next clinical indication. The Companys main focus
at this time is in the development of product candidates intended for local
administration for indications such as: PAD, CLI, intermittent claudication,
neuropathic pain, wound healing and orthopedic injuries. Additionally, the
Company has reported favorable results administering PLX cells in systemically
administration for indication such as: inflammatory bowel disease (IBD),
multiple sclerosis, bone marrow transplantation (BMT) and ischemic stroke.

Once we have products ready
for commercialization, we will evaluate our various sale and marketing
alternatives, including licensing of our technology to other companies,
manufacturing and direct sales or entering into marketing collaborations.

Scientific Background

Stem cells are unspecialized
cells that can renew themselves for long periods through cell division and have
the ability to differentiate into specialized cells. Stem cells are separated
from other cells within the body by three general properties:

|  |                                                                            
|- | ---------------------------------------------------------------------------
|· | they are capable of
 self-division and self-renewal over long time periods;
|  |                                                                            
|· | they are unspecialized;
 and                                               
|  |                                                                            
|· | they can give rise to
 specialized cells.                                  

Stem cells
offer the possibility of renewable sources of replacement cells and new tissues
to treat many kinds of diseases, conditions, and disabilities. All stem cells
originate from three places: certain adult tissues (adult); UCB (umbilical);
and the human embryo (embryonic). Stem cells obtained from a person after birth
are adult stem cells and are found within various tissues that make up the
body. These stem cells act as a repair and maintenance system, dividing
regularly to provide the body with specialized cells to take the place of those
that perish. Pluristems technology employs only adult adherent stem cells from
the placenta.

Our Technology

We are dedicated to the
commercialization of non-personalized (allogeneic) cell therapy products. We
are expanding non-controversial placental-derived adherent stromal cells (ASCs)
via a proprietary 3D process, termed PluriX, into therapeutics for a variety
of degenerative, malignant and autoimmune disorders.

The PluriX imitates the
natural microstructure of bone marrow and does not require supplemental growth
factors or other exogenous materials. Our PluriX Bioreactor System uses
a three-dimensional system of stromal cell cultures and substrates to create an
artificial physiological environment where placental stem cells (obtained after
birth) can naturally grow and reproduce outside of the human body without any
use of exogenous biologics or pharmacologicals. Using a natural growth mechanism eliminates the risk of genetic
instability. Unlike conventional two-dimensional culturing methods, our
three-dimensional microenvironment closely resembles the structure and function
of the bodys bone marrow environment. Our system aims to trick stem cells
into growing and reproducing in the same way they would in living organs.
Because the size and scale of the PluriX Bioreactor is larger than that of
human bone marrow, stem cell growth can be greatly expanded. After the ASCs are
grown in our PluriX reactor, the cells are then separated from the
three-dimensional culture.

We believe that the
resultant PLX (PLacental eXpanded) cell efficacy may be related to the
secretion of cytokines or other potent immune modulators. Furthermore, PLX
cells are immune privileged and have immunomodulatory properties, thus
protecting the recipient from immunological reactions that often accompany transplantations.

- 5 -

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Product Candidates

PLX-PADWe are developing
PLX-PAD cells as an allogeneic therapeutic product to treat CLI which results
from PAD. Like all of our other stem cells, PLX-PAD cells are to be stored ready
to use and shipped to hospitals and clinics for use as an intra-muscular
treatment for the affected limb of a patient suffering from CLI. In 2008, we
completed safety and bio-distribution studies in non-obese, diabetic, severe
combined immunodeficient (NOD/SCID) mice. These studies indicated a
statistically significant increase in new vessel formation (angiogenesis) and
blood flow in an affected limb treated with PLX-PAD cells. In March 2009, the
U.S. Food and Drug Administration cleared our Investigational New Drug
application to initiate a Phase I clinical trial for the treatment of critical
limb ischemia using our PLX-PAD product.

In June 2009, the Paul
Ehrlich Institute (PEI), the German competent authority in the European Union,
approved our clinical trial application (CTA) and granted approval for us to
begin clinical trials of PLX-PAD.

In July 2009, the first
patient was enrolled in a Phase I clinical trial of our PLX-PAD product at the
Franziskus-Krankenhaus Hospital, Berlin.

In September 2009, we began
enrolling patients in the U.S. for a Phase I clinical trial of our PLX-PAD
product. The enrollment began at the Center for Therapeutic Angiogenesis in
Birmingham, Alabama. In addition, Duke University Medical Center will be
screening patients for the trial. The Phase I study is designed to evaluate the
safety of PLX-PAD in patients with CLI. A total of up to 12 adults with the
disease will be included in this dose escalating trial. On September 23, 2009 we announced the dosing of the first patient in the U.S. with our PLX-PAD product.

Critical Limb IschemiaPeripheral artery
occlusive disease (PAOD), also known as peripheral vascular disease (PVD) or,
more commonly, PAD is a term used to describe diseases caused by the
obstruction of peripheral arteries resulting from atherosclerosis or other
inflammatory processes that can lead to ischemia. CLI is the severe subset and
natural endpoint of PAD.

PAD and CLI are aggravated
by conditions such as hypercholesterolemia, smoking and diabetes with the
incidence doubling in patients with these risk factors. One system for staging
peripheral artery disease severity is the Rutherford categories 1 through 6,
with critical limb ischemia defined by category 4 (ischemic rest pain),
category 5 (minor tissue loss), and category 6 (ulceration or gangrene). The
severity of the manifestations is often a reflection of the degree of
obstruction in the arterial perfusion of the extremity. Analysis of data from the
2009 update on heart disease and stroke statistics published in the journal Circulation(*Circulation.*
2009;119:e21-e181.
Published online before print December 15, 2008) indicates that approximately 8
million people over the age of 40 in the United States are with afflicted with
PAD. PAD increases significantly with age, rising to as high as approximately
20% of the population of those over the age of 70, which has resulted in a
growing market for therapies intended to treat this disorder. It has been
estimated that CLI affects approximately 1.1 million U.S. patients and is
anticipated to grow to approximately 1.4 million patients by 2015 according to
The Sage Group Report of September 12, 2005. This could result in approximately
160,000 to 200,000 PAD-amputations performed annually in the United States.

Additionally we have
reported favorable results administering PLX cells in systemically
administration in several indications, the table below summaries the status of
these studies:

|           |  |                              |  |                 
|---------- |  | ---------------------------- |  | ----------------
|Product    |  | For the
 treatment of        |  | Status          
|           |  |                              |  |                 
|          
|PLX-IBD    |  | Inflammatory bowel disease   |  | Pre- Clinical   
|PLX-STROKE |  | Ischemic stroke              |  | Pre- Clinical   
|PLX-BMT    |  | Bone marrow
 transplantation |  | Pre- Clinical   
|PLX-MS     |  | Multiple sclerosis           |  | Proof of concept

- 6 -

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Intellectual Property

Our success will depend in
part on our ability to protect our technology and products with patents. Our
technology is patented in the U.S., Australia, Russia, Mexico, China,
Hong Kong, India, New Zealand and South Africa. The earliest of
these patents will expire in 2020. In addition, we have patents pending in Europe,
Canada, Japan and other countries.

The patents included in our
portfolio address the composition, processes and therapeutic use of adherent
stromal cells. We are committed to protecting our intellectual property
position and to aggressively pursue our patent portfolio.

Through our experience with
ASC-based product development, we have developed expertise and know-how in this
field. We are in the final stage of building our ability to manufacture
clinical grade ASCs in-house. To protect this non-patentable know-how, our
policies require confidentiality agreements with our employees, consultants,
contractors, manufacturers and advisors. These agreements generally provide for
protection of confidential information, restrictions on the use of materials
and assignment of inventions conceived during the course of performance for us.
These agreements might not effectively prevent disclosure of our confidential
information.

We fully own our
intellectual property and we have no obligations to pay royalties to any third
party, except for royalties to the OCS (see note 7D in our audited
consolidated financial statements for fiscal 2009 included elsewhere in this
Form 10-K).

Research and Development

We spent on research and
development $3,141,000 and $4,393,000 on fiscal year 2009 and 2008,
respectively.

Foundational
Research. Our core
technology, the PluriX Bioreactor system, was developed by our former Chief
Technology Officer, Dr. Shai Meretzki of the Technion - Israel Institute of
Technologys Rappaport Faculty of Medicine. Dr. Meretzki also worked in close
collaboration with Professor Dov Zipori and Dr. Avinoam Kadouri of the Weizmann
Institute of Science. Professor Zipori specializes in cultures and stromal
cells and Dr. Kadouri specializes in the planning and creation of bioreactors.

Ongoing
Research and Development Plan.

In July 2007, we entered
into a five years collaborative research agreement with the Center for
Regenerative Therapies at Charite University Hospital of Berlin (BCRT).
Pluristem and BCRT are collaborating on a variety of indications utilizing
adherent stromal cells derived from the placenta that have been expanded in the
Companys proprietary bioreactor. The initial successful project collaboration
was for developing and characterizing the mechanism of action of the PLX-PAD
cells in allogeneic therapeutic product to treat CLI, which results from
peripheral artery disease PAD. According to the agreement, we will be the
exclusive owner of the technology and any products produced as a result of the
collaboration. In December 2008 we have entered into a clinical trials
agreement with the BCRT, and accordingly the BCRT will be one of our clinical
sites in Germany for the CLI clinical trials.

Our research and development
facilities are in Haifa, Israel. The facility has been approved as a Good
Manufacturing Practices (GMP) standard site for the purpose of manufacturing
PLX cells by an inspector from the European Medicines Agency (EMEA). In
addition, the U.S. Food and Drug Administration (FDA) approved the design of
the clean room. The research and development facilities include 13,800 square
feet in total.

We receive the placentas
used for our research activities from hospitals in Israel. Any medical waste
related to the use of placentas is treated in compliance with environmental
laws and standards.

- 7 -

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Government Regulation

The development,
manufacture, commercialization and reimbursement of our cell therapy product
candidates are subject to the laws and regulations of governmental authorities
in the U.S. and other countries in which our products will be marketed in the
future. Specifically, in the U.S., the FDA, among other activities, regulates
new product approvals to establish safety and efficacy of these products,
furthermore, various governmental statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and record keeping
related to such products and their marketing. Governments in other countries
have similar requirements for testing and marketing.

Regulatory Process in the United States

Our product candidates are
subject to regulation as biological products under the Public Health Service
Act and the Food, Drug and Cosmetic Act. The FDA generally requires the
following steps for pre-market approval or licensure of a new biological
product:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Preclinical laboratory
 and animal tests conducted in compliance with the FDAs Good Laboratory
 Practice, or GLP, requirements to assess a drugs biological activity and to
 identify potential safety problems, and to characterize and document the
 products chemistry, manufacturing controls, formulation, and stability. We
 conduct preclinical testing for internal use and as support for submissions
 to the FDA. Preclinical testing generally included various types of in-vitro
 laboratory evaluations of the PLX-PAD product candidate as well as animal
 studies to assess the safety and the functionality of the product,                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|· | Submission
 to the FDA of an Investigational New Drug, or IND application, which must
 become effective before clinical testing in humans can begin; following
 submission of the IND, the FDA has 30 days to review the application and
 raise safety and other clinical trial issues. If we are not notified of
 objections within that period, clinical trials may be initiated, and human
 clinical trials may commence at a specified number of investigational sites
 with the number of patients approved by the FDA. We have submitted one IND
 for our PLX-PAD product candidate, and we are conducting a clinical study
 under this IND.                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|· | Obtaining
 approval of Institutional Review Boards, or IRBs, of research institutions or
 other clinical sites to introduce the biologic drug candidate into humans in
 clinical trials; adequate and well-controlled human clinical trials to
 establish the safety and efficacy of the product for its intended indication
 conducted in compliance with the FDAs Good Clinical Practice, or GCP,
 requirements. We have obtained approval from two IRBs: (i) Western
 Institutional Review Board or WIRB, on behalf of the Center for Therapeutic Angiogenesis
 in Birmingham, Alabama, (ii) The Duke University Health System Institutional
 Review Board or DUHS IRB, on behalf of Duke University Medical Center. Our phase I study
 utilizing our PLX-PAD product candidate for the treatment of Critical Limb
 Ischemia patients,
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|· | Compliance
 with current Good Manufacturing Practices, or cGMP regulations and standards;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|· | Submission
 to the FDA of a Biologics License Application, or BLA, for marketing that
 includes adequate results of preclinical testing and clinical trials;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

FDA reviews the marketing
application in order to determine, among other things, whether the product is
safe, effective and potent for its intended uses; and obtaining FDA approval of
the BLA, including inspection and approval of the product manufacturing
facility as compliant with cGMP requirements, prior to any commercial sale or
shipment of the pharmaceutical agent.

The FDA may also require
post-marketing testing and surveillance of approved products, or place other
conditions on the approvals.

Regulatory Process in Europe

The European
Union (EU) has approved a regulation specific to cell and tissue products and
our PLX-PAD cell therapy product candidate is regulated under this Advanced
Therapy Medicinal Product (ATMP) regulation, or the EU Directive.

For products
that are regulated as an ATMP, the EU Directive requires:

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | Preclinical
 laboratory and animal testing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(ii) | Filing a
 Clinical Trial Application (CTA) with an Investigational Medicinal Product
 Dossier (IMPD) with the Competent Authority of each EU Member State (MS) in
 which it intends to conduct human clinical trials. The MS Competent Authority
 has 90 days to review the application and raise safety and other clinical
 trial issues. The EU Clinical Directive allows the Competent Authority to
 extend this review period if it deems it necessary for the safety of the
 patient or if it needs additional time to conduct a thorough review.

- 8 -

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|      |                                                                                                                                                                                                                                                                                                                                                                               
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iii) | Obtaining
 approval of Ethic Committees of research institutions or other clinical sites
 to introduce the biologic drug candidate into humans in clinical trials;
 adequate and well-controlled human clinical trials to establish the safety
 and efficacy of the product for its intended indication conducted in
 compliance with the Good Clinical Practice requirements.
|      |                                                                                                                                                                                                                                                                                                                                                                               
|(iv)  | Adequate and
 well-controlled clinical trials to establish the safety and efficacy of the
 product for its intended use;                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                               
|(v)   | Submission
 to EMEA for a Marketing Authorization (MA); and,                                                                                                                                                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                               
|(vi)  | Review and
 approval of the MA.                                                                                                                                                                                                                                                                                                                                               

We have submitted and
obtained approval for one CTA for our PLX-PAD product in Germany, and we have
obtained approval from the local Ethic Committee of Berlin and are conducting a
clinical study under this approval for our phase I study utilizing the PLX-PAD
product for the treatment of Critical Limb Ischemia patients.

Employees

We presently employ a total
of 34 full-time employees and 3 part-time employees, of whom 28 full-time
employees and 2 part-time employees are engaged in research.

Competition

The cellular therapeutics
industry, of which we are a part, is subject to technological changes that can
be rapid and intense. We have faced, and will continue to face, intense
competition from biotechnology, pharmaceutical and biopharmaceutical companies,
academic and research institutions and governmental agencies engaged in
cellular therapeutic and drug discovery activities or funding, both in the
United States and internationally. Some of these competitors are pursuing the
development of cellular therapeutics, drugs and other therapies that target the
same diseases and conditions that we target in our clinical and pre-clinical
programs.

We are aware of many
companies working in this area, including: Osiris Therapeutics, Aastrom
Biosciences, Cytori Therapeutics, Gamida Cell, Geron, Mesoblast and Celgene. We
expect to compete based upon, among other things, our intellectual property
portfolio, our manufacturing efficiencies and the efficacy of our products. Our
ability to compete successfully will depend on our continued ability to attract
and retain experienced and skilled executive, scientific and clinical
development personnel to identify and develop viable cellular therapeutic
candidates and exploit these products commercially.

Item 1A. Risk Factors.

The following risk factors, among others, could affect our
actual results of operations and could cause our actual results to differ
materially from those expressed in forward-looking statements made by us. These
forward-looking statements are based on current expectations and we assume no
obligation to update this information. You should carefully consider the risks
described below and elsewhere in this annual report before making an investment
decision. Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. Our common stock is
considered speculative and the trading price of our common stock could decline
due to any of these risks, and you may lose all or part of your investment. The
following risk factors are not the only risk factors facing our company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business.

We have not earned any
revenues since our incorporation and only have a limited operating history in
our current business of developing and commercializing stem cell production
technology, which raise doubts about our ability to continue as a going
concern.

We have a limited operating history in our
current business of developing and commercializing stem cell production
technology and must be considered in the development stage. We have not generated any revenues since our
inception and we will, in all likelihood, continue to incur operating expenses without
significant revenues until we successfully develop our stem cell production technology and commercialize our cell
therapy products. Our primary source of
funds has been the sale of our common stock. We cannot give assurances that we will
be able to generate any significant revenues or
income. These circumstances make us dependent on additional financial support
until profitability is achieved. There is no assurance that we will ever be
profitable or that we will be able to continue as a going concern as is noted
in the notes to our consolidated
financial statements for the year ended June 30, 2009.

- 9 -

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Our independent registered public accounting firms report
states that there is a substantial doubt that we will be able to continue as a
going concern.

Our independent registered
public accounting firm, Kost, Forer, Gabbay & Kassierer a Member of Ernst
& Young Global, state in their audit report attached to our audited
consolidated financial statements for the fiscal years that ended June 30, 2009
and 2008 that since we are an exploration stage company, we have no established
source of revenue, and are dependent on our ability to raise capital from
shareholders and other sources to sustain operations, there is a substantial
doubt that we will be able to continue as a going concern. There can be no
assurance that acceptable financing to fund our ongoing operations can be
obtained on suitable terms, if at all. If we are unable to obtain the financing
necessary to support our operations, we may be unable to continue as a going
concern. In that event, we may be forced to cease operations and our
stockholders could lose their entire investment in our company.

Our likelihood of
profitability depends on our ability to develop and commercialize products
based on our stem cell production technology, which is currently in the
development stage. If we are unable to complete the development and
commercialization of our stem cell products successfully, our likelihood of
profitability will be limited severely.

We are engaged in the
business of developing cell therapy products. We have not realized a profit
from our operations to date and there is little likelihood that we will realize
any profits in the short or medium term. Any profitability in the future from
our Companys business will be dependent upon successful commercialization of
our potential cell therapy products, which will require significant additional
research and development as well as substantial clinical trials.

If we are not able to
successfully develop and commercialize our cell therapy product candidates and
obtain the necessary regulatory approvals, we may not generate sufficient
revenues to continue our business operations.

Our
early stage cell therapy product candidates may fail to perform as we expect.
Moreover even if our cell therapy product candidates will successfully perform
as expected, in later stages of development may fail to show the desired safety
and efficacy traits despite having progressed successfully through preclinical
or initial clinical testing. We will need to devote significant additional
research and development, financial resources and personnel to develop
commercially viable products and obtain the necessary regulatory approvals.

If
our cell therapy product candidates do not prove to be safe and efficacious in
clinical trials, we will not obtain the required regulatory approvals. If we
fail to obtain such approvals, we may not generate sufficient revenues to
continue our business operations.

Even
if we obtain regulatory approval of a product, that approval may be subject to
limitations on the indicated uses for which it may be marketed. Even after
granting regulatory approval, the FDA and regulatory agencies in other
countries continue to review and inspect marketed products, manufacturers and
manufacturing facilities, which may create additional regulatory burdens. Later
discovery of previously unknown problems with a product, manufacturer or
facility, may result in restrictions on the product or manufacturer, including
a withdrawal of the product from the market. Further, regulatory agencies may
establish additional regulations that could prevent or delay regulatory
approval of our products.

We cannot market and sell our
cell therapy product candidates in the United States or in other countries if
we fail to obtain the necessary regulatory approvals or licensure.

We
cannot sell our cell therapy product candidates until regulatory agencies grant
marketing approval, or licensure. The process of obtaining regulatory approval
is lengthy, expensive and uncertain. It is likely to take several years to
obtain the required regulatory approvals for our cell therapy product
candidates, or we may never gain the necessary approvals. Any difficulties that
we encounter in obtaining regulatory approval may have a substantial adverse
impact on our operations and cause our stock price to decline significantly.

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To
obtain marketing approvals in the United States for cell therapy product
candidates we must, among other requirements, complete carefully controlled and
well-designed clinical trials sufficient to demonstrate to the FDA that the
cell therapy product candidates is safe and effective for each disease for
which we seek approval. So far, we are at the beginning of conducting Phase I
clinical trials for our PLX-PAD product, which is our only product that is the
subject to clinical trials. Several factors could prevent completion or cause
significant delay of these trials, including an inability to enroll the
required number of patients or failure to demonstrate adequately that cell
therapy product candidates are safe, effective and potent for use in humans.
Negative or inconclusive results from or adverse medical events during a
clinical trial could cause the clinical trial to be repeated or a program to be
terminated, even if other studies or trials relating to the program are
successful. The FDA can place a clinical trial on hold if, among other reasons,
it finds that patients enrolled in the trial are or would be exposed to an
unreasonable and significant risk of illness or injury. If safety concerns
develop, we or the FDA could stop our trials before completion.

If we encounter problems or delays in the research and
development of ourpotential
cell therapy products, we may not be able to raise sufficientcapitalto finance our operation during the period
required
to resolve such problems or delays.

Our cell therapy products
are currently in the development stage and we anticipate that we will continue to
incur operating expenses without
significant revenues until we have successfully completed all necessary
research and clinical trials. We,
and any of our potential collaborators, may encounter problems and delays
relating to research and development, regulatory approval and intellectual
property rights of our technology. Our research and development programs may
not be successful, and our cell culture technology may not facilitate the
production of cells outside the human body with the expected result. Our cell
therapy products may not prove to be safe and efficacious in clinical trials. If
any of these events occur, we may not have adequate resources to continue
operations for the period required to resolve the issue delaying commercialization
and we may not be able to raise capital to finance our continued operation
during the period required for resolution of that issue. Accordingly, we may be
forced to discontinue or suspend our operations.

If we are not able to conduct our clinical trials properly
and on schedule, marketing approval by FDA and other regulatory authorities may
be delayed or denied.

The completion of our
clinical trials may be delayed or terminated for many reasons, including, but
not limited to, if:

| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the FDA does not grant
 permission to proceed and places the trial on clinical hold;                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | · | subjects do not enroll in
 our trials at the rate we expect;                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | · | subjects experience an
 unacceptable rate or severity of adverse side effects;                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | · | third-party clinical
 investigators do not perform our clinical trials on our anticipated schedule
 or consistent with the clinical trial protocol, Good Clinical Practice and
 regulatory requirements, or other third parties do not perform data
 collection and analysis in a timely or accurate manner;                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | · | inspections of clinical
 trial sites by the FDA or Institutional Review Boards (IRBs) of research
 institutions participating in our clinical trials find regulatory violations
 that require us to undertake corrective action, suspend or terminate one or
 more sites, or prohibit us from using some or all of the data in support of
 our marketing applications; or
| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | · | one or more IRBs suspends
 or terminates the trial at an investigational site, precludes enrollment of
 additional subjects, or withdraws its approval of the trial.                                                                                                                                                                                                     

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| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our development costs will
 increase if we have material delays in our clinical trials, or if we are
 required to modify, suspend, terminate or repeat a clinical trial. If we are
 unable to conduct our clinical trials properly and on schedule, marketing
 approval may be delayed or denied by the FDA.

We may not be able to secure and maintain research
institutions to conduct our clinical trials.

We rely on research
institutions to conduct our clinical trials. Specifically, the limited number
of centers experienced with cell therapy products candidates heightens our
dependence on such research institutions. Our reliance upon research
institutions, including hospitals and clinics, provides us with less control
over the timing and cost of clinical trials and the ability to recruit
subjects. If we are unable to reach agreement with suitable research
institutions on acceptable terms, or if any resulting agreement is terminated,
we may be unable to quickly replace the research institution with another
qualified institution on acceptable terms. We may not be able to secure and
maintain suitable research institutions to conduct our clinical trials.

We
need to raiseadditionalfinancing to support the research and development of our cell therapy products
and our products in the future but we cannot be sure we will be able to obtain
additional financing on terms favourable to us when needed. If we are unable to
obtain additional financing to meet our needs, our operations may be adversely
affected or terminated.

Our ability to continue to
develop and commercialize our potential cell therapy products is dependent upon
our ability to raise significant additional financing when needed. If we are
unable to obtain such financing, we will not be able to fully develop our technology
and commercialize our cell therapy products. Our future capital requirements
will depend upon many factors, including:

| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| | · | continued scientific
 progress in our research and development programs;                                  
| |   |                                                                                                           
| | · | costs and timing of
 conducting clinical trials and seeking regulatory approvals and patent
 prosecutions;
| |   |                                                                                                           
| | · | competing technological
 and market developments;                                                         
| |   |                                                                                                           
| | · | our ability to establish
 additional collaborative relationships; and                                     
| |   |                                                                                                           
| | · | the effect of
 commercialization activities and facility expansions if and as required.                   

We have limited financial
resources and, to date, negative cash flow from operations. Although we
anticipate that our existing capital resources will be adequate to satisfy our
working capital and capital expenditure requirements until at least March 2010,
we will need to raise additional funds in the near future in order to satisfy
our working capital and capital expenditure requirements. Therefore, we are
dependent on our ability to sell our common stock for funds, receive grants or
to otherwise raise capital. There can be no assurance that we will be able to
obtain financing on that basis in light of the market demand for our
securities, the state of financial markets generally, and other relevant
factors. Any sale of our common stock in the future will result in dilution to
existing stockholders. Furthermore, there is no assurance that we will not
incur debt in the future, that we will have sufficient funds to repay our
future indebtedness, or that we will not default on our future debts,
jeopardizing our business viability. Finally, we may not be able to borrow or
raise additional capital in the future to meet our needs or to otherwise
provide the capital necessary to conduct the development and commercialization
of our potential cell therapy products, which could result in the loss of some
or all of ones investment in our common stock.

We
cannot guarantee continuation of government programs and tax benefits.

We
have in the past received certain Israeli government approval under certain
programs and may in the future utilize certain tax benefits in Israel by virtue
of these programs. To remain eligible for such tax benefits, we must continue
to meet certain conditions, including making some specified investments in
fixed assets. If we fail to comply with these conditions in the future, the
benefits we receive could be canceled and we may pay certain taxes. We cannot
guarantee that these programs and tax benefits will be continued in the future,
at their current levels or at all. If these programs and tax benefits are
ended, our business, financial condition and results of operations could be
negatively affected.

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Because
we received grants from the Israeli Office of the Chief Scientist, we are
subject to ongoing restrictions.

We
received royalty-bearing grants from the Israeli Office of the Chief Scientist
of the Israeli Ministry of Industry, Trade and Labor, or the Chief Scientist,
for research and development programs that meet specified criteria. The terms
of the Chief Scientists grants limit our ability to transfer know-how
developed under an approved research and development program outside of Israel,
regardless of whether the royalties were fully paid. Any non-Israeli citizen,
resident or entity that, among other things, becomes a holder of 5% or more of
our share capital or voting rights, is entitled to appoint one or more of our
directors or our chief executive officer, serves as a director of our company
or as our chief executive officer is generally required to notify the same to
the Chief Scientist and to undertake to observe the law governing the grant
programs of the Chief Scientist, the principal restrictions of which are the
transferability limits described above.

We are exposed to fluctuations in currency exchange
rates.

A significant portion of our
business is conducted outside the United States. Therefore, we are exposed to
currency exchange fluctuations in other currencies such as the Euro and the New
Israeli Shekel (NIS). Moreover, a portion of our expenses in Israel and Europe
are paid in NIS and Euros, respectively, which subjects us to the risks of
foreign currency fluctuations. Our primary expenses paid in NIS are employee
salaries, fees for consultants and subcontractors and lease payments on our
Israeli facilities.

The dollar cost of our operations in Israel will
increase to the extent increases in the rate of inflation in Israel are not
offset by a devaluation of the NIS in relation to the dollar, which would harm
our results of operations.

Since a considerable portion
of our expenses such as employees salaries are linked to an extent to the rate
of inflation in Israel, the dollar cost of our operations is influenced by the
extent to which any increase in the rate of inflation in Israel is or is not
offset by the devaluation of the NIS in relation to the dollar. As a result, we
are exposed to the risk that the NIS, after adjustment for inflation in Israel,
will appreciate in relation to the dollar. In that event, the dollar cost of
our operations in Israel will increase and our dollar-measured results of
operations will be adversely affected. During the past few years inflation-adjusted
NIS appreciated against the dollar, which raised the dollar cost of our Israeli
operations. We cannot predict whether the NIS will appreciate against the
dollar or vice versa in the future. Any increase in the rate of inflation in
Israel, unless the increase is offset on a timely basis by a devaluation of the
NIS in relation to the dollar, will increase labor and other costs, which will
increase the dollar cost of our operations in Israel and harm our results of
operations.

If we fail to obtain and maintain required regulatory
approvals for our potential cell therapy products, our ability to commercialize
our potential cell therapy products will be limited severely.

Once our potential cell
therapy products are fully developed, we intend to market our potential cell
therapy products primarily in the United States and Europe. We must obtain FDA
approval of our technology and potential cell therapy products before
commercialization of our potential cell therapy products may commence in the
United States and similar agencies in Europe. We may also be required to obtain
additional approvals from foreign regulatory authorities to commence our
marketing activities in those jurisdictions. If we cannot demonstrate the
safety, reliability and efficacy of our cells, including long-term sustained
cell engraftment, or if one or more patients die or suffer severe complications
in clinical trials, the FDA and/or other regulatory authorities could delay or
withhold regulatory approval of our technology and potential products.

Furthermore, even if we
obtain regulatory approval for our cell therapy products, that approval may be
subject to limitations on the indicated uses for which they may be marketed. Even
after granting regulatory approval, the FDA, other regulatory agencies, and
governments in other countries will continue to review and inspect marketed
products, manufacturers and manufacturing facilities. Later discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on the product or manufacturer, including a withdrawal of the
product from the market. Further, governmental regulatory agencies may
establish additional regulations, which could prevent or delay regulatory
approval of our technology and our potential
cell therapy products.

- 13 -

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We have very limited experience in conducting and managing
human trials. If we fail in the conducting of such trials, our business will be
materially harmed.

Even though we have
recruited in the past year employees who are experienced in managing and
conducting clinical trials, we still have very limited experience in this area.
We will need to expand on our experience in order to obtain regulatory
approvals for our therapeutic product candidates. The failure to successfully
conduct clinical trials could materially harm our business.

The trend towards consolidation in the pharmaceutical and
biotechnology industries may adversely affect us.

There
is a trend towards consolidation in the pharmaceutical and biotechnology industries.
This consolidation trend may result in the remaining companies having greater
financial resources and discovery technological capabilities, thus intensifying
competition in these industries. This trend may also result in fewer potential
collaborators or licensees for our therapeutic product candidates. Also, if a
consolidating company is already doing business with our competitors, we may
lose existing licensees or collaborators as a result of such consolidation.

This
trend may adversely affect our ability to enter into agreements for the
development and commercialization of our product candidates, and as a result
may harm our business.

Our product development programs are based on novel
technologies and are inherently risky.

We
are subject to the risks of failure inherent in the development of products
based on new technologies. The novel nature of our therapeutics creates
significant challenges in regards to product development and optimization,
manufacturing, government regulation, third-party reimbursement and market
acceptance. For example, the FDA has relatively limited experience with stem
cell therapies. None has been approved by the FDA for commercial sale, and the
pathway to regulatory approval for our cell therapy product candidates may
accordingly be more complex and lengthy. As a result, the development and
commercialization pathway for our therapies may be subject to increased
uncertainty, as compared to the pathway for new conventional drugs.

There are no FDA approved treatments for some of the disease
indications we are pursuing. This could complicate and delay FDA approval of
our biologic drug candidates.

There are no drugs or
therapies currently approved with for treatment of PAD using allogeneic cell
therapy products. As a result, the clinical efficacy endpoints, or the criteria
to measure the intended results of treatment may be difficult to determine. In
addition, patients battling PAD and who, therefore, are candidates for
treatment with PLX-PAD, are typically suffer from complications and disorders
that may bring to amputation and other complications prior to the completion of
the study. This resulting reduction in the number of patients available for
evaluation at the end of the study may make it more difficult for us to
demonstrate efficacy, as necessary to obtain FDA approval to market our
products.

Our cell therapy drug candidates represent new classes of
therapy that the marketplace may not understand or accept.

Even
if we successfully develop and obtain regulatory approval for our biologic drug
candidates, the market may not understand or accept them. We are developing
cell therapy product candidates that represent novel treatments and will
compete with a number of more conventional products and therapies manufactured
and marketed by others, including major pharmaceutical companies. The degree of
market acceptance of any of our developed and potential products will depend on
a number of factors, including:

| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  the clinical safety and
 effectiveness of our cell therapy drug candidates and their perceived
 advantage over alternative treatment methods;
| |                                                                                                                                                
| |  adverse events involving
 our cell therapy product candidates or the products or product candidates of
 others that are stem cell based; and 
| |                                                                                                                                                
| |  the cost of our products
 and the reimbursement policies of government and third-party payors.                                               

- 14 -

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If
the health care community does not accept our potential products for any of the
foregoing reasons, or for any other reason, it could affect our sales, having a
material adverse effect on our business, financial condition and results of
operations.

We are dependent upon third-party suppliers for raw
materials needed for the manufacture; if any of these third parties fail or are
unable to perform in a timely manner, our ability to manufacture and deliver
will be compromised.

In
order to produce our call therapy product candidates, we require certain raw of
materials in addition to the placenta used in our manufacturing process. These
items must be manufactured and supplied to us in sufficient quantities and in
compliance with GMP. To meet these requirements, we have entered into supply
agreements with firms that manufacture these components to GMP standards. Our
requirements for these items are expected to increase if and when we transition
to the manufacture of commercial quantities of our biologic drug candidates.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | In
 addition, as we proceed with our clinical trial efforts, we must be able to
 continuously demonstrate to the FDA and the EMEA, that we can manufacture our
 cell therapy product candidates with consistent characteristics. Accordingly,
 we are materially dependent on these suppliers for supply of GMP-grade
 components of consistent quality. Our ability to complete ongoing clinical
 trials may be negatively affected in the event that we are forced to seek and
 validate a replacement source for any of these critical components. | 

If our processing and storage facility or our clinical
manufacturing facilities are damaged or destroyed, our business and prospects
would be negatively affected.

If
our processing and storage facility or the equipment in the facility were to be
significantly damaged or destroyed, we could suffer a loss of some or all of
the stored units of our cell therapy drug candidates and it would force us to
delay our clinical trial processes. We have a clinical manufacturing facility
located in Haifa, Israel. If this facility or the equipment in it is
significantly damaged or destroyed, we may not be able to quickly or
inexpensively replace our manufacturing capacity.

Even if we obtain regulatory approvals to commercialize our
cell therapy products, we may encounter a lack of commercial acceptance of our
cell therapy products, which would impair the profitability of our business.

Our research and development
efforts are primarily directed toward obtaining regulatory approval for our
potential cell therapy products. Current methods of stem cell collection and
use have been widely practiced for a number of years, and our technology and
products may not be accepted by the marketplace as readily as these or other
competing processes and methodologies. Additionally, our products may not be
employed in all potential applications being investigated, and any reduction in
applications would limit the market acceptance of our technology and our
potential revenues. As a result, even if we obtain all required regulatory
approvals, we cannot be certain that our potential cell therapy products will
be adopted at a level that would allow us to operate profitably.

If we do not keep pace with our competitors and with
technological and market changes, our technology and products may become
obsolete and our business may suffer.

The cellular therapeutics
industry, of which we are a part, is very competitive and is subject to
technological changes that can be rapid and intense. We have faced, and will
continue to face, intense competition from biotechnology, pharmaceutical and
biopharmaceutical companies, academic and research institutions and
governmental agencies engaged in cellular therapeutic and drug discovery
activities or funding, both in the United States and internationally. Some of
these competitors are pursuing the development of cellular therapeutics, drugs
and other therapies that target the same diseases and conditions that we target
in our clinical and preclinical programs.

Many of our competitors have
significantly greater resources, more product candidates and have developed
product candidates and processes that directly compete with our products. Our
competitors may have developed, or could develop in the future, new products
that compete with our products or even render our products obsolete.

- 15 -

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We
depend to a significant extent on certain key personnel, the loss of any of
whom may materially and adversely affect our company.

Our success depends on a significant extent
to the continued services of certain highly qualified scientific and management
personnel, in particular, Zami Aberman, our Chief Executive Officer, and Yaky
Yanay, our Chief Financial Officer. We face competition for qualified personnel
from numerous industry sources, and there can be no assurance that we will be
able to attract and retain qualified personnel on acceptable terms. The loss of
service of any of our key personnel could have a material adverse effect on our
operations or financial condition. In the event of the loss of services of such
personnel, no assurance can be given that we will be able to obtain the
services of adequate replacement personnel. We do not maintain key person insurance
on the lives of any of our officers or employees.

The patent approval process is complex and we cannot be sure
that our pending patent applications or future patent applications will be
approved.

The patent approval process
is complex and results are therefore highly uncertain. No assurance can be
given that any of our pending patent applications or future patent applications
will be approved, that the scope of any patent protection granted will exclude
competitors or provide us with competitive advantages, that any of the patents
that have been or may be issued to us will be held valid if subsequently
challenged, or that other parties will not claim rights to or ownership of our
patents or other proprietary rights that we hold. Furthermore, there can be no
assurance that others have not developed or will not develop similar products,
duplicate any of our technology or products or design around any patents that
have been or may be issued to us or any future licensors. Since patent
applications in the United States are not publicly disclosed until patents are
issued, there can be no assurance that others did not first file applications
for products covered by our pending patent applications, nor can we be certain
that we will not infringe any patents that may be issued to others pursuant to
such applications.

Our success depends in large part on our ability to develop
and protect our technology and our cell therapy products. If our patents and
proprietary rights agreements do not provide sufficient protection for our
technology and our cell therapy products, our business and competitive position
will suffer.

Our success will also depend
in part on our ability to develop our technology and commercialize cell therapy
products without infringing the proprietary rights of others. We have not
conducted freedom of use patent searches and no assurance can be given that
patents do not exist or could not be filed which would have an adverse affect
on our ability to develop our technology or maintain our competitive position
with respect to our potential cell therapy products. If our technology
components, devices, designs, products, processes or other subject matter are
claimed under other existing United States or foreign patents or are otherwise
protected by third party proprietary rights, we may be subject to infringement
actions. In such event, we may challenge the validity of such patents or other
proprietary rights or we may be required to obtain licenses from such companies
in order to develop, manufacture or market our technology or products. There
can be no assurances that we would be able to obtain such licenses or that such
licenses, if available, could be obtained on commercially reasonable terms. Furthermore,
the failure to either develop a commercially viable alternative or obtain such
licenses could result in delays in marketing our proposed products or the
inability to proceed with the development, manufacture or sale of products
requiring such licenses, which could have a material adverse affect on our
business, financial condition and results of operations. If we are required to
defend ourselves against charges of patent infringement or to protect our
proprietary rights against third parties, substantial costs will be incurred
regardless of whether we are successful. Such proceedings are typically
protracted with no certainty of success. An adverse outcome could subject us to
significant liabilities to third parties and force us to curtail or cease our
development of our technology and the commercialization our potential cell
therapy products.

We must further protect and develop our technology and
products in order to become a profitable company.

The initial patent
underlying our technology will expire in approximately 2020. If we do not
complete the development of our technology and products in development by then,
or to create additional sufficient layers of patents, other companies may use
the technology to develop competing products. If this happens, we would likely
lose our competitive position and our business would likely suffer.

- 16 -

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Furthermore, the scope of
our patents may not be sufficiently broad to offer meaningful protection. In
addition, our patents could be successfully challenged, invalidated or
circumvented so that our patent rights would not create an effective
competitive barrier. We also intend to seek patent protection for any of our
potential cell therapy products once we have completed their development.

We also rely on trade secrets
and unpatentable know-how that we seek to protect, in part, by confidentiality
agreements with our employees, consultants, suppliers and licensees. These
agreements may be breached, and we might not have adequate remedies for any
breach. If this were to occur, our business and competitive position would
suffer.

Potential product liability claims could adversely affect
our future earnings and financial condition.

We face an inherent business
risk of exposure to product liability claims in the event that the use of our
products results in adverse affects. As a result, we may incur significant
product liability exposure. We may not be able to maintain adequate levels of
insurance at reasonable cost and/or reasonable terms. Excessive insurance costs
or uninsured claims would add to our future operating expenses and adversely
affect our financial condition.

Our principal research and development facilities are
located in Israel and the unstable military and political conditions of Israel
may cause interruption or suspension of our business operations without
warning.

Our principal research and
development facilities are located in Israel. As a result, we are directly
influenced by the political, economic and military conditions affecting Israel.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors. Acts of
random terrorism periodically occur which could affect our operations or
personnel.

In addition, Israeli-based
companies and companies doing business with Israel, have been the subject of an
economic boycott by members of the Arab League and certain other predominantly
Muslim countries since Israels establishment. Although Israel has entered into
various agreements with certain Arab countries and the Palestinian Authority,
and various declarations have been signed in connection with efforts to resolve
some of the economic and political problems in the Middle East, we cannot
predict whether or in what manner these problems will be resolved. Wars and
acts of terrorism have resulted in significant damage to the Israeli economy,
including reducing the level of foreign and local investment.

Furthermore, certain of our
officers and employees may be obligated to perform annual reserve duty in the
Israel Defense Forces and are subject to being called up for active military
duty at any time. All Israeli male citizens who have served in the army are
subject to an obligation to perform reserve duty until they are between 42 and
54 years old, depending upon the nature of their military service.

Although our internal control over
financial reporting was considered effective as of June 30, 2009, there is no
assurance that our internal control over financial reporting will continue to
be effective in the future, which could result in our financial statements
being unreliable, government investigation or loss of investor confidence in
our financial reports.

Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish an
annual report by our management assessing the effectiveness of our internal
control over financial reporting. This assessment must include disclosure of
any material weaknesses in our internal control over financial reporting
identified by management. Managements report as of the end of fiscal year 2009
concluded that our internal control over financial reporting was effective.
There is however, no assurance that we will be able to maintain such effective
internal control over financial reporting in the future. Ineffective internal
control over financial reporting can result in errors or other problems in our
financial statements. In addition, our internal control over financial
reporting has not yet been audited by our independent registered public
accounting firm. In the future, if we are unable to assert that our internal
controls are effective, our investors could lose confidence in the accuracy and
completeness of our financial reports, which in turn could cause our stock
price to decline. Failure to maintain effective internal control over financial
reporting could also result in investigation or sanctions by regulatory
authorities.

- 17 -

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Because some of our officers and directors are located in
non-U.S. jurisdictions, you may have no effective recourse against the
management for misconduct and may not be able to enforce judgment and civil
liabilities against our officers, directors, experts and agents.

Most of our directors and
officers are nationals and/or residents of countries other than the United
States, and all or a substantial portion of their assets are located outside
the United States. As a result, it may be difficult for you to enforce within
the United States any judgments obtained against our officers or directors,
including judgments predicated upon the civil liability provisions of the
securities laws of the United States or any U.S. state.

Because we do not intend to pay any dividends on our common
stock, investors seeking dividend income should not purchase shares of our common
stock.

We have not declared or paid
any dividends on our common stock since our inception, and we do not anticipate
paying any such dividends for the foreseeable future. Investors seeking
dividend income should not invest in our common stock.

We
have a potential conflict with a prior financing agreement that may expose
us to potential litigation

In
our subscription agreement for our May 2007 equity financing, or the Prior
Financing Agreement, there is a provision that requires us for a period of four
years (subject to acceleration under certain circumstances) not to sell any of
our common stock for less than $.0125 per share. The Prior Financing Agreement
provides that any sale below that number must be preceded by a consent from
each purchaser in the placement. Since that date, we have effected a
one-for-200 reverse stock split.

In
August, 2008, we entered into securities purchase agreements pursuant to
which we sold securities at a price higher than the pre-split price of
$0.125 and below the post-split price of $2.50. We decided to proceed with
this offering notwithstanding this provision for the following reasons:

| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | The agreement
 did not contain any provisions for the adjustment of the specified minimum
 price in the event of stock splits and the like. If such agreement were to
 have contained such a provision, the floor price would be $2.50, which is
 more than the offering price of this offering.                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | · | The majority
 of purchasers in the private placement have sold the stock purchased in the
 placement, and thus the number of purchasers whose consent is purportedly
 required has been substantially reduced. The number of shares outstanding as
 to which this provision currently applies according the information supplied
 by our transfer agent is 1,848,545 shares.
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | · | An agreement
 that prevents our Board of Directors from issuing shares that are necessary
 to finance our business may be unenforceable.                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | · | Even if the
 agreement were considered enforceable and the share price number were to be
 adjusted for our reverse stock split, we believe that there would be no
 damage from this offering to the holders of our shares whose consent is
 purportedly required.                                                                                                           

In
the event that a court were to hold that the issuance of shares below $2.50 per
share would violate the Prior Financing Agreement, it is unclear what remedy
the court might impose. If the court were to impose a remedy that would be the
equivalent of an anti-dilution provision (which is not contained in the Prior
Financing Agreement), any issuance of shares would be dilutive to our
shareholders, including those who purchase shares in the current offering. In
addition, since August 2008, we, on several occasions, raised funds at a price
per share which is higher than the pre-split price of $0.125 and below the
post-split price of $2.50.

In connection
with the August, 2008 financing, we approved the issuance of warrants to purchase up to 147,884 shares of
our common stock to each of the investors who was a party to the Prior
Financing Agreement that held shares
purchased pursuant to such agreement, as of August, 2008, conditioned on
having the investors execute a general release pursuant to which we will be
released from liability including, but not limited to, any claims, demands, or
causes of action arising out of, relating to, or regarding sales of certain
equity securities notwithstanding the above mentioned provision. As of
September 10, 2009 we received a general release from some of the investors,
and issued them warrants to purchase 70,368
shares of our common stock

- 18 -

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Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

Our principal offices are
located at MATAM Advanced Technology Park, Building No. 20, Haifa, Israel
31905, where we occupy approximately 13,800 square feet. We lease our
facilities. Our monthly rental as of September 2009 is 69,000 NIS
(approximately $18,000). For the fiscal year ended June 30, 2009, we paid
$220,866 for rent. We believe that the space available in our facilities is
adequate to meet our current needs, although future growth may require that we
occupy additional space.

Item 3. Legal Proceedings.

None.

Item 4. Submissions of Matters to a Vote of Security Holders.

None.

- 19 -

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PART II

Item 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.

On December 19, 2002, our
shares of common stock received approval for quotation on the National
Association of Securities Dealers Inc.s (now the Financial Regulatory
Authority) Over-the-Counter Bulletin Board. On May 7, 2007, our shares also
began trading on Europes Frankfurt Stock Exchange, under the symbol PJT. On
November 26, 2007, we effected a two hundred for one reverse stock split. On
December 10, 2007, our shares began trading on the NASDAQ Capital Market under
the symbol PSTI.

The following table reflects
the high and low bid information for our common stock on the OTC Bulletin Board
and high and low sale prices on the NASDAQ Capital Market obtained from Yahoo!
Finance and reflects inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions. All numbers
are adjusted for our two hundred for one reverse stock split.

The high and low bid and
sale prices of our common stock for the periods indicated below are as follows:

|                   |  |       |  |      
|------------------ |  | ----- |  | -----
|OTC Bulletin Board
|                  
|Quarter
 Ended     |  | High  |  | Low  
|                   |  |       |  |      
|                  
|September 30, 2007 |  | $7.8  |  | $7.2 
|                  
|NASDAQ            
|                  
|Quarter
 Ended     |  | High  |  | Low  
|                   |  |       |  |      
|                  
|December 31, 2007  |  | $4.15 |  | $3.51
|March 31, 2008     |  | $1.95 |  | $1.61
|June 30, 2008      |  | $1.32 |  | $1.20
|September 30, 2008 |  | $0.89 |  | $0.82
|December 31, 2008  |  | $0.44 |  | $0.38
|March 31, 2009     |  | $1.39 |  | $1.28
|June 30, 2009      |  | $1.41 |  | $1.29

On September 10, 2009, the per share closing
price of our common stock, as reported by Yahoo! Finance, was $1.44. As of September 10, 2009, there were 110 holders of
record of our common stock. As of such date, 15,796,181 common shares were
issued and outstanding.

American Stock Transfer and
Trust Company, LLC is the registrar and transfer agent for our common shares. Their
address is 6201 15th Avenue, 2nd Floor, Brooklyn, NY 11219, telephone: (718)
921-8261, (800) 937-5449.

Dividend Policy

We have not paid any cash
dividends on our common stock and have no present intention of doing so. Our
current policy is to retain earnings, if any, for use in our operations and in
the development of our business. Our future dividend policy will be determined
from time to time by our Board of Directors.

Recent Sales of Unregistered Securities

In April 2009, we issued
3,500 shares to a consultant in consideration for services he provided to our
company.

In April 2009, we granted
100,000 options exercisable at a price of $1.34 per share to a consultant in
consideration for services he provided to our company. The options vest in
twelve equal monthly installments of 8,333 shares.

- 20 -

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In May 2009,
we issued 164,307 shares of common stock to our employees, directors and
consultants. The shares were issued in exchange for a one year voluntary
reduction in the cash compensation they were entitled to receive in
consideration for their services.

In May and
June 2009, we issued 5,644 shares of common stock to a media relations
consultant in consideration for services he provided to our company.

These issuances were deemed
exempt under Regulation S, Regulation D and/or Section 4(2) of the Securities
Act of 1933, as amended.

Item 6. Selected financial data.

Not
Applicable.

Item 7.Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Overview:

We develop and intend to
commercialize, cell therapy production technologies and products.

On December 10, 2007, our
shares of common stock began trading on the NASDAQ Capital Market under the
symbol PSTI. The shares were previously traded on the OTC Bulletin Board under
the trading symbol PLRS.OB. On May 7, 2007, our shares also began trading on
the Frankfurt Stock Exchange, under the symbol PJT.

Effective on July 1, 2008,
we amended our Articles of Incorporation to authorize 10,000,000 shares of
Preferred Stock, par value $0.00001, with such series, rights, preferences,
privileges and restrictions as may be designated from time to time by the Board
of Directors.

RESULTS OF OPERATIONS  YEAR ENDED JUNE 30, 2009 COMPARED TO
YEAR ENDED JUNE 30, 2008.

We have not generated any revenues,
and we have negative cash flow from operations of $17,730,000 and have
accumulated a deficit of $32,652,000 since our inception in May 2001. This
negative cash flow is mostly attributable to research and development and
general and administrative expenses. We anticipate that our operating expenses
will increase as we intend to conduct expanded development of our products
through animal pre-clinical trials and experiments and clinical trials. We
estimate our cash expenses in the next twelve months will be approximately
$6,000,000, generally falling in two major categories: research and development
costs and general and administrative expenses.

Research and Development net

Research and
development net costs, for the year ended June 30, 2009 decreased by 28% to
$3,141,000 from $4,393,000 for the year ended June 30, 2008. The decrease is
due to the decrease in stock-based compensation to employees and consultants in
the amount of $1,036,000 as a result of a decrease in our stock price, and due
to an increase in the participation by the Israeli Office of the Chief
Scientist, or OCS, which offset costs, as the grant for the last 4 months of
fiscal year 2008 was approved and recorded in fiscal year 2009. This decrease
is partially offset by increasing expenses of subcontractors and materials as
we are progressing with our research and development toward clinical trials.

For the next twelve months,
we estimate that our cash research and development net costs will be
approximately $4,000,000. We intend to spend our research and development funds
on continuing research of our PLX cells, continuing our Phase I clinical trials
for the PAD indication in the United States and Germany, upgrading the 3-D
bioreactor operations, developing the expansion of our placenta adherent stem
cell product, and developing capabilities for new clinical indications of PLX
cells.

General and Administrative

General and
administrative expenses for the year ended June 30, 2009 decreased by 43% to
$3,417,000 from $6,036,000 for the year ended June 30, 2008. The decrease in
general and administrative expenses is primarily attributable to the decrease
in stock-based compensation to employees and consultants in the amount of
$1,865,000. In addition, we reduced various expenses, mainly expenses related
to services provided by investor relations and public relations consultants.

- 21 -

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For the next
twelve months, we estimate that our cash general and administrative expenses
will be approximately $2,000,000. These expenses will include management
services, public relations and investor relations and additional amounts on
office and miscellaneous charges, which consist primarily of charges incurred for
purchase of office supplies and other administrative expenses. These expenses
will also include professional fees, which consist primarily of accounting and
auditing fees for the year-end audit and legal fees for securities advice,
directors liability insurance and cost of fundraising.

Net Loss

Net loss for
the year ended June 30, 2009 was $6,636,000 as compared to net loss of
$10,498,000 for the year ended June 30, 2008. Net loss per share for the year
ended June 30, 2009 was $0.63, as compared to $1.63 for the year ended June 30,
2008. The net loss per share decreased as a result of the decrease in the net
loss and the increase in our weighted average number of shares due to the
issuance of additional shares pursuant to equity issuances since July 1, 2008
as discussed further below.

Liquidity and Capital Resources

As of June 30, 2009, total
current assets were $2,935,000 and total current liabilities were $840,000. On
June 30, 2009, we had a working capital surplus of $2,095,000 and an
accumulated deficit of $32,652,000. We finance our operations and plan to
continue doing so with stock issuances and with the participation of the OCS.

Cash and cash equivalents as
of June 30, 2009 amounted to $2,339,000. This is an increase of $2,016,000 from
the $323,000 reported as of June 30, 2008. In addition to the cash and cash
equivalents, we had marketable securities in the amount of $1,185,000 as of
June 30, 2008. Cash balances increased in the year ended June 30, 2009 for the
reasons presented below:

Operating activities used
cash of $4,262,000 in the year ended June 30, 2009. Cash used by operating
activities in the year ended June 30, 2009 primarily consisted of payments of
salaries to our employees, and payments of fees to our consultants,
subcontractors and professional services providers, less research and
development grant participation by the OCS.

Investing activities
provided cash of $830,000 in the year ended June 30, 2009. This resulted
primarily from proceeds from sale of marketable securities in the amount of
$1,113,000 offset by purchases of capital equipment and leasehold improvements
associated with our GMP in the amount of $313,000.

Financing activities
generated cash in the amount of $5,448,000 during the year ended June 30, 2009
resulting primarily from receiving cash from investors related to the offerings
described below.

On August 6,
2008, we sold 1,391,304 shares of our common stock and warrants to purchase
695,652 shares of common stock at an exercise price of $1.90 per share to two
investors in consideration of $1,600,000 pursuant to the terms of a securities
purchase agreement. Rodman & Renshaw, LLC acted as placement agent, on a
best efforts basis, for the offering and received a placement fee equal to 6% of
the gross purchase price of the securities sold (excluding any consideration
that may be paid in the future upon exercise of the warrants) as well as
warrants to purchase 83,478 shares of common stock at an exercise price of
$1.44 per share. Subject to Financial Industry Regulatory Authority, or FINRA,
Rule 2710, the placement agent warrants may be exercised after six months
through and including August 5, 2013. The offering was made pursuant to our
effective shelf registration statement on Form S-3 (File No. 333-151761).

On September
22, 2008, we sold 900,000 shares of our common stock and warrants to purchase
675,000 shares of common stock to an investor in consideration for $1,035,000
pursuant to terms of a securities purchase agreement. The price per share of
common stock was $1.15, and the exercise price of the warrants is $1.90. The
warrants will be exercisable for a period of five years. The offering was made
pursuant to our effective shelf registration statement on Form S-3 (File No.
333-151761). As part of
this transaction, we paid a transaction fee to finders equal to 6% of the
actual purchase price and issued, for no further consideration, warrants
exercisable for five years at an exercise price of $1.50 per share to purchase
54,000 shares of our common stock.

- 22 -

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During
November 2008 through January 2009, we entered into securities purchase
agreements with various investors, pursuant to which we sold in aggregate of
1,746,575 shares of our common stock at a price of $0.40 per share, for an
aggregate purchase price of $698,630, and issued warrants to purchase up to an
additional 1,746,575 shares of common stock with an exercise price of $1.00 per
share. The warrants became exercisable after six months from the applicable
closing date and will expire after five years from such date. Pursuant to the
securities purchase agreements, the investors had the option, by notice to us
no later than 10 business days following the release of an official
announcement by us that the company is initiating its first human clinical
trials, to purchase an additional 931,507 shares of common stock at a purchase
price of $0.75 per share, for an aggregate purchase price of $698,630, and
receive therewith warrants to purchase up to additional 931,507 shares of
common stock with an exercise price of $1.50 per share, or the Initial Option.
The Initial Option was exercisable within six months from the applicable
closing date. Investors exercised the Initial Option in July 2009 as described
further below. As part of this transaction, we paid a transaction fee to
finders in an amount of $38,630 in cash and issued them warrants exercisable
for five years at an exercise price of $1.00 per share to purchase 96,579
shares of our common stock.

On January 20,
2009, we sold 216,818 shares of our common stock and warrants to purchase
216,818 shares of common stock to investors in consideration for $95,400
pursuant to terms of a securities purchase agreement. The price per share of
common stock was $0.44, and the exercise price of the warrants is $1.00 per
share. The warrants became exercisable after six months from the closing date
and will expire after five years from such date. Pursuant to the agreement, the
investors had the option, by notice to us no later than 10 business days
following the release of an official announcement by us that the company is
initiating its first human clinical trials, to purchase additional 127,200
shares of common stock at a purchase price of $0.75 per share, for an aggregate
purchase price of $95,400, and receive therewith warrants to purchase up to an
additional 127,200 shares of common stock with an exercise price of $1.50 per
share, or the January 20 Option. The January 20 Option was exercisable within
six months from the closing date. Investors exercised the January 20 Option in
July 2009 as described further below. As part of this transaction, we paid a
transaction fee to
finders in an amount of $5,400 in cash and issued them warrants
exercisable for two years at an exercise price of $1.00 per share to purchase
12,273 shares of our common stock.

On January 29,
2009, we entered into a subscription agreement with certain investors, pursuant
to which we sold to such investors 969,826 units, each unit consisting of one
share of common stock and a warrant to purchase one share of our common stock
exercisable 181 days following the issuance thereof for a period of five years
thereafter at an exercise price of $1.90 per share, or the Units. The purchase
price per Unit was $1.16 and the aggregate purchase price for such Units was
$1,125,000. As part of this transaction, we paid a transaction fee to finders
in an amount of $89,546 in cash and issued these investors warrants to purchase
80,983 shares of our common stock, exercisable after six months for five years
at an exercise price of $1.90 per share.

On May 5,
2009, we entered into securities purchase agreements with two investors
pursuant to which we sold 888,406 shares of our common stock and warrants to
purchase 488,623 shares of common stock in consideration for $1,332,610. The
exercise price of the warrants is $1.96 and they will be exercisable for a
period of five years commencing six months following the issuance thereof.
Rodman & Renshaw, LLC acted as placement agent, on a best efforts basis,
for the offering and received a placement fee equal to 6% of the gross purchase
price of the securities sold (excluding any consideration that may be paid in
the future upon exercise of the warrants) as well as warrants to purchase
53,304 shares of common stock at an exercise price of $1.875 per share. Subject
to FINRA Rule 2710, the placement agents warrants may be exercised after six
months through and including May 5, 2014. The offering was made pursuant to our
effective shelf registration statement on Form S-3 (File No. 333-151761).

We announced that the
company is initiating its first human clinical trials, which triggered the
ability to exercise the Initial
Option and the January 20 Option by certain investors. Accordingly, we issued
in July 2009 1,058,708 shares of common stock at a purchase price of $0.75 per
share, for an aggregate purchase price of $794,030, and warrants to purchase up
to an additional 1,058,708 shares of common stock with an exercise price of
$1.50 per share.

- 23 -

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We received $1,375,000 from
grants from the OCS during the year ended June 30, 2009. Recently, a grant in
an amount of $2.3 million was approved for participation in R&D expenses
for the period March 2009 to February 2010 (In August 2009 we received $668,000
on account of the approved grant).

While most of our capital
resources are denominated by US dollars, about half of our expenses are
denominated by NIS. Over the past year, due to the increased volatility of the
US Dollar, we began using foreign currency forward contracts. We continue to
actively utilize currency hedging transactions to manage our exposure.

Outlook

We do not expect to generate
any revenues from sales of products in the next twelve months. We may generate
revenues from sale of licenses to use our technology or products. Our products
will likely not be ready for sale for at least three years, if at all.

The OCS has supported our
activity in the past three years. Our application for a fourth years grant was
submitted in March 2009. Recently, the OCS approved a grant in an amount of
$2.3 million for participation in R&D expenses for the period March 2009 to
February 2010. We believe that the funds we have, together with the approved
R&D grant, will be sufficient for operating until March 2010. Our independent
registered public accounting firms report states that there is a substantial
doubt that we will be able to continue as a going concern. Management believes
that we will need to raise additional funds before we have any cash flow from
operations.

We are looking constantly
for sources of funding, including non-diluting funds, such as the OCS grants
and filing grant applications with the U.S. National Institutes of Health,
which we have done recently. There can be no assurance that we will receive this
grant. In addition, we plan to raise additional funds by issuance of equity.

If we are unable to obtain
the financing necessary to support our operations, we may need to take measures
to reduce our operating costs, or, if such measures will not be sufficient, we
may be unable to continue as a going concern. In that event, we may be forced
to cease operations and our stockholders could lose their entire investment in
the company.

Application of Critical Accounting Policies

Our financial statements and
accompanying notes are prepared in accordance with U.S. GAAP. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses.
These estimates and assumptions are affected by managements application of
accounting policies. We believe that understanding the basis and nature of the
estimates and assumptions involved with the following aspects of our
consolidated financial statements is critical to an understanding of our
financials.

Stock-based compensation

We account for
stock-based compensation in accordance with Statement of Financial Accounting
Standards, or SFAS, No. 123 (revised 2004), Share-Based Payment, or SFAS No.
123(R). SFAS No. 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 our consolidated
income statements.

We recognize compensation
expenses for the value of its awards, which have graded vesting based on the
accelerated method over the requisite service period of each of the awards.

We estimate 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. The expected life of
options granted is calculated using the Simplified Method, as defined in Staff
Accounting Bulletin, or SAB No. 107, Share-Based Payments, or SAB No. 107, as
the average between the vesting period and the contractual life of the options.
On December 21, 2007 the SEC staff issued SAB No. 110, or SAB 110, which,
effective January 1, 2008, amends and replaces SAB No. 107.

- 24 -

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We currently use the
Simplified Method, as adequate historical experience is not available to
provide a reasonable estimate. We adopted SAB 110 effective January 1,
2008 and will continue to apply the Simplified Method until enough historical
experience is available to provide a reasonable estimate of the expected term
for stock option grants.

We have 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 expected annual pre-vesting forfeiture rate affects the
number of exercisable options. Based on our historical experience, the annual
pre-vesting forfeiture rate is 5%.

The assumptions below are
relevant to restricted shares granted in 2009:

In accordance with SFAS No.
123(R), restricted shares are measured at their fair value as if they were
vested and issued on the grant date. All restricted shares to employees and
non-employees granted in 2009 were granted for no consideration; therefore
their fair value was equal to the share price at the date of grant.

The fair value of all
restricted shares was determined based on the close trading price of our shares
known at the grant date.

We apply SFAS No. 123 (R)
and Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services, with respect to options and warrants issued to
non-employees. SFAS 123(R) requires the use of option valuation models to
measure the fair value of the options and warrants at the measurement date.

Off Balance Sheet Arrangements

Our company has no off
balance sheet arrangements.

Item7A. Quantitative and Qualitative Disclosures About
Market Risk.

Not Applicable.

- 25 -

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Item 8. Financial Statements and Supplementary Data.

Our financial statements are
stated in thousands United States dollars (US$) and are prepared in accordance
with U.S. GAAP.

The following audited
consolidated financial statements are filed as part of this registration
statement:

Report of Independent
Registered Public Accounting Firm, dated September 23, 2009

Consolidated Balance Sheets

Consolidated Statements of
Operations

Consolidated Statements of
Changes in Stockholders Equity (Deficiency)

Consolidated Statements of
Cash Flows

Notes to the Consolidated
Financial Statements

- 26 -

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PLURISTEM
THERAPEUTICS INC. AND ITS SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2009

---

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PLURISTEM
THERAPEUTICS INC. AND ITS SUBSIDIARY(A Development Stage Company)CONSOLIDATED FINANCIAL STATEMENTS

As ofJune 30,
2009

U.S. DOLLARS IN THOUSANDS

INDEX

|                                                            |  |          
|----------------------------------------------------------- |  | ---------
|                                                            |  | Page     
|                                                            |  |          
|Report of Independent
 Registered Public Accounting Firm    |  | F-2      
|                                                            |  |          
|Consolidated Balance
 Sheets                                |  | F-3-F-4  
|                                                            |  |          
|Consolidated Statements
 of Operations                      |  | F-5      
|                                                            |  |          
|Statements of changes in
 Stockholders Equity (Deficiency) |  | F-6-F-14 
|                                                            |  |          
|Consolidated Statements
 of Cash Flows                      |  | F-15-F-17
|                                                            |  |          
|Notes to Consolidated Financial
 Statements                 |  | F-18-F-51

F - 1

---

---



|                     |                                                      |                                                                
|-------------------- | ---------------------------------------------------- | ---------------------------------------------------------------
|(ERNST & YOUNG LOGO) |                                                      | Kost Forer
 Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095,
 Israel
|                     |                                                     
|                     | Tel: 972
 (4)8654000Fax: 972 (3)5633443www.ey.com.il

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Stockholders Of

PLURISTEM THERAPEUTICS INC.

(A Development Stage Company)

We have audited the accompanying consolidated balance sheets of
Pluristem Therapeutics Inc. and its subsidiary (a development stage company)
(the Company) as of June 30, 2009 and the related consolidated
statements of operations, changes in stockholders equity and cash flows for
each of the three years in the period ended June 30, 2009 and for the period from May 11,
2001 (inception date) through June 30, 2009. These consolidated 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.

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 audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant
estimates made by management and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated financial
position of the Company as of June 30, 2009, and the consolidated results of
operations and cash flows for each of the three years in the period ended June
30, 2009 and for the period from May 11, 2001 (inception date) through June 30,
2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1b to the consolidated financial statements, the
Company has not yet generated revenues from its operations and is dependent on
external sources for financing its operations. These factors, among others
discussed in Note 1b, raise substantial doubt about the Companys ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

| |  | /s/ Kost Forer Gabbay & Kasierer 
Kost Forer Gabbay & KasiererA member of Ernst & Young Global
| |  | ------------------------------------------------------------------------------------------------------------

Haifa, IsraelSeptember 23, 2009

F - 2

---

---



PLURISTEM THERAPEUTICS INC. AND ITS
SUBSIDIARY(A
Development Stage Company)

|                           
|---------------------------
|CONSOLIDATED BALANCE SHEETS
|                           
|U.S. Dollars in thousands  

|                                                           |  |      |  |          |   |       |  |   |       | 
|---------------------------------------------------------- |  | ---- |  | -------- | - | ----- |  | - | ----- | 
|                                                           |  |      |  | June 30, |  
|                                                           |  |      |  |          |  
|                                                           |  | Note |  | 2009     |   | 2008  | 
|                                                           |  |      |  |          |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|ASSETS                                                     |  |      |  |          |   |       |  |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|CURRENT ASSETS:                                            |  |      |  |          |   |       |  |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|Cash and cash equivalents                                  |  | 3    |  |          | $ | 2,339 |  | $ | 323   | 
|Marketable securities                                      |  | 4    |  |          |   |      |  |   | 1,185 | 
|Prepaid expenses                                           |  |      |  |          |   | 100   |  |   | 350   | 
|Accounts receivable from the Office of the Chief Scientist |  |      |  |          |   | 383   |  |   | 119   | 
|Other accounts receivable                                  |  |      |  |          |   | 113   |  |   | 130   | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|Total current
 assets                                      |  |      |  |          |   | 2,935 |  |   | 2,107 | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|LONG-TERM ASSETS:                                          |  |      |  |          |   |       |  |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|Long-term deposits and restricted deposits                 |  |      |  |          |   | 171   |  |   | 201   | 
|Severance pay fund                                         |  |      |  |          |   | 154   |  |   | 127   | 
|Property and equipment, net                                |  | 5    |  |          |   | 1,203 |  |   | 1,149 | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|Total long-term
 assets                                    |  |      |  |          |   | 1,528 |  |   | 1,477 | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|                                                           |  |      |  |          |   |       |  |   |       | 
|Total assets                                               |  |      |  |          | $ | 4,463 |  | $ | 3,584 | 
|                                                           |  |      |  |          |   |       |  |   |       | 

The accompanying notes are an integral part of the
consolidated financial statements.

F - 3

---

---



PLURISTEM THERAPEUTICS INC. AND ITS
SUBSIDIARY(A
Development Stage Company)

|                                                           
|-----------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS                                
|                                                           
|U.S. Dollars in thousands (except share and per share data)

|                                                                                |  |      |  |          |   |         |   |   |         |  
|------------------------------------------------------------------------------- |  | ---- |  | -------- | - | ------- | - | - | ------- | -
|                                                                                |  |      |  | June 30, |  
|                                                                                |  |      |  |          |  
|                                                                                |  | Note |  | 2009     |   | 2008    |  
|                                                                                |  |      |  |          |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                            |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|CURRENT LIABILITIES                                                             |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|Trade payables                                                                  |  |      |  |          | $ | 487     |   | $ | 622     |  
|Accrued expenses                                                                |  |      |  |          |   | 81      |   |   | 154     |  
|Other accounts payable                                                          |  | 6    |  |          |   | 272     |   |   | 296     |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|Total current
 liabilities                                                      |  |      |  |          |   | 840     |   |   | 1,072   |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|LONG-TERM LIABILITIES                                                           |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|Long-term obligation                                                            |  |      |  |          |   | 23      |   |   | 36      |  
|Accrued severance pay                                                           |  |      |  |          |   | 206     |   |   | 147     |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   | 229     |   |   | 183     |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|COMMITMENTS AND CONTINGENCIES                                                   |  | 7    |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|STOCKHOLDERS EQUITY                                                            |  | 8    |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|Share capital:                                                                  |  |      |  |          |   |         |   |   |         |  
|Common stock $0.00001 par value:                                                |  |      |  |          |   |         |   |   |         |  
|Authorized: 30,000,000 shares.                                                  |  |      |  |          |   |         |   |   |         |  
|Issued: 14,738,693 shares, outstanding:
 13,676,886 shares as of June 30, 2009. |  |      |  |          |   |         |   |   |         |  
|Issued and outstanding: 6,941,715 shares as
 of June 30, 2008.                  |  |      |  |          |   | - (*    | ) |   | - (*    | )
|                                                                               
|Additional paid-in capital                                                      |  |      |  |          |   | 36,046  |   |   | 28,345  |  
|Accumulated deficit during the development
 stage                               |  |      |  |          |   | (32,652 | ) |   | (26,016 | )
|                                                                                |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   | 3,394   |   |   | 2,329   |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          |   |         |   |   |         |  
|                                                                                |  |      |  |          | $ | 4,463   |   | $ | 3,584   |  
|                                                                                |  |      |  |          |   |         |   |   |         |  

(*)     Less than
$1.

The accompanying notes are an integral part of the
consolidated financial statements.

F - 4

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS 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 June 30, |            | Period from May11, 2001(Inception)through June 30, |  
|                                                                                           |  |      |  |                     |            |                                                    |  
|                                                                                           |  | Note |  | 2009                |            | 2008                                               |   | 2007      |   | 2009 |          
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |          
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Research and development expenses                                                          |  |      |  | $                   | 4,792      |                                                    | $ | 5,077     |   | $    | 3,084     |   | $ | 17,157  |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Less participation by the Office of the Chief
 Scientist                                   |  |      |  |                     | (1,651     | )                                                  |   | (684      | ) |      | (535      | ) |   | (3,250  | )
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Research and development expenses,net                                                      |  |      |  |                     | 3,141      |                                                    |   | 4,393     |   |      | 2,549     |   |   | 13,907  |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|General and administrative expenses                                                        |  |      |  |                     | 3,417      |                                                    |   | 6,036     |   |      | 3,726     |   |   | 17,373  |  
|Know how write-off                                                                         |  |      |  |                     |           |                                                    |   |          |   |      | 1,963     |   |   | 2,474   |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Gross loss                                                                                 |  |      |  |                     | (6,558     | )                                                  |   | (10,429   | ) |      | (8,238    | ) |   | (33,754 | )
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Financial expenses (income), net                                                           |  | 9    |  |                     | 78         |                                                    |   | 69        |   |      | 191       |   |   | (1,102  | )
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Net loss for the period                                                                    |  |      |  | $                   | (6,636     | )                                                  | $ | (10,498   | ) | $    | (8,429    | ) | $ | (32,652 | )
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Loss per share:                                                                            |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Basic and diluted net loss per share                                                       |  |      |  | $                   | (0.63      | )                                                  | $ | (1.63     | ) | $    | (5.84     | ) |   |         |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  
|Weighted average number of shares used in computing basic and diluted
 net loss per share: |  |      |  |                     | 10,602,880 |                                                    |   | 6,422,364 |   |      | 1,442,367 |   |   |         |  
|                                                                                           |  |      |  |                     |            |                                                    |   |           |   |      |           |   |   |         |  

The accompanying notes are an integral part of the consolidated
financial statements.

F - 5

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND ITS
 SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share data)                                 

|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|-------------------------------------------------------------------------------- |  | ------------- | -------- | ------------------- | - | -------------------------------- | - | --------------------------------------------- | -- | ---------------------------- | - | ------------ |  | - | ---- | - | - | ---- | -
|                                                                                 |  | Common
 Stock |          | Additional
 Paid-in |   | Receipts
 on
 Account of
 Common |   | Deficit
 Accumulated
 During the
 Development |    | Total
 Stockholders
 Equity |  
|                                                                                 |  | Shares        |          | Amount              |   | Capital                          |   | Stock                                         |    | Stage                        |   | (Deficiency) | 
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              | 
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Issuance
 of common stock on July 9, 2001                                        |  |               | 175,500  |                     | $ | (*                               | ) | $                                             | 3  |                              | $ |             |  | $ |     |   | $ | 3    |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Balance as of June 30, 2001                                                      |  |               | 175,500  |                     |   | (*                               | ) |                                               | 3  |                              |   |             |  |   |     |   |   | 3    |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Net
 loss                                                                        |  |               |         |                     |   |                                 |   |                                               |   |                              |   |             |  |   | (78  | ) |   | (78  | )
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Balance as of June 30, 2002                                                      |  |               | 175,500  |                     |   | (*                               | ) |                                               | 3  |                              |   |             |  |   | (78  | ) |   | (75  | )
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Issuance
 of common stock on October 14, 2002, net of issuance expenses of $17   |  |               | 70,665   |                     |   | (*                               | ) |                                               | 83 |                              |   |             |  |   |     |   |   | 83   |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Forgiveness
 of debt                                                             |  |               |         |                     |   |                                 |   |                                               | 12 |                              |   |             |  |   |     |   |   | 12   |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Stock
 cancelled on March 19, 2003                                               |  |               | (136,500 | )                   |   | (*                               | ) |                                               | (* | )                            |   |             |  |   |     |   |   |     |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Receipts
 on account of stock and warrants, net of finders and legal fees of $56 |  |               |         |                     |   |                                 |   |                                               |   |                              |   | 933          |  |   |     |   |   | 933  |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Net
 loss                                                                        |  |               |         |                     |   |                                 |   |                                               |   |                              |   |             |  |   | (463 | ) |   | (463 | )
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  
|Balance as of June 30, 2003                                                      |  |               | 109,665  |                     | $ | (*                               | ) | $                                             | 98 |                              | $ | 933          |  | $ | (541 | ) | $ | 490  |  
|                                                                                 |  |               |          |                     |   |                                  |   |                                               |    |                              |   |              |  |   |      |   |   |      |  

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 6

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|------------------------------------------------------------------------------------------ |  | ------------- | ------- | ------------------- | - | -------------------------------- | - | --------------------------------------------- | ----- | ---------------------------- | - | ------------ | - | - | ------ | - | - | ------ | -
|                                                                                           |  | Common
 Stock |         | Additional
 Paid-in |   | Receipts
 on
 Account of
 Common |   | Deficit
 Accumulated
 During the
 Development |       | Total
 Stockholders
 Equity |  
|                                                                                           |  | Shares        |         | Amount              |   | Capital                          |   | Stock                                         |       | Stage                        |   | (Deficiency) |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Balance as of July 1, 2003                                                                 |  |               | 109,665 |                     | $ | (*                               | ) | $                                             | 98    |                              | $ | 933          |   | $ | (541   | ) | $ | 490    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Issuance
 of common stock on July 16, 2003, net of issuance expenses of $70                |  |               | 3,628   |                     |   | (*                               | ) |                                               | 1,236 |                              |   | (933         | ) |   |       |   |   | 303    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Issuance
 of common stock on January 20, 2004                                              |  |               | 15,000  |                     |   | (*                               | ) |                                               |      |                              |   |             |   |   |       |   |   | (*     | )
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Issuance
 of warrants on January 20, 2004 for finders fee                                 |  |               |        |                     |   |                                 |   |                                               | 192   |                              |   |             |   |   |       |   |   | 192    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Common
 stock granted to consultants on February 11, 2004                                  |  |               | 5,000   |                     |   | (*                               | ) |                                               | 800   |                              |   |             |   |   |       |   |   | 800    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Stock
 based compensation related to warrants granted to consultants on December 31,
 2003 |  |               |        |                     |   |                                 |   |                                               | 358   |                              |   |             |   |   |       |   |   | 358    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Exercise
 of warrants on April 19, 2004                                                    |  |               | 1,500   |                     |   | (*                               | ) |                                               | 225   |                              |   |             |   |   |       |   |   | 225    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Net
 loss for the year                                                                     |  |               |        |                     |   |                                 |   |                                               |      |                              |   |             |   |   | (2,011 | ) |   | (2,011 | )
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  
|Balance as of June 30, 2004                                                                |  |               | 134,793 |                     | $ | (*                               | ) | $                                             | 2,909 |                              | $ |             |   | $ | (2,552 | ) | $ | 357    |  
|                                                                                           |  |               |         |                     |   |                                  |   |                                               |       |                              |   |              |   |   |        |   |   |        |  

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 7

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------- | - | --------------------------------------------- | - | ---------------------------- | ----- | ------------ | - | ------ | - | - | --- | -
|                                                                                                                                |  | Common
 Stock |  | Additional
 Paid-in |   | Deficit
 Accumulated
 During the
 Development |   | Total
 Stockholders
 Equity |      
|                                                                                                                                |  | Shares        |  | Amount              |   | Capital                                       |   | Stage                        |       | (Deficiency) |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Balance as of July 1, 2004                                                                                                      |  | 134,793       |  |                     | $ | (*                                            | ) | $                            | 2,909 |              | $ | (2,552 | ) | $ | 357 |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Stock-based
 compensation related to warrants granted to consultants on September 30, 2004                                      |  |              |  |                     |   |                                              |   |                              | 162   |              |   |       |   |   | 162 |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Issuance
 of common stock and warrants on November 30, 2004 related to the October 2004
 Agreement net of issuance costs of $29 |  | 16,250        |  |                     |   | (*                                            | ) |                              | 296   |              |   |       |   |   | 296 |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Issuance
 of common stock and warrants on January 26, 2005 related to the October 2004
 Agreement net of issuance costs of $5   |  | 21,500        |  |                     |   | (*                                            | ) |                              | 425   |              |   |       |   |   | 425 |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Issuance
 of common stock and warrants on January 31, 2005 related to the January 31,
 2005 Agreement                           |  | 35,000        |  |                     |   | (*                                            | ) |                              |      |              |   |       |   |   | (*  | )
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Issuance
 of common stock and options on February 15, 2005 to former director of the
 Company                                   |  | 250           |  |                     |   | (*                                            | ) |                              | 14    |              |   |       |   |   | 14  |  
|                                                                                                                                |  |               |  |                     |   |                                               |   |                              |       |              |   |        |   |   |     |  
|Issuance
 of common stock and warrants on February 16, 2005 related to the January 31,
 2005 Agreement                          |  | 25,000        |  |                     |   | (*                                            | ) |                              |      |              |   |       |   |   | (*  | )

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 8

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------- | -- | --------------------------------------------- |  | ---------------------------- | - | ------------ | - |  |  | ----- |  | 
|                                                                                                                                |  | Common
 Stock |  | Additional
 Paid-in |    | Deficit
 Accumulated
 During the
 Development |  | Total
 Stockholders
 Equity |  
|                                                                                                                                |  | Shares        |  | Amount              |    | Capital                                       |  | Stage                        |   | (Deficiency) |  
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |  
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|Issuance
 of warrants on February 16, 2005 for finder fee related to the January 31,
 2005 Agreement                            |  |              |  |                     |   |                                               |  | 144                          |   |              |  |  |  | 144   |  | 
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|Issuance
 of common stock and warrants on March 3, 2005 related to the January 24, 2005
 Agreement net of issuance costs of $24 |  | 60,000        |  |                     | (* | )                                             |  | 1,176                        |   |              |  |  |  | 1,176 |  | 
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|Issuance
 of common stock on March 3, 2005 for finder fee related to the January 24,
 2005 Agreement                            |  | 9,225         |  |                     | (* | )                                             |  | (*                           | ) |              |  |  |  |      |  | 
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|Issuance
 of common stock and warrants on March 3, 2005 related to the October 2004
 Agreement net of issuance costs of $6      |  | 3,750         |  |                     | (* | )                                             |  | 69                           |   |              |  |  |  | 69    |  | 
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|Issuance
 of common stock and warrants to the Chief Executive Officer on March 23, 2005                                         |  | 12,000        |  |                     | (* | )                                             |  | 696                          |   |              |  |  |  | 696   |  | 
|                                                                                                                                |  |               |  |                     |    |                                               |  |                              |   |              |   |  |  |       |  | 
|Issuance
 of common stock on March 23, 2005 related to the October 2004 Agreement                                               |  | 1,000         |  |                     | (* | )                                             |  | 20                           |   |              |  |  |  | 20    |  | 

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 9

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ------------------- | - | --------------------------------------------- | - | ---------------------------- | ----- | ------------ | - | ------ | - | - | ------ | -
|                                                                                                                     |  | Common
 Stock |         | Additional
 Paid-in |   | Deficit
 Accumulated
 During the
 Development |   | Total
 Stockholders
 Equity |      
|                                                                                                                     |  | Shares        |         | Amount              |   | Capital                                       |   | Stage                        |       | (Deficiency) |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Classification
 of a liability in respect of warrants to additional paid in capital, net of
 issuance costs of $ 178 |  |               |        |                     |   |                                              |   |                              | 542   |              |   |       |   |   | 542    |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Net
 loss for the year                                                                                               |  |               |        |                     |   |                                              |   |                              |      |              |   | (2,098 | ) |   | (2,098 | )
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Balance as of June 30, 2005                                                                                          |  |               | 318,768 |                     |   | (*                                            | ) |                              | 6,453 |              |   | (4,650 | ) |   | 1,803  |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Exercise
 of warrants on November 28, 2005 to finders related to the January 24, 2005
 agreement                     |  |               | 400     |                     |   | (*                                            | ) |                              |      |              |   |       |   |   |       |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Exercise
 of warrants on January 25, 2006 to finders related to the January 25, 2005
 Agreement                      |  |               | 50      |                     |   | (*                                            | ) |                              |      |              |   |       |   |   |       |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Reclassification
 of warrants from equity to liabilities due to application of EITF 00-19                            |  |               |        |                     |   |                                              |   |                              | (8    | )            |   |       |   |   | (8     | )
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Net
 loss for the year                                                                                               |  |               |        |                     |   |                                              |   |                              |      |              |   | (2,439 | ) |   | (2,439 | )
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  
|Balance as of June
 30, 2006                                                                                         |  |               | 319,218 |                     | $ | (*                                            | ) | $                            | 6,445 |              | $ | (7,089 | ) | $ | (644   | )
|                                                                                                                     |  |               |         |                     |   |                                               |   |                              |       |              |   |        |   |   |        |  

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 10

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|------------------------------------------------------------------------------------------ |  | ------------- |  | ------------------- | - | -------------------------------- | - | --------------------------------- | ----- | --------------------------------------------- | - | -------------------- |  | ------ | - |  | - | ------ | - | - | ----- | -
|                                                                                           |  | Common
 Stock |  | Additional
 Paid-in |   | Receipts
 on
 Account of
 Common |   | Accumulated
 Other
 Comprehensive |       | Deficit
 Accumulated
 During the
 Development |   | Total
 Stockholders | 
|                                                                                           |  | Shares        |  | Amount              |   | Capital                          |   | Stock                             |       | Loss                                          |   | Stage                |  | Equity |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Balance as of July 1,
 2006                                                                |  | 319,218       |  |                     | $ | (*                               | ) | $                                 | 6,445 |                                               | $ |                     |  | $      |  |  | $ | (7,089 | ) | $ | (644  | )
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Conversion of convertible debenture, net
 of issuance costs of $440                        |  | 1,019,815     |  |                     |   | (*                               | ) |                                   | 1,787 |                                               |   |                     |  |        |  |  |   |       |   |   | 1,787 |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Classification of a liability in respect
 of warrants                                      |  |              |  |                     |   |                                 |   |                                   | 360   |                                               |   |                     |  |        |  |  |   |       |   |   | 360   |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Classification of deferred issuance
 expenses                                              |  |              |  |                     |   |                                 |   |                                   | (379  | )                                             |   |                     |  |        |  |  |   |       |   |   | (379  | )
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Classification of a liability in respect
 of options granted to non-employees consultants  |  |              |  |                     |   |                                 |   |                                   | 116   |                                               |   |                     |  |        |  |  |   |       |   |   | 116   |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Compensation related to options granted
 to employees and directors                        |  |              |  |                     |   |                                 |   |                                   | 2,386 |                                               |   |                     |  |        |  |  |   |       |   |   | 2,386 |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Compensation related to options granted
 to non-employees consultants                      |  |              |  |                     |   |                                 |   |                                   | 938   |                                               |   |                     |  |        |  |  |   |       |   |   | 938   |  
|                                                                                           |  |               |  |                     |   |                                  |   |                                   |       |                                               |   |                      |  |        |   |  |   |        |   |   |       |  
|Exercise of warrants related to the April
 3, 2006 agreement net of issuance costs of $114 |  | 75,692        |  |                     |   | (*                               | ) |                                   | 1,022 |                                               |   |                     |  |        |  |  |   |       |   |   | 1,022 |  

(*) Less than $1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 11

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                    
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                                                    |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |   |         |   |   |        |   |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------------------- | - | ------------------------------- | - | --------------------------------- | ------ | --------------------------------------- | - | -------------------- |  | -------------------- | --- | ---- | - | ------- | - | - | ------ | - | - | ------ | -
|                                                                                                                    |  | Common Stock |           | Additional
 Paid-in |   | Receipts on
 Account of
 Common |   | Accumulated
 Other
 Comprehensive |        | DeficitAccumulatedDuring theDevelopment |   | Total
 Stockholders |  | Total
 Comprehensive |    
|                                                                                                                    |  | Shares       |           | Amount              |   | Capital                         |   | Stock                             |        | Loss                                    |   | Stage                |  | Equity               |     | Loss |  
|                                                                                                                    |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |  
|                                                                                                                    |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |  
|Cashless exercise
 of warrants related to the April 3, 2006 agreement                                               |  |              | 46,674    |                     |   | (*                              | ) |                                   | (*     | )                                       |   |                     |  |                      |    |      |   |        |   |   |       |   |   |        |  
|Issuance of
 common stock on May and June 2007 related to the May 14, 2007 agreement, net
 of issuance costs of $64 |  |              | 3,126,177 |                     |   | (*                              | ) |                                   | 7,751  |                                         |   |                     |  |                      |    |      |   |        |   |   | 7,751  |   |   |        |  
|Receipts on
 account of shares                                                                                      |  |              |          |                     |   |                                |   |                                   |       |                                         |   | 368                  |  |                      |    |      |   |        |   |   | 368    |   |   |        |  
|Cashless exercise
 of warrants related to the May 14, 2007 issuance                                                 |  |              | 366,534   |                     |   | (*                              | ) |                                   | (*     | )                                       |   |                     |  |                      |    |      |   |        |   |   |       |   |   |        |  
|Issuance of
 warrants to investors related to the May 14, 2007 agreement                                            |  |              |          |                     |   |                                |   |                                   | 651    |                                         |   |                     |  |                      |    |      |   |        |   |   | 651    |   |   |        |  
|Unrealized loss
 on available for sale securities                                                                   |  |              |          |                     |   |                                |   |                                   |       |                                         |   |                     |  |                      | (30 | )    |   |        |   |   | (30    | ) | $ | (30    | )
|Net loss for the
 year                                                                                              |  |              |          |                     |   |                                |   |                                   |       |                                         |   |                     |  |                      |    |      |   | (8,429  | ) |   | (8,429 | ) |   | (8,429 | )
|                                                                                                                    |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |   |         |   |   |        |   |   |        |  
|Balance
 as of June 30, 2007                                                                                        |  |              | 4,954,110 |                     | $ | (*                              | ) | $                                 | 21,077 |                                         | $ | 368                  |  | $                    | (30 | )    | $ | (15,518 | ) | $ | 5,897  |   |   |       |  
|                                                                                                                    |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |   |         |   |   |        |   |   |        |  
|Total
 comprehensive loss                                                                                           |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |   |         |   |   |        |   | $ | (8,459 | )
|                                                                                                                    |  |              |           |                     |   |                                 |   |                                   |        |                                         |   |                      |  |                      |     |      |   |         |   |   |        |   |   |        |  

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 12

---

---



|                                                                           
|---------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
ITS SUBSIDIARY(A Development Stage Company)
|                                                                           
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)                 
|                                                                           
|U.S. Dollars in thousands (except share and per share data)                

|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------ | --------- | ----------------- | - | --------------------------- | - | ----------------------------- | ------ | --------------------------------------- | - | -------------------- | - | -------------------- | --- | ---- | - | ------- | - | - | ------- | - | - | ------- | -
|                                                                                          |  | Common Stock |           | AdditionalPaid-in |   | Receipts onAccount ofCommon |   | AccumulatedOtherComprehensive |        | DeficitAccumulatedDuring theDevelopment |   | Total
 Stockholders |   | Total
 Comprehensive |    
|                                                                                          |  | Shares       |           | Amount            |   | Capital                     |   | Stock                         |        | Loss                                    |   | Stage                |   | Equity               |     | Loss |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Balance as of July 1, 2007                                                                |  |              | 4,954,110 |                   | $ | (*                          | ) | $                             | 21,077 |                                         | $ | 368                  |   | $                    | (30 | )    | $ | (15,518 | ) | $ | 5,897   |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Issuance
 of common stock related to investors relation agreements                        |  |              | 69,500    |                   |   | (*                          | ) |                               | 275    |                                         |   |                     |   |                      |    |      |   |        |   |   | 275     |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Issuance
 of common stock in July 2007 - June 2008 related to the May 14, 2007
 Agreement |  |              | 908,408   |                   |   | (*                          | ) |                               | 2,246  |                                         |   | (368                 | ) |                      |    |      |   |        |   |   | 1,878   |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Cashless
 exercise of warrants related to the May 14, 2007 Agreement                      |  |              | 1,009,697 |                   |   | (*                          | ) |                               | (*     | )                                       |   |                     |   |                      |    |      |   |        |   |   |        |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Compensation
 related to options granted to employees and directors                       |  |              |          |                   |   |                            |   |                               | 4,204  |                                         |   |                     |   |                      |    |      |   |        |   |   | 4,204   |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Compensation
 related to options granted to nonemployees consultants                     |  |              |          |                   |   |                            |   |                               | 543    |                                         |   |                     |   |                      |    |      |   |        |   |   | 543     |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Realized
 loss on available for sale securities                                           |  |              |          |                   |   |                            |   |                               |       |                                         |   |                     |   |                      | 30  |      |   |        |   |   | 30      |   | $ | 30      |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Net
 loss for the year                                                                    |  |              |          |                   |   |                            |   |                               |       |                                         |   |                     |   |                      |    |      |   | (10,498 | ) |   | (10,498 | ) |   | (10,498 | )
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Balance as of June 30, 2008                                                               |  |              | 6,941,715 |                   | $ | (*                          | ) | $                             | 28,345 |                                         | $ |                     |   | $                    |    |      | $ | (26,016 | ) | $ | 2,329   |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  
|Total comprehensive loss                                                                  |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   | $ | (10,468 | )
|                                                                                          |  |              |           |                   |   |                             |   |                               |        |                                         |   |                      |   |                      |     |      |   |         |   |   |         |   |   |         |  

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated
financial statements.

F - 13

---

---



|                                                                              
|------------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
 ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                              
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)
 (UNAUDITED)       
|                                                                              
|U.S. Dollars in thousands (except share and per share data)                   

|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------- | - | --------------------------------------------- | - | -------------------- | ------ | ------ | - | ------- | - | - | ------ | -
|                                                                                                                |  | Common
 Stock |  | Additional
 Paid-in |   | Deficit
 Accumulated
 During the
 Development |   | Total
 Stockholders |       
|                                                                                                                |  | Shares        |  | Amount              |   | Capital                                       |   | Stage                |        | Equity |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Balance as of July 1, 2008                                                                                      |  | 6,941,715     |  |                     | $ | (*                                            | ) | $                    | 28,345 |        | $ | (26,016 | ) | $ | 2,329  |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock related to investor relations agreements                                              |  | 171,389       |  |                     |   | (*                                            | ) |                      | 133    |        |   |        |   |   | 133    |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock and warrants related to the August 6, 2008 agreement, net of
 issuance costs of $125  |  | 1,391,304     |  |                     |   | (*                                            | ) |                      | 1,475  |        |   |        |   |   | 1,475  |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock and warrants related to the September 2008 agreement, net of
 issuance costs of $62   |  | 900,000       |  |                     |   | (*                                            | ) |                      | 973    |        |   |        |   |   | 973    |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock and warrants in November 2008 - January 2009, net of issuance
 costs of $39           |  | 1,746,575     |  |                     |   | (*                                            | ) |                      | 660    |        |   |        |   |   | 660    |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock and warrants related to the January 20, 2009 agreement, net
 of issuance costs of $5  |  | 216,818       |  |                     |   | (*                                            | ) |                      | 90     |        |   |        |   |   | 90     |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock and warrants related to the January 29, 2009 agreement, net
 of issuance costs of $90 |  | 969,826       |  |                     |   | (*                                            | ) |                      | 1,035  |        |   |        |   |   | 1,035  |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Issuance
 of common stock and warrants related to the May 5, 2009 agreement, net of
 issuance costs of $104     |  | 888,406       |  |                     |   | (*                                            | ) |                      | 1,229  |        |   |        |   |   | 1,229  |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Compensation
 related to options granted to employees and directors                                             |  |              |  |                     |   |                                              |   |                      | 1,315  |        |   |        |   |   | 1,315  |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Compensation
 related to options and warrants granted to nonemployees consultants                              |  |              |  |                     |   |                                              |   |                      | 97     |        |   |        |   |   | 97     |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Compensation
 related to restricted stock granted to employees and directors                                    |  | 427,228       |  |                     |   | (*                                            | ) |                      | 642    |        |   |        |   |   | 642    |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Compensation
 related to restricted stock granted to nonemployees consultants                                  |  | 23,625        |  |                     |   | (*                                            | ) |                      | 52     |        |   |        |   |   | 52     |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Net
 loss for the period                                                                                        |  |               |  |                     |   |                                              |   |                      |       |        |   | (6,636  | ) |   | (6,636 | )
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  
|Balance as of June 30, 2009                                                                                     |  | 13,676,886    |  |                     | $ | (*                                            | ) | $                    | 36,046 |        | $ | (32,652 | ) | $ | 3,394  |  
|                                                                                                                |  |               |  |                     |   |                                               |   |                      |        |        |   |         |   |   |        |  

(*) Less than
$1.

The accompanying notes are an integral part of the consolidated financial
statements.

F - 14

---

---



|                                                                             
|-----------------------------------------------------------------------------
|PLURISTEM THERAPEUTICS INC. AND
ITS SUBSIDIARY
 (A Development Stage Company)
|                                                                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                        
|                                                                             
|U.S. Dollars in thousands                                                    

|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------ | ------ | -------------------------------------------------------- | - | ------- | - | ---- | ------ | - | - | ------- | -
|                                                                                     |  | Year endedJune 30, |        | Period from
 May 11, 2001
 (inception)
 through
 June 30 |  
|                                                                                     |  |                    |        |                                                          |  
|                                                                                     |  | 2009               |        | 2008                                                     |   | 2007    |   | 2009 |       
|                                                                                     |  |                    |        |                                                          |   |         |   |      |       
|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|Net
 loss                                                                            |  | $                  | (6,636 | )                                                        | $ | (10,498 | ) | $    | (8,429 | ) | $ | (32,652 | )
|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|Adjustments to reconcile net loss to net cash used in
 operating activities:         |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|Depreciation                                                                         |  |                    | 173    |                                                          |   | 129     |   |      | 56     |   |   | 545     |  
|Capital loss                                                                         |  |                    |       |                                                          |   |        |   |      | 20     |   |   | 4       |  
|Impairment
 of property and equipment                                                |  |                    | 5      |                                                          |   | 47      |   |      |       |   |   | 52      |  
|Know-how
 write-off                                                                  |  |                    |       |                                                          |   |        |   |      | 1,963  |   |   | 2,474   |  
|Amortization
 of deferred issuance costs                                             |  |                    |       |                                                          |   |        |   |      | 168    |   |   | 604     |  
|Stock-based
 compensation to employees and directors                                 |  |                    | 1,957  |                                                          |   | 4,204   |   |      | 2,386  |   |   | 8,547   |  
|Stock-based
 compensation to non-employees consultants                               |  |                    | 149    |                                                          |   | 561     |   |      | 920    |   |   | 2,298   |  
|Stock
 compensation to service providers and investor relations consultants          |  |                    | 133    |                                                          |   | 275     |   |      |       |   |   | 1,200   |  
|Know-how
 licensors  imputed interest                                               |  |                    |       |                                                          |   |        |   |      |       |   |   | 55      |  
|Salary grant in shares and warrants                                                  |  |                    |       |                                                          |   |        |   |      |       |   |   | 711     |  
|Decrease
 (increase) in other accounts receivable                                    |  |                    | (247   | )                                                        |   | 336     |   |      | (481   | ) |   | (485    | )
|Decrease
 (increase) in prepaid expenses                                             |  |                    | 250    |                                                          |   | (308    | ) |      | 20     |   |   | (10     | )
|Increase
 (decrease) in trade payables                                               |  |                    | (54    | )                                                        |   | 237     |   |      | (1     | ) |   | 457     |  
|Increase
 (decrease) in other accounts payable and accrued expenses                  |  |                    | (96    | )                                                        |   | 74      |   |      | 189    |   |   | (135    | )
|Increase
 in accrued interest due to related parties                                 |  |                    |       |                                                          |   |        |   |      |       |   |   | 3       |  
|Linkage
 differences and interest on long-term restricted lease deposit              |  |                    |       |                                                          |   |        |   |      |       |   |   | (2      | )
|Change
 in fair value of liability in respect of warrants                            |  |                    |       |                                                          |   |        |   |      | (716   | ) |   | (2,696  | )
|Fair value of warrants granted to investors                                          |  |                    |       |                                                          |   |        |   |      | 651    |   |   | 651     |  
|Amortization of discount and changes
 in accrued
 interest on convertible debentures |  |                    |       |                                                          |   |        |   |      | 111    |   |   | 128     |  
|Amortization
 of discount and changes in accrued interest from marketable securities |  |                    | (3     | )                                                        |   | (1      | ) |      | (5     | ) |   | (9      | )
|Loss from sale of investments of available-for-sale marketable
 securities           |  |                    | 75     |                                                          |   | 31      |   |      |       |   |   | 106     |  
|Impairment and realized loss on available-for-sale marketable
 securities            |  |                    |       |                                                          |   | 372     |   |      |       |   |   | 372     |  
|Accrued
 severance pay, net                                                          |  |                    | 32     |                                                          |   | 4       |   |      | (4     | ) |   | 52      |  
|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  
|Net
 cash used in operating activities                                               |  | $                  | (4,262 | )                                                        | $ | (4,537  | ) | $    | (3,152 | ) | $ | (17,730 | )
|                                                                                     |  |                    |        |                                                          |   |         |   |      |        |   |   |         |  

The accompanying notes are an integral part of the consolidated
financial statements.

F - 15

---

---



PLURISTEM THERAPEUTICS INC. AND ITS
SUBSIDIARY(A
Development Stage Company)

|                                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                     
|U.S. Dollars in thousands            

|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|---------------------------------------------------------------- |  | ------------------ | ----- | -------------------------------------------------------- | - | ------ | - | ---- | ------ | - | - | ------ | -
|                                                                 |  | Year endedJune 30, |       | Period from
 May 11, 2001
 (inception)
 through
 June 30 |  
|                                                                 |  |                    |       |                                                          |  
|                                                                 |  | 2009               |       | 2008                                                     |   | 2007   |   | 2009 |       
|                                                                 |  |                    |       |                                                          |   |        |   |      |       
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                            |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Acquisition
 of Pluristem Ltd. (1)                               |  | $                  |      |                                                          | $ |       |   | $    |       |   | $ | 32     |  
|Purchase
 of property and equipment                              |  |                    | (313  | )                                                        |   | (840   | ) |      | (209   | ) |   | (1,605 | )
|Proceeds from sale of property and equipment                     |  |                    |      |                                                          |   | 3      |   |      | 1      |   |   | 32     |  
|Investment in long-term deposits                                 |  |                    | (8    | )                                                        |   | (85    | ) |      | (96    | ) |   | (217   | )
|Repayment
 of long-term restricted deposit                       |  |                    | 38    |                                                          |   | 6      |   |      |       |   |   | 64     |  
|Purchase
 of available for sale marketable securities            |  |                    |      |                                                          |   |       |   |      | (3,784 | ) |   | (3,784 | )
|Proceeds
 from sale of available
 for sale marketable securities |  |                    | 1,113 |                                                          |   | 2,201  |   |      |       |   |   | 3,314  |  
|Purchase
 of know-how                                            |  |                    |      |                                                          |   |       |   |      | (1,963 | ) |   | (2,062 | )
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Net
 cash provided by (used in) investing activities             |  |                    | 830   |                                                          |   | 1,285  |   |      | (6,051 | ) |   | (4,226 | )
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                            |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Issuance
 of common stock and warrants, net of issuance costs    |  |                    | 5,462 |                                                          | $ | 2,246  |   | $    | 7,751  |   |   | 21,391 |  
|Receipts
 on account of shares                                   |  |                    |      |                                                          |   | (368   | ) |      | 368    |   |   |       |  
|Exercise
 of warrants                                            |  |                    |      |                                                          |   |       |   |      | 1,022  |   |   | 1,022  |  
|Issuance
 of convertible debenture                               |  |                    |      |                                                          |   |       |   |      |       |   |   | 2,584  |  
|Issuance
 expenses related to convertible debentures             |  |                    |      |                                                          |   |       |   |      | (440   | ) |   | (440   | )
|Repayment
 of know-how licensors                                 |  |                    |      |                                                          |   |       |   |      | (219   | ) |   | (300   | )
|Repayment
 of notes and loan payable to related parties          |  |                    |      |                                                          |   |       |   |      |       |   |   | (70    | )
|Proceeds
 from notes and loan payable to related parties         |  |                    |      |                                                          |   |       |   |      |       |   |   | 78     |  
|Receipt
 of long-term loan                                       |  |                    |      |                                                          |   | 49     |   |      |       |   |   | 49     |  
|Repayment
 of long-term loan                                     |  |                    | (14   | )                                                        |   | (5     | ) |      |       |   |   | (19    | )
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Net
 cash provided by financing activities                       |  |                    | 5,448 |                                                          |   | 1,922  |   |      | 8,482  |   |   | 24,295 |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Increase
 (decrease) in cash and cash equivalents                |  |                    | 2,016 |                                                          |   | (1,330 | ) |      | (721   | ) |   | 2,339  |  
|Cash
 and cash equivalents at the beginning of the period        |  |                    | 323   |                                                          |   | 1,653  |   |      | 2,374  |   |   |       |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Cash
 and cash equivalents at the end of the period              |  | $                  | 2,339 |                                                          | $ | 323    |   | $    | 1,653  |   | $ | 2,339  |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|(a) Supplemental disclosure of cash flow
activities:             |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Cash
 paid during the period for:                                |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Taxes
 paid due to non-deductible expenses                       |  | $                  | 33    |                                                          | $ | 5      |   | $    | 3      |   | $ | 47     |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  
|Interest
 paid                                                   |  | $                  | 3     |                                                          | $ | 3      |   | $    | 4      |   | $ | 16     |  
|                                                                 |  |                    |       |                                                          |   |        |   |      |        |   |   |        |  

The accompanying notes are an integral part of the
consolidated financial statements.

F - 16

---

---



PLURISTEM THERAPEUTICS INC. AND ITS
SUBSIDIARY(A
Development Stage Company)

|                                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                     
|U.S. Dollars in thousands            

|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|--------------------------------------------------------------------------------- |  | -------------------- | -- | -------------------------------------------------------- | - | ---- | - | ---- | ----- |  | - | ----- | -
|                                                                                  |  | Year ended
 June 30, |    | Period from
 May 11, 2001
 (inception)
 through
 June 30 |  
|                                                                                  |  |                      |    |                                                          |  
|                                                                                  |  | 2009                 |    | 2008                                                     |   | 2007 |   | 2009 |      
|                                                                                  |  |                      |    |                                                          |   |      |   |      |      
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|(b) Supplemental disclosure of non-cash
activities:                               |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|Classification
 of liabilities and deferred issuance expenses into equity         |  | $                    |   |                                                          | $ |     |   | $    | 97    |  | $ | 97    |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|Conversion of convertible debenture                                               |  | $                    |   |                                                          | $ |     |   | $    | 2,227 |  | $ | 2,227 |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|Prepaid expenses of compensation related to
 options to non-employees consultants |  | $                    |   |                                                          | $ | (18  | ) | $    | 18    |  | $ |      |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|Purchase
 of property and equipment                                               |  | $                    | 20 |                                                          | $ | 101  |   | $    | 81    |  | $ | 20    |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|(1) Acquisition of Pluristem Ltd.                                                 |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|Fair value of assets acquired and liabilities assumed at
 the acquisition date:   |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|Working
 capital (excluding cash and cash equivalents)                            |  |                      |    |                                                          |   |      |   |      |       |  | $ | (427  | )
|Long-term
 restricted lease deposit                                               |  |                      |    |                                                          |   |      |   |      |       |  |   | 19    |  
|Property
 and equipment                                                           |  |                      |    |                                                          |   |      |   |      |       |  |   | 130   |  
|In-process
 research and development write-off                                    |  |                      |    |                                                          |   |      |   |      |       |  |   | 246   |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  | $ | (32   | )
|                                                                                  |  |                      |    |                                                          |   |      |   |      |       |  |   |       |  

The accompanying notes are an integral part of the
consolidated financial statements.

F - 17

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 1:  GENERAL

|a. | Pluristem
Therapeutics Inc. (the Company), a Nevada corporation, was
          incorporated and commenced operations on May 11, 2001, under the name A. I.
          Software Inc. which was changed as of June 30, 2003 to Pluristem Life Systems
          Inc. On November 26, 2007, the Companys name was changed to Pluristem
          Therapeutics Inc. The Company has a wholly owned subsidiary, Pluristem Ltd.
          (the Subsidiary), which is incorporated under the laws of Israel.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. | The
Company is devoting substantially all of its efforts towards conducting
          research and development of adherent stromal cells production technology and
the           commercialization of cell therapy products. Accordingly, the Company is
          considered to be in the development stage, as defined in Statement of Financial
          Accounting Standards No. 7 Accounting and reporting by Development stage
          Enterprises. In the course of such activities, the Company and its
          Subsidiary have sustained operating losses and expect such losses to continue
in           the foreseeable future. The Company and its Subsidiary have not generated
any           revenues or product sales and have not achieved profitable operations or
          positive cash flows from operations. The Companys accumulated losses
          during the development stage aggregated to $32,652 through June 30, 2009 and
          incurred net loss of $6,636 and negative cash flow from operating activities in
          the amount of $4,262 for the year ended June 30, 2009. There is no assurance
          that profitable operations, if ever achieved, could be sustained on a
continuing           basis.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company plans to continue to finance its operations with sales of equity securities and R&D
grants and in the longer term, from revenues from product sales. There are no assurances,
however, that the Company will be successful in obtaining an adequate level of financing
needed for the long-term development and commercialization of its planned products.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
conditions raise substantial doubt about the Companys ability to continue as a
going concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c. | Since
December 10, 2007, the Companys shares of common stock have been           traded
on the NASDAQ Capital Market under the symbol PSTI. The shares were           previously
traded on the OTC Bulletin Board under the trading symbol           PLRS.OB.
On May 7, 2007, the Companys shares also began           trading on Europes
Frankfurt Stock Exchange, under the symbol PJT. .
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES

The consolidated financial
statements have been prepared in accordance with United States generally accepted
accounting principles (U.S. GAAP) applied on consistent basis.

|a. | Use
of estimates
|-- | ----------------

| | The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates, judgments, and assumptions that are
reasonable based upon information available at the time they are made. These estimates,
judgments and assumptions can affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. | Functional
currency of the Subsidiary
|-- | -------------------------------------

| | It
is anticipated that the majority of the Subsidiarys revenues will be generated
outside Israel and will be determined in U.S. Dollars (dollars). In addition,
most of the financing of the Subsidiarys operations has been made in dollars. The
Companys management believes that the dollar is the primary currency of the
economic environment in which the Subsidiary operates. Thus, the functional currency of
the Subsidiary is the dollar. Accordingly, monetary accounts maintained in currencies
other than the dollar are remeasured into dollars in accordance with Statement of
Financial Accounting Standards No. 52 Foreign Currency Translation (SFAS
52). All transaction gains and losses from the remeasurement of monetary balance
sheet items are reflected in the statement of operations as financial income or expenses,
as appropriate.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c. | Principles
of consolidation
|-- | ---------------------------

| | The
consolidated financial statements include the accounts of the Company and its Subsidiary.
Intercompany transactions and balances have been eliminated upon consolidation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d. | Cash
equivalents
|-- | ----------------

| | Cash
equivalents are short-term highly liquid investments that are readily convertible to cash
with maturities of three months or less at the date acquired.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|e. | Marketable
securities:
|-- | ----------------------

| | Management
determines the appropriate classification of its investments in marketable securities at
the time of purchase and re-evaluates such designations as of each balance sheet date.
During 2008, all marketable securities covered by Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities were
designated as available-for-sale.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
these securities are stated at fair value, with unrealized gains and losses reported in
accumulated other comprehensive loss, a separate component of shareholders equity,
net of taxes. Realized gains and losses on sales of investments, and impairment of
investments, as determined on a specific identification basis, are included in the
consolidated statement of operations. Interest and amortization of premium and discount
on debt securities are recorded as financial income or loss.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|e. | Marketable
securities (cont.):
|-- | ------------------------------

| | Financial
Accounting Statements Board (FASB) Staff Position (FSP) 115-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investment (FSP 115-1) provides guidance for determining when an
investment is considered impaired, whether impairment is other-than temporary, and
measurement of an impairment loss. An investment is considered impaired if the fair value
of the investment is less than its cost. If, after consideration of all available
evidence to evaluate the realizable value of its investment, impairment is determined to
be other than- temporary, then an impairment loss should be recognized equal to the
difference between the investments cost and its fair value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2009, the FASB issued FSP FAS 115-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP 115-2). The FSP is intended to
provide greater clarity to investors about the credit and noncredit component of an
other-than-temporary impairment event and to more effectively communicate when an
other-than-temporary impairment event has occurred. The FSP applies to fixed maturity
securities only and requires separate display of losses related to credit deterioration
and losses related to other market factors. When an entity does not intend to sell the
security and it is more likely than not that an entity will not have to sell the security
before recovery of its cost basis, it must recognize the credit component of an
other-than-temporary impairment in earnings and the remaining portion in other
comprehensive income. Upon adoption of the FSP, an entity will be required to record a
cumulative-effect adjustment as of the beginning of the period of adoption to reclassify
the noncredit component of a previously recognized other-than-temporary impairment from
retained earnings to accumulated other comprehensive income. The adoption did not have a
material effect on the Companys consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|f. | Long-term
restricted deposit
|-- | ----------------------------

| | Long-term
restricted deposit with maturities of more than one year used to secure lease agreement
and hedge transactions is presented at cost.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

|g. | Property
and Equipment
|-- | ----------------------

| | Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is
calculated by the straight-line method over the estimated useful lives of the assets, at
the following annual rates:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                    | %                                                                                        
| | ---------------------------------- | -----------------------------------------------------------------------------------------
|
|
|
|
| | Laboratory equipment               | 10                                                                                       
| | Computers and peripheral equipment | 33                                                                                       
| | Office furniture and equipment     | 6-15                                                                                     
| | Vehicles                           | 15                                                                                       
| | Leasehold improvements             | over the shorter of the expected useful life or the reasonable assumed term of the lease.

F - 20

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|h. | Impairment
of long-lived assets
|-- | -------------------------------

| | The
Companys long-lived assets and identifiable intangibles are reviewed for impairment
in accordance with Statement of Financial Accounting Standards No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS 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 the fair value of the assets. During the years ended June 30, 2009, 2008, and
2007 an impairment loss was identified in the amounts of $5, $47 and $0, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|i. | Accounting
for stock-based compensation:
|-- | ----------------------------------------

| | The
Company accounts for stock-based compensation in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (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 statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company recognizes compensation expenses for the value of its awards, which have graded
vesting based on the accelerated method over the requisite service period of each of the
awards.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. The expected life of options
granted is calculated using the Simplified Method, as defined in Staff Accounting
Bulletin No. 107, Share-Based Payments, as the average between the vesting
period and the contractual life of the options. On December 21, 2007 the SEC staff issued
Staff Accounting Bulletin No. 110 (SAB 110), which, effective January 1,
2008, amends and replaces SAB 107, Share-Based Payments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|i. | Accounting
for stock-based compensation (cont.):
|-- | ------------------------------------------------

| | The
Company currently uses the Simplified Method as adequate historical experience is not
available to provide a reasonable estimate. The Company adopted SAB 110 effective January 1,
2008 and will continue to apply the Simplified Method until enough historical experience
is available to provide a reasonable estimate of the expected term for stock option
grants.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 expected pre-vesting forfeiture rate
affects the number of exercisable options. Based on Companys historical experience,
the pre-vesting forfeiture rate per grant is 5%.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the Companys stock options granted to employees and directors for the
years ended June 30, 2009, 2008 and 2007 was estimated using the following assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                      | Year Ended June 30,
| | ------------------------------------ | -------------------
|
|
|
|
| | Risk free interest rate              | 1.8 - 3.3 %        
| | Dividend yields                      | 0%                 
| | Volatility                           | 129 - 132 %        
| | Expected  term  of  up to (in years) | 6                  

| | The
assumptions below are relevant to restricted shares granted in 2009:
| | ------------------------------------------------------------------------

| | In
accordance with SFAS No. 123(R), restricted shares are measured at their fair value as if
it was vested and issued on the grant date. All restricted shares to employees and
non-employees granted in 2009 were granted for no consideration or for a voluntary
reduction in cash compensation; therefore their fair value was equal to the share price
at the date of grant.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of all restricted shares was determined based on the close trading price of
the Companys shares known at the grant date. The weighted average grant date fair
value of shares granted during the year was $0.97.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company applies SFAS 123(R) 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, with respect to options and warrants issued to non-employees. SFAS
123(R) requires the use of option valuation models to measure the fair value of the
options and warrants at the measurement date.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|j. | Research
and Development expenses and royalty-bearing grants
|-- | ------------------------------------------------------------

| | Research
and development expenses, net of participations are charged to the Statement of
Operations as incurred.
| | ----------------------------------------------------------------------------------------------------------------

| | Royalty-bearing
grants from the government of Israel for funding approved research and development
projects are recognized at the time the Company is entitled to such grants, on the basis
of the cost incurred and applied as a deduction from research and development costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

NOTE 2:  SIGNIFICANT ACCOUNTING
POLICIES (CONT.)

|k. | Loss
per share
|-- | --------------

| | Basic
net loss per share is computed based on the weighted average number of shares of common
stock outstanding during each year. Diluted net loss per share is computed based on the
weighted average number of shares of Common stock outstanding during each year, plus
dilutive potential shares of common stock and warrants considered outstanding during the
year, in accordance with Statement of Financial Accounting Standard No. 128, Earnings
Per Share (SFAS 128). All outstanding stock options have been excluded
from the calculation of the diluted loss per common share because all such securities are
anti-dilutive for each of the periods presented.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|l. | Income
taxes
|-- | ------------

| | The
Company and its Subsidiary account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes(SFAS
109). This Statement prescribes the use of the liability method, whereby deferred
tax assets and liability account balances are determined based on 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 (FIN) No. 48, Accounting
for Uncertainty in Income Taxes  an Interpretation of FASB Statement 109 (FIN 48).
FIN 48 establishes a single model to address accounting for uncertain tax positions.
FIN 48 clarified the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on recognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The
adoption of the provisions of FIN 48 did not have a material impact on the Companys
consolidated financial position and results of operation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|m. | Concentration
of credit risk
|-- | ----------------------------

| | Financial
instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, restricted deposits and marketable securities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
majority of the Companys cash and cash equivalents are invested in dollar
instruments of major banks in Israel. 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 and its Subsidiary have no significant off-balance sheet concentration of
financial instruments subject to credit risk such as foreign exchange contracts.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|n. | Severance
pay
|-- | -------------

| | The
Subsidiarys liability for severance pay is calculated pursuant to Israeli severance
pay law based on the most recent salary of the employees multiplied by the number of
years of employment, as of the balance sheet date. 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. The deposited funds include profits or losses accumulated up to the
balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the
obligation pursuant to Israeli 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 or losses.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
expenses for the years ended June 30, 2009, 2008 and 2007 amounted to approximately $120,
$88, and $40, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------

|o. | Fair
value of financial instruments
|-- | -----------------------------------

| | The
carrying amounts of our financial instruments, including cash and cash equivalents,
short-term deposits, trade receivable, trade payable and other accounts payable and
accrued liabilities, approximate fair value because of their generally short term
maturities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements, and effective October 10, 2008, adopted FSP SFAS
157-3, Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active, except as it applies to the nonfinancial assets and
nonfinancial liabilities subject to FSP 157-2. SFAS 157 clarifies that fair value is an
exit price, representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As such, fair
value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or a liability. As a basis for
considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair value:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level
1  Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets.
| | --------------------------------------------------------------------------------------------------------------------------

| | Level
2  Include other inputs that are directly or indirectly observable in the
marketplace.
| | ---------------------------------------------------------------------------------------------

| | Level
3  Unobservable inputs, which are supported by little or no market activity.
| | -----------------------------------------------------------------------------------

| | 1. | The
fair value hierarchy also requires an entity to maximize the use of
               observable inputs and minimize the use of unobservable inputs when
measuring                fair value.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|p. | Comprehensive
income
|-- | --------------------

| | The
Company reports comprehensive income in accordance with SFAS 130, Reporting
Comprehensive Income. This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
stockholders equity during the period except those resulting from investments by,
or distributions to, stockholders. The Company determined that their items of other
comprehensive income relate to unrealized gains and losses on available for sale
securities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|q. | Derivative
financial instruments
|-- | --------------------------------

| | The
Company accounts for derivatives and hedging based on SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. If the derivatives meet the
definition of a hedge and are so designated, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivatives change in fair value is recognized in
earnings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys derivative instruments are outstanding forward contracts that did not meet
the definition of hedge accounting thus the gain or loss resulting from changes in fair
value is recognized as a financial expense in current earnings during the period of
change. As of June 30, 2009 and 2008, the Company had forward contracts to sell $1,050
and purchase NIS 4,375 and to sell $150 and purchase NIS 533, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the forward contracts and the options as of June 30, 2009 and 2008 were
recorded as an asset of $67 and $10, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------

|r. | Impact
of recently issued accounting standards
|-- | ----------------------------------------------

| | Statement
of Financial Accounting Standards No. 160 (SFAS 160) establishes accounting
and reporting standards that require that the ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but separate from the parents
equity; the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income; and changes in a parents ownership interest while
the parent retains its controlling financial interest in its subsidiary be accounted for
consistently. SFAS 160 is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. The adoption of SFAS 160 does not
have a material effect on the Companys consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations(SFAS
141R). SFAS 141R establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non controlling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141R is effective for
fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. The
adoption of SFAS 141(R) does not have a material effect on the Companys
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 Disclosures
about Derivative Instruments and Hedging Activities (SFAS 161), an
amendment to SFAS 133. This statement changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows. This
statement is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. Early application is encouraged. The Company
does not expect the adoption of SFAS 161 to have an impact on its financial position,
statements of operations or cash flows.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|r. | Impact of recently issued accounting standards (cont.):
|-- | -------------------------------------------------------

| | In
April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets. (FSP FAS 142-3). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning
after December 15, 2008 and early adoption is prohibited. The adoption of FSP FAS 142-3
is not expected to have a material effect on the Companys consolidated financial
statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No.
157 (FSP FAS 157-2), to delay the effective date of SFAS 157 for one
year for certain nonfinancial assets and nonfinancial liabilities, excluding those that
are recognized or disclosed in financial statements at fair value on a recurring basis
(that is, at least annually). For purposes of applying the FSP FAS 157-2, nonfinancial
assets and nonfinancial liabilities include all assets and liabilities other than those
meeting the definition of a financial asset or a financial liability in SFAS Statement
159. FSP FAS 157-2 defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items within the
scope of FSP FAS 157-2. The Company does not expect the adoption of FSP FAS 157 for the
certain nonfinancial assets and nonfinancial liabilities, excluding those that are
recognized or disclosed in the financial statements at fair value on a recurring basis,
to have a material impact on its financial position, statements of operations or cash
flows.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP 157-4). FSP 157-4
provides guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset/liability has significantly decreased. FSP
157-4 also provides guidance on identifying circumstances that indicate a transaction is
not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of
the inputs and valuation techniques used to measure fair value and a discussion of
changes in valuation techniques. FSP 157-4 is effective for the Companys
consolidated financial statements of fiscal year 2009. The adoption of FSP 157-4 does not
have a material impact on the Companys consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|r. | Impact
of recently issued accounting standards (cont.):
|-- | -------------------------------------------------------

| | In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairment (FSP 115-2/124-2). FSP
115-2/124-2 amends the requirements for the recognition and measurement of
other-than-temporary impairments for debt securities by modifying the pre-existing intent
and ability indicator. Under FSP 115-2/124-2, an other-than-temporary impairment is
triggered when there is an intent to sell the security, it is more likely than not that
the security will be required to be sold before recovery, or the security is not expected
to recover the entire amortized cost basis of the security. Additionally, FSP 115-2/124-2
changes the presentation of an other-than-temporary impairment in the income statement
for those impairments involving credit losses. The credit loss component will be
recognized in earnings and the remainder of the impairment will be recorded in other
comprehensive income. The adoption of FSP 115-2/124-2 does not have a material impact on
the Companys consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosure
about Fair Value of Financial Instruments (FSP 107-1/APB 28-1). FSP
107-1/APB 28-1 requires interim disclosures regarding the fair values of financial
instruments that are within the scope of FAS 107, Disclosures about the Fair Value
of Financial Instruments. Additionally, FSP 107-1/APB 28-1 requires disclosure of
the methods and significant assumptions used to estimate the fair value of financial
instruments on an interim basis as well as changes of the methods and significant
assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting
treatment for these financial instruments and does not have a material effect on the
Companys consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2007, the Emerging Issues Task Force (EITF) Issued the EITF 07-1,
Accounting for Collaborative Arrangements (EITF 07-1). The
guidance in EITF 07-1 defines collaborative arrangements and establishes presentation and
disclosure requirements for transactions within a collaborative arrangement (both with
third parties and between participants in the arrangement). The consensus in EITF 07-1 is
effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
consensus requires retrospective application to all collaborative arrangements existing
as of the effective date, unless retrospective application is impracticable. The
impracticability evaluation and exception should be performed on an
arrangement-by-arrangement basis. The adoption of EITF 07-1 does not have a material
effect on the Companys consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2008, the FASB issued EITF 07-5 Determining whether an Instrument (or Embedded
Feature) is indexed to an Entitys Own Stock (EITF 07-5). EITF
07-5 is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early application is
not permitted. Paragraph 11(a) of SFAS 133 specifies that a contract that would otherwise
meet the definition of a derivative but is both (a) indexed to the Companys own
stock and (b) classified in stockholders equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5 provides a
new two-step model to be applied in determining whether a financial instrument or an
embedded feature is indexed to an issuers own stock and thus able to qualify for
the SFAS 133 paragraph 11(a) scope exception. The adoption of EITF 07-5 does not have a
material effect on the Companys consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 2:  SIGNIFICANT
ACCOUNTING POLICIES (CONT.)

|r. | Impact
of recently issued accounting standards (cont.):
|-- | -------------------------------------------------------

| | In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165),
which establishes general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are available
to be issued. This statement sets forth the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial
statements. SFAS 165 also requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that datethat is, whether that date
represents the date the financial statements were issued or were available to be issued.
This statement is effective for interim or annual reporting periods ending after June 15,
2009. During the period of 12 months ended June 30, 2009, the Company adopted SFAS 165.
The adoption of SFAS 165 did not have a material effect on the Companys
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting
for Transfers of Financial Assetsan amendment of FASB Statement No. 140 (SFAS
166). SFAS 166 seeks to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial
statements about a transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a transferors
continuing involvement, if any, in transferred financial assets. SFAS 166 is applicable
for annual periods after November 15, 2009 and interim periods therein and thereafter.
The Company has not determined the impact, if any, SFAS 166 will have on our consolidated
financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No.
46(R) (SFAS 167). SFAS 167 seeks to improve financial reporting by
enterprises involved with variable interest entities. SFAS 167 is applicable for annual
periods after November 15, 2009 and interim periods therein and thereafter. The Company
has not determined the impact, if any, SFAS 167 will have on our consolidated financial
statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles (SFAS 168), and, in doing so, authorized the Codification as
the sole source for authoritative U.S. GAAP. SFAS 168 will be effective for financial
statements issued for reporting periods that end after September 15, 2009. Once its
effective, it will supersede all accounting standards in U.S. GAAP, aside from those
issued by the SEC. SFAS 168 replaces SFAS 162 to establish a new hierarchy of GAAP
sources for non-governmental entities under the FASB Accounting Standards Codification.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 3:  CASH AND CASH
EQUIVALENTS

| |                              | June 30,
| | ---------------------------- | --------
|
|
|
|
| | In U.S. dollars              |         
| | In New Israeli Shekels (NIS) |         
| |                              |         
| |                              |         
| |                              |         
| |                              |         

F - 28

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 4:  MARKETABLE SECURITIES

The following is a summary of
available-for-sale marketable securities:

|                | June 30, 2008       
|--------------- | --------------------
|
|
|
|
|Corporate Bonds | More than five years
|Preferred stock |                     
|                |                     
|                |                     
|                |                     

In 2008, the marketable
securities decline in value in the amount of $372 was evaluated by the
Companys management as other than temporary, and was recognized as loss in the
statement of operations. The recorded fair value is regarded as a new cost basis.

In the first quarter of 2009, the
Company realized all of its holdings in U.S. bonds and preferred stock and recorded an
additional loss in an amount of $75.

# NOTE 5:  PROPERTY AND
EQUIPMENT, NET

| |                                    | June 30,
| | ---------------------------------- | --------
|
|
|
|
| | Cost:                              |         
| | Laboratory equipment               |         
| | Computers and peripheral equipment |         
| | Office furniture and equipment     |         
| | Leasehold improvements             |         
| | Vehicle                            |         
| |                                    |         
| | Total Cost                         |         
| |                                    |         
| | Accumulated depreciation:          |         
| | Laboratory equipment               |         
| | Computers and peripheral equipment |         
| | Office furniture and equipment     |         
| | Leasehold improvements             |         
| | Vehicle                            |         
| |                                    |         
| | Total accumulated depreciation     |         
| |                                    |         
| | Property and equipment, net        |         
| |                                    |         
| |                                    |         

Depreciation expenses amounted to $173,
$129 and $56 for the years ended June 30, 2009, 2008 and 2007, respectively.

F - 29

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 6:  OTHER ACCOUNTS
PAYABLE

| |                                            | June 30,
| | ------------------------------------------ | --------
|
|
|
|
| | Accrued payroll                            |         
| | Payroll institutions                       |         
| | Accrued vacation                           |         
| | Current maturities of long-term obligation |         
| |                                            |         
| |                                            |         
| |                                            |         

# NOTE 7:  COMMITMENTS AND
CONTINGENCIES

|a. | The
Subsidiary leases facilities under operating lease agreements. The average
          monthly payment according to the original agreement was 32 thousand NIS
          (approximately $8). According to a supplement to the original lease agreement,
          signed on June 12, 2007, the Subsidiary expanded the leased area by additional
          6,900 square feet; the leasing period for the leased area is 62 months as of
          July 1, 2007. The monthly payment is 64 thousand NIS starting from September 1,
          2007 and is linked to the Israeli Consumer Price Index (CPI). In
          addition, the lessor refunded the Subsidiary the renovation costs up to an
          amount of 650 thousand NIS (approximately $162). The Subsidiary may shorten the
          leasing period for a period of 36 months, if an advanced notice is given in
          writing and an amount of 325 thousand NIS is paid. The Subsidiary may extend
the           leasing period in 60 months, if an advanced notice is given.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
order to secure these agreements, the Subsidiary pledged a deposit with the bank in the
amount of $96. In addition, the Subsidiary has issued a bank guarantee in favor of the
lessor in the amount of $90.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lease
expenses amounted $221, $193 and $90 for the years ended June 30, 2009, 2008 and 2007,
respectively.
| | ----------------------------------------------------------------------------------------------------------

| | As
of June 30, 2009 future rental commitments under the existing lease agreement and
supplement are as follows:
| | ---------------------------------------------------------------------------------------------------------------

| |                          | 
| | ------------------------ | 
|
|
|
|
| | Year ended June 30, 2010 | 
| | Year ended June 30, 2011 | 
| | Year ended June 30, 2012 | 
| | Year ended June 30, 2013 | 
| |                          | 
| | Total                    | 
| |                          | 

F - 30

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 7:  COMMITMENTS AND
CONTINGENCIES (CONT.)

|b. | The
Subsidiary leases 11 cars under operating lease agreement, which expire in
          years 2010 and 2011. The monthly payment is approximately $8 and is linked to
          the CPI. In order to secure these agreements, the Subsidiary pledged a deposit
          in the amount of $25.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lease
expenses amounted to $86, $61 and $32 for the years ended June 30, 2009, 2008 and 2007,
respectively.
| | -----------------------------------------------------------------------------------------------------------

| | As
of June 30, 2009 future rental commitments under the existing lease agreements are
as follows:
| | -------------------------------------------------------------------------------------------------

| |                          | 
| | ------------------------ | 
|
|
|
|
| | Year ended June 30, 2010 | 
| | Year ended June 30, 2011 | 
| | Year ended June 30, 2012 | 
| |                          | 
| | Total                    | 
| |                          | 

|c. | A
deposit in the amount of $50 was pledged by the Subsidiary to secure the
          hedging transactions and a credit line.
|-- | ----------------------------------------------------------------------------------------------------------------------------

|d. | Under
the Law for the Encouragement of Industrial Research and Development,           1984,
commonly referred to as the Research Law, research and development           programs
that meet specified criteria and are approved by a governmental           committee of
the Office of the Chief Scientist (OCS) are eligible           for grants of
up to 50% of the projects expenditures, as determined by the           research
committee, in exchange for the payment of royalties from the sale of           products
developed under the program. Regulations under the Research Law           generally
provide for the payment of royalties to the Chief Scientist of 3% to           5% on
sales of products and services derived from a technology developed using           these
grants until 100% of the dollar-linked grant is repaid. The Companys
          obligation to pay these royalties is contingent on its actual sale of such
          products and services. In the absence of such sales, no payment is required.
          Effective for grants received from the Chief Scientist under programs approved
          after January 1, 1999, the outstanding balance of the grants will be subject to
          interest at a rate equal to the 12 month LIBOR applicable to dollar deposits
          that is published on the first business day of each calendar year. Following
the           full repayment of the grant, there is no further liability for royalties.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Through
June 30, 2009 and 2008, total grants obtained aggregated $2,640 and $1,212, respectively.
| | -------------------------------------------------------------------------------------------------

|e. | See
note 8 P relating the May 2007 Agreement.
|-- | ---------------------------------------------

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS

|a. | The
Companys authorized common stock consists of 30,000,000 shares with a
               par value of $0.00001 per share. All shares have equal voting rights and
are                entitled to one vote per share in all matters to be voted upon by
stockholders.                The shares have no pre-emptive, subscription, conversion or
redemption rights                and may be issued only as fully paid and non-assessable
shares. Holders of the                common stock are entitled to equal ratable rights
to dividends and distributions                with respect to the common stock, as may be
declared by the Board of Directors                out of funds legally available.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 31

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

| | On
July 1, 2008, the authorized share capital of the Company was increase by authorizing
10,000,000 shares of preferred stock, par value $0.00001 each, with series, rights,
preferences, privileges and restrictions as may be designated from time to time by the
Companys Board of Directors.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. | On
July 9, 2001, the Company issued 175,500 shares of common stock in
               consideration for $2.5, which was received on July 27, 2001.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------

|c. | On
October 14, 2002, the Company issued 70,665 shares of common stock at a price
               of approximately $1.4 per common share in consideration for $100 before
issuance                costs of $17. On March 19, 2003, two directors each returned
68,250 shares of                common stock with a par value of $2 per share, for
cancellation, for no                consideration.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d. | In
July 2003, the Company issued an aggregate of 3,628 units comprised of 3,628
               shares of common stock and 7,256 warrants to a group of investors, for
total                consideration of $1,236 (net of issuance costs of $70), under a
private                placement. The consideration was paid partly in the year ended
June 30, 2003                ($933) and the balance was paid in the year ended June 30,
2004.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
this placement each unit was comprised of one common stock and two warrants, the first
warrant was exercisable within a year from the date of issuance for one share of common
stock at a price of $450 per share. The second warrant is exercisable within five years
from the date of issuance for one share of common stock at a price of $540 per share. All
the warrants expired unexercised.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|e. | On
January 20, 2004, the Company consummated a private equity placement with a
               group of investors (the Investors). The Company issued 15,000
units                in consideration for net proceeds of $1,273 (net of issuance costs
of $227).                Each unit is comprised of 15,000 shares of common stock and
15,000 warrants.                Each warrant is exercisable into one share of common
stock at a price of $150                per share, and may be exercised until January 31,
2007. On March 18, 2004, a                registration statement on Form SB-2 was
declared effective and the                above-mentioned common stock was registered for
re-sale. If the effectiveness of                the Registration Statement is suspended
subsequent to the effective date of                registration (March 18, 2004), for
more than certain permitted periods, as                described in the private equity
placement agreement, the Company shall pay                penalties to the Investors in
respect of the liquidated damages.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to EITF 00-19, Accounting for derivative financial instruments indexed to, and
potentially settled in, a Companys own stock (EITF 00-19), the
Company classified the warrants as liabilities according to their fair value as
remeasured at each reporting period until exercised or expired. Changes in the fair value
of the warrants were reported in the statements of operations as financial income or
expense.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company allocated the gross amount received of $1,500 to the par value of the shares
issued ($0.03) and to the liability in respect of the warrants issued ($1,499.97). The
amount allocated to the liability was less than the fair value of the warrants at grant
date. On January 31, 2007 all the warrants expired unexercised.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, the Company issued 1,500 warrants to finders in connection with this private
placement, exercisable into 1,500 common shares at a price of $150 per common share until
January 31, 2007. The fair value of the warrants issued in the amounts of $192 was
recorded as deferred issuance costs and is amortized over a period of three years. On
April 19, 2004, the finders exercised the warrants.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 32

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

NOTE 8:  SHARE CAPITAL AND
STOCK OPTIONS (CONT.)

|f. | In
October 2004, the Company effected a private placement offering (the
               October 2004 Agreement) pursuant to which it issued 42,500 units.
Each                unit is comprised of one common stock and one warrant. The warrant is
               exercisable for one common stock at an exercise price of $60 per share,
subject                to certain adjustments. The units were issued as follows:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2004, the Company issued according to the October 2004 Agreement 16,250 units
comprised of 16,250 shares of common stock and 16,250 warrants to a group of investors,
for total consideration of $296 (net of cash issuance costs of $29), and additional 600
warrants to finders as finders fees.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2005, the Company issued according to the October 2004 Agreement an additional
21,500 units for total consideration of $425 (net of cash issuance costs of $5), and
additional 450 warrants were issued to finders as finders fees.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2005, the Company issued according to the October 2004 Agreement additional 3,750
units for total consideration of $69 (net of cash issuance costs of $6), and additional
175 warrants were issued to finders as finders fees.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2005, the Company issued according to the October 2004 Agreement 1,000 common
shares and 1,000 share purchase warrants to one investor for total consideration of $20
which was paid to the Company in May 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 30, 2006, all the warrants expired unexercised.
| | -----------------------------------------------------------

|g. | On
January 24, 2005, the Company effected a private placement offering (the
               January 24, 2005 Agreement) which was closed on March 3, 2005
and                issued 60,000 units in consideration for $1,176 (net of cash issuance
costs of                $24). Each unit is compromised of one share of common stock and
one warrant. The                warrant is exercisable for one share of common stock at a
price of $60 per                share. On November 30, 2006, all the warrants expired
unexercised. Under this                agreement the Company issued to finders 9,225
shares and 2,375 warrants with                exercise price of $500 per share
exercisable until November 2007. On November                30, 2007, 1,925 unexercised
warrants expired.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|h. | On
January 31, 2005, the Company consummated a private equity placement offering
               (the January 31, 2005 Agreement) with a group of investors
according                to which it issued 60,000 units in consideration for net
proceeds of $1,137 (net                of issuance costs of $63). Each unit is comprised
of one share of common stock                and one warrant. Each warrant is exercisable
into one share of common stock at a                price of $60 per share. The January
31, 2005 Agreement includes a finders                fee of a cash amount equal to
5% of the amount invested ($60) and issuance of                warrants for number of
shares equal to 5% of the number of shares that were                issued (3,000) with
an exercise price of $20 per share, subject to certain                adjustments,
exercisable until November 30, 2006.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to EITF 00-19, the Company classified the warrants as liabilities according to their fair
value as remeasured at each reporting period until exercised or expired. Changes in the
fair value of the warrants will be reported in the statements of operations as financial
income or expense.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

| | As
of the date of the issuance, the Company allocated the gross amount received of $1,200 to
the par value of the shares issued ($0.12) and to the liability in respect of the
warrants issued ($1,200). Issuance expenses in the amount of $63 and finders fee in the
amount of $144 were recorded as deferred issuance costs. The amount allocated to the
liability was less than the fair value of the warrants at grant date. On May 13, 2005,
the Registration Statement became effective and the Company was no longer subject to
possible penalties. As such, the liability and the deferred issuance costs related to the
agreement has been classified to the Stockholders Equity as Additional Paid in Capital.
As of May 13, 2005, the fair value of the liability in respect of the warrants issued was
$720 and the amount of the deferred issuance costs was $178.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 30, 2006, all the warrants expired unexercised.
| | -----------------------------------------------------------

|i. | On
March 23, 2005, the Company issued 12,000 shares of common stock and 12,000
               options as a bonus to the then Chief Executive Officer, Dr. Shai Meretzki,
in                connection with the issuance of a Notice of Allowance by the United
States                Patent Office for patent application number 09/890,401. Salary
expenses of $696                were recognized in respect of this bonus based on the
quoted market price of the                Companys stock and the fair value of the
options granted using the                BlackScholes valuation model. On November
30, 2006, all the warrants                expired unexercised.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|j. | On
February 11, 2004, the Company issued an aggregate amount of 5,000 shares of
               common stock to a consultant and service provider as compensation for
carrying                out investor relations activities during the year 2004. Total
compensation,                measured as the grant date fair market value of the stock,
amounted to $800 and                was recorded as an operating expense in the statement
of operations in the year                ended June 30, 2004.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|k. | On
November 28, 2005, 400 warrants, which were issued to finders as finder fees
               related to the January 24, 2005 Agreement, were exercised.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|l. | On
January 25, 2006, 50 warrants, which were issued to finders as finder fees
               related to the January 24, 2005 Agreement, were exercised.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|m. | Convertible
Debenture
|-- | ---------------------

| | On
April 3, 2006, the Company issued Senior Secured Convertible Debentures (the Debentures),
for gross proceeds of $3,000. In conjunction with this financing, the Company issued
236,976 warrants exercisable for three years at an exercise price of $15 per share. The
Company paid a finders fee of 10% in cash and issued 47,394 warrants exercisable
for three years, half of which are exercisable at $15 and half of which are exercisable
at $15.4 per share. The Company also issued 5,000 warrants in connection with the
separate finders fee agreement related to the issuance of the debenture exercisable
for three years at an exercise price of $15 per share.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1a. | Interest
accrued on the Debentures at the rate of 7% per annum, was payable
               semi-annually on June 30 and December 31 of each year and on conversion
and at                the maturity date. Interest was payable, at the option of the
Company, either                (1) in cash, or (2) in shares of common stock at the then
applicable conversion                price. If the Company failed to deliver stock
certificates upon the conversion                of the Debentures at the specified time
and in the specified manner, the Company                was required to make substantial
payments to the holders of the Debentures.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1b. | The
warrants, issued as of April 3, 2006, become first exercisable on the 65th
               day after issuance. Holders of the warrants were entitled to exercise
their                warrants on a cashless basis following the first anniversary of
issuance if the                Registration Statement is not in effect at the time of
exercise.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|m. | Convertible
Debenture (Cont.):
|-- | ------------------------------

| | In
accordance with EITF 00-19, the Company allocated the consideration paid for the
convertible debenture and the warrants as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------

| | The
warrants were recorded as a liability based on their fair value in the amount of $951 at
grant date. The Company estimated the fair value of the warrants using a Black-Scholes
option pricing model, with the following assumptions: volatility of 83%, risk free
interest rate of 4.8%, dividend yield of 0%, and an expected life of 36 months. Changes
in the fair value are recorded as interest income or expense, as applicable.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the conversion feature of the debentures at grant date, in the amount of
$1,951 was recorded as a liability.
| | ------------------------------------------------------------------------------------------------------------------------------

| | The
balance of the consideration, in the amount of $97, was allocated to the debentures. The
discount in the amount of $2,903 was amortized according to the effective rate interest
method over the debentures contractual period (24 months).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the warrants issued as a finders fee and the finders fee in
cash amounted to $535 and were recorded as deferred issuance expenses and are amortized
over the Debentures contractual period. The Company estimated the fair value of the
warrants using a Black  Scholes option pricing model, with the following
assumptions: volatility of 83%, risk free interest rate of 4.8%, dividend yield of 0%,
and an expected life of 36 months.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to EITF 00-19, in order to classify warrants and options (other than employee stock
options) as equity and not as liabilities, the Company should have sufficient authorized
and unissued shares of common stock to provide for settlement of those instruments that
may require share settlement. Under the terms of the Debentures, the Company may be
required to issue an unlimited number of shares to satisfy the debentures
contractual requirements. As such, on April 3, 2006, the Companys warrants and
options (other than employee stock options) were classified as liabilities and measured
at fair value with changes recognized currently in earnings.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of November 9, 2006, all of the Debentures, were converted into 969,815 shares. As a
result, an amount of $1,787 was reclassified into common stock and additional paid-in
capital as follows: from conversion of the feature embedded in convertible debenture
($1,951), convertible debenture ($202), accrued interest ($74) net of issuance expenses
in the amount of $440. In addition, the warrants and options to consultants in the amount
of $476 and deferred issuance expenses in the amount of $379 were reclassified as equity.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to an investor relations agreement dated April 28, 2006, the Company paid in cash an
amount of $440 on October 19, 2006 and issued 50,000 common shares on November 9, 2006 to
certain service providers following reaching certain milestones regarding the conversion
of the Debentures as agreed to by the parties.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended June 30, 2007, 186,529 of the warrants which were issued on April 3, 2006,
were exercised. 75,692 warrants were exercised into shares in consideration for $1,022
(net of cash exercise costs of $114), and 110,836 warrants were exercised cashless into
46,674 shares. On April 30, 2009, the rest of the warrants expired unexercised.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 35

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|n. | On
May 14, 2007, the Company consummated a private equity placement with a group
               of investors for an equity investment (May 2007 Agreement).
The                Company sought a minimum of $7,000 and up to a maximum of $13,500 for
shares of                the Companys common stock, $.00001 par value at a per
share price of                $2.50, and warrants to purchase shares at an exercise price
of $5 exercisable                until five years after the closing date of the
agreement.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2007, under the May 2007 Agreement, the Company issued 3,126,177 shares of the Companys
common stock and 3,126,177 warrants to purchase the Companys common stock in
consideration for $7,751 (net of cash issuance costs of $64).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
July and August 2007, under the May 2007 Agreement, the Company issued additional 273,828
shares of the Companys common stock and 273,828 warrants to purchase the Companys
common stock in consideration for $685. The consideration was paid partly prior to the
issuance of the shares in the year ended June 30, 2007 ($368) and was recorded as
receipts on account of shares and the balance was paid during July and August 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
part of May 2007 Agreement, the Company signed an escrow agreement according to which the
Company granted an option to an investor to invest, under the same conditions defined in
the May 2007 Agreement, up to $5,000 which will be paid in monthly installments over 10
months starting six months subsequent to the closing date. According to the agreement, in
the event that the investor fails to make any of the payments within five days of the
payment due date, the option to invest the remaining amount will be cancelled. As a
result of this agreement, the Company issued 634,580 shares of the Companys common
stock and 634,580 warrants to purchase the Companys common stock in consideration
for $1,561 (net of cash issuance costs of $25). As of March 31, 2008 the option was
cancelled.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total proceeds related to the May 2007 Agreement accumulated as of June 30, 2008 were
$9,997 (net of cash issuance costs of $89), and 4,034,585 shares and 4,034,585 warrants
were issued.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the May 2007 Agreement, the Company issued 275,320 warrants to finders as
finders fee. The warrants are exercisable for five years from the date of grant at
an exercise price of $2.50 per share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
year 2008 and 2007, 1,361,818 and 500,000 warrants related to the May 2007 Agreement were
exercised on a cashless basis for 1,009,697 shares of stock and 366,534 shares of stock,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o. | The
Company issued 28,398 warrants to the investors related to the May 2007
               Agreement as compensation to investors who delivered the invested amount
prior                to the closing date of the placement. The warrants are exercisable
for five                years at an exercise price of $2.50 per share. The Company
recorded the fair                value of the warrants as financial expenses in the
amount of $651 in the year                ended June 30, 2007. The fair value of these
warrants was determined using the                Black-Scholes pricing model, assuming a
risk free rate of 4.8%, a volatility                factor of 128%, dividend yield of 0%
and expected life of five years.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|p. | In
the May 2007 Agreement, there is a provision that requires the Company for a
               period of four years (subject to acceleration under certain circumstances)
not                to sell any of the Companys common stock for less than $0.0125
per share                (pre-split price). The May 2007 Agreement provides that any sale
below that                price must be preceded by consent from each purchaser in the
placement. Since                that date, the Company had effected a one-for-200 reverse
stock split.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company decided to proceed and enter into additional security purchase agreements
notwithstanding this provision for the following reasons:
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
agreement does not contain any provisions for the adjustment of the specified minimum
price in the event of stock splits and the like. If such agreement were to have contained
such a provision, the floor price would be $2.50.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 36

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|p. | (Cont.):
|-- | --------

| |  | The
majority of purchasers in the private placement have sold the stock purchased in the
placement, and thus the number of purchasers whose consent is purportedly required has
been substantially reduced. The number of shares outstanding as to which this provision
currently applies according the information supplied by transfer agent is 1.8 million
shares.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | An
agreement that prevents the Companys Board of Directors from issuing shares that
are necessary to finance the Companys business may be unenforceable.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | It
is unclear what could be the consequences of a court decision that the issuance of shares
below $2.50 per share violates the May 2007 Agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection therewith, the Company approved the issuance of warrants to purchase up to
147,884 shares of its common stock to each of the investors who was a party to the May
2007 Agreement that held shares purchased pursuant to such agreement, as of August 6,
2008, conditioned on having the investors execute a general release pursuant to which the
Company will be released from liability including, but not limited to, any claims,
demands, or causes of action arising out of, relating to, or regarding sales of certain
equity securities notwithstanding the above mentioned provision. As of June 30, 2009 the
Company received a general release from part of the investors, and issued them warrants
to purchase 70,368 shares of its common stock.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|q. | On
August 6, 2008, the Company sold 1,391,304 shares of the Companys
               common stock and warrants to purchase 695,652 shares of common stock at an
               exercise price of $1.90 to two investors in consideration of $1,600
pursuant to                terms of a securities purchase agreement. The placement agent
received a                placement fee equal to 6% of the gross purchase price of the
Units (excluding                any consideration that may be paid in the future upon
exercise of the warrants)                as well as warrants to purchase 83,478 shares of
common stock at an exercise                price of $1.44 per share. The warrants will be
exercisable after six months from                the closing date through and including
August 5, 2013. Total cash issuance costs                related to this placement
amounted to $125.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|r. | On
September 22, 2008, the Company sold 900,000 shares of the Companys
               common stock and warrants to purchase 675,000 shares of common stock to an
               investor in consideration for $1,035 pursuant to terms of a securities
purchase                agreement. The price per share of common stock was $1.15, and the
exercise price                of the warrants is $1.90. The warrants will be exercisable
for a period of five                years. As part of this transaction, the Company paid
a transaction fee to the                finders equal to 6% of the actual purchase price
and warrants exercisable for                five years at an exercise price of $1.50 per
share to purchase 54,000 of the                Companys shares of common stock.
Total cash issuance costs related to this                placement amounted to $62.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|s. | In
November 2008 through January 2009, the Company entered into a securities
               purchase agreement with investors, pursuant to which the Company sold
1,746,575                shares of its common stock at a price of $0.40 per share, for an
aggregate                purchase price of $699, and issued warrants to purchase up to an
additional                1,746,575 shares of common stock with an exercise price of
$1.00 per share. The                warrants will be exercisable after six months from
the closing date and will                expire after five years. Pursuant to the
agreement, the investors have the                option, by notice to the Company no
later than 10 business days following the                release of an official
announcement by the Company that it is initiating its                first human clinical
trials, to purchase an additional 931,507 shares of common                stock at a
purchase price of $0.75 per share, for an aggregate purchase price of
               $699, and receive therewith warrants to purchase up to an additional
931,507                shares of common stock with an exercise price of $1.50 per share.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
issuance costs include $39 in cash and warrants exercisable for five years at an exercise
price of $1.00 per share to purchase 96,579 of the Companys shares of common stock.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 37

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|t. | On
January 20, 2009, the Company sold 216,818 shares of its common stock and
               warrants to purchase 216,818 shares of common stock to investors in
               consideration for $95 pursuant to terms of a securities purchase
agreement. The                price per share of common stock is $0.44, and the exercise
price of the warrants                is $1.00 per share. The warrants will be exercisable
after six months from the                closing date and will expire after five years.
Pursuant to the agreement, the                investors have the option, by notice to the
Company no later than 10 business                days following the release of an
official announcement by the Company that it is                initiating its first human
clinical trials, to purchase an additional 127,200                shares of common stock
at a purchase price of $0.75 per share, for an aggregate                purchase price of
$95, and receive therewith warrants to purchase up to an                additional
127,200 shares of common stock with an exercise price of $1.50 per                share
(the January 20 Option). The January 20 Option is exercisable
               within six months from the closing date. As part of this transaction, the
               Company paid a transaction fee to finders in an amount of $5 in cash and
issued                them warrants exercisable for two years at an exercise price of
$1.00 per share                to purchase 12,273 shares of the Companys common
stock.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|u. | On
January 29, 2009, the Company entered into a subscription agreement with
               certain investors, pursuant to which the Company sold to such investors
969,826                units, each unit consisting of one share of common stock and a
warrant to                purchase one of the Companys share of common stock (Unit).
The                purchase price per Unit was $1.16 and the aggregate purchase price for
the said                Units is approximately $1,125. The warrants are exercisable 181
days following                the issuance thereof for a period of five years thereafter
at an exercise price                of $1.90 per share. The Company paid a transaction
fee to finders in an amount                of $90 in cash and issued them warrants
exercisable after six months for five                years at an exercise price of $1.90
per share to purchase 80,983 shares of the                Companys common stock.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|v. | On
May 5, 2009, the Company entered into securities purchase agreements with two
               investors pursuant to which the Company sold 888,406 shares of its common
stock                and warrants to purchase 488,623 shares of common stock in
consideration for                $1,333. The exercise price of the warrants is $1.96 per
share and they will be                exercisable for a period of five years commencing
six months following the                issuance thereof. The
Company paid a transaction fee to finders in an amount of $104 in cash and issued them
warrants exercisable after six months for five years at an exercise price of $1.875 per
share to purchase 53,304 shares of the Companys common stock.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|w. | The
following table summarizes the issuance of shares to the Companys
               consultants and service providers as compensation for their services since
July                1, 2007:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Period of service             | Number of shares
issued | Fair market value
of the shares
issued at the
issuance date | Expenses in the statements of
operations for the year ended june 30,
|----------------------------- | ----------------------- | ----------------------------------------------------------- | --------------------------------------------------------------------
|
|
|
|June - December 2007          | 10,000                  | 149                                                         | 149                                                                 
|February - July 2008          | 7,500                   | 18                                                          | 18                                                                  
|March - September 2008        | 3,500                   | 8                                                           | 6                                                                   
|April - June 2008             | 50,000                  | 102                                                         | 102                                                                 
|July -September 2008          | 40,000                  | 46                                                          | -                                                                   
|October 2008                  | 750                     | 1                                                           | -                                                                   
|October 2008                  | 20,000                  | 12                                                          | -                                                                   
|December 2008 - November 2009 | 50,000                  | 24                                                          | -                                                                   
|July 2008 - June 2009         | 16,129                  | 10                                                          | -                                                                   
|February - June 2009          | 9,510                   | 12                                                          | -                                                                   
|February - April 2009         | 30,000                  | 32                                                          | -                                                                   
|April 2008                    | 3,500                   | 4                                                           | -                                                                   
|                              |                         |                                                             |                                                                     
|Total                         | 240,889                 | 418                                                         | 275                                                                 
|                              |                         |                                                             |                                                                     

The issuance of shares to the
consultants was in some cases in addition to cash compensation the consultants were
entitled to.

F - 39

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stocks to employees, directors and           consultants:
|-- | ------------------------------------------------------------------------------------------

| | The
Company has two incentive option plans from 2003 and from 2005. Under these plans,
options may be granted to the Companys officers, directors, employees and
consultants or the officers, directors, employees and consultants of the Subsidiary.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 28, 2008, the Companys Board of Directors approved the reservation of an
additional 90,000 shares of common stock for the Amended 2005 Stock Option Plan, so that
the total options under the 2005 Option Plan was set at 1,990,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
the annual meeting of stockholders of the Company held on January 21, 2009, the Companys
stockholders approved the adoption of the Amended and Restated 2005 Stock Option Plan of
the Company (the 2005 Plan), amending the Amended 2005 Stock Option Plan in
order to: (i) increase the number of shares of common stock authorized for issuance
thereunder from 1,990,000 to be equal to 16% of the number of shares of common stock
issued and outstanding on a fully diluted basis immediately prior to the grant of
securities; (ii) allow the issuance of shares of common stock (Restricted stock)
and units for such shares of common stock; and (iii) set the termination date of the 2005
Plan to be December 31, 2018.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each
option granted under the 2005 Plan is exercisable through the expiration date of the 2005
Plan unless stated otherwise. The exercise price of the options granted under the plan
may not be less than the nominal value of the stock into which such options are
exercised. The options, restricted stock and restricted stock units (the Awards)
vest over two years from the date of grant, as follows: 25% vests six months after the
date of grant, and the remaining Awards vest monthly, in equal instalments over 18 months
unless other vesting schedules are specified. Any Awards that are cancelled or forfeited
before expiration become available for future grants.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of June 30, 2009, the number of Shares authorized for issuance under the 2005 Plan
amounted to 4,376,910. 687,996 Shares are still available for future grant under the 2005
Plan as of June 30, 2009. Under the 2003 Plan 10,501 options are still available for
future grant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Options
to employees and directors:
| | -- | -----------------------------------

| | On
August 28, 2008, the Company granted 97,500 options exercisable at a price of $1.04 per
share to the Companys employees and directors under the 2005 Plan. The fair value
of these options at the grant date was $91.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 21, 2009, the Company granted 580,000 options exercisable at a price of $0.62 per
share to the Companys employees and directors under the 2005 Plan. The fair value
of these options at the grant date was $312.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounted for its options to employees and directors under the fair value method
in accordance with SFAS 123(R). The fair value for these options was estimated using
Black-Scholes option-pricing model with the following assumptions: risk-free interest
rates of 1.80%  3.26%, expected dividend yield of 0%, expected volatility of 129%
 1.32%, a weighted-average contractual life of the options of up to six years, and
a forfeiture rate of 5% per grant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stock to employees,directors and           consultants
(cont.):
|-- | ------------------------------------------------------------------------------------------------

| | a. | Options
to employees and directors (cont.):
| | -- | -------------------------------------------

| | A
summary of the Companys share option activity for options granted to employees and
directors under the 2005 Plan and the 2003 Plan (the Plans) is as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                        | Year ended June 30,
2009
| | ---------------------- | ------------------------
|
|
|
|
| | Options outstanding at |                         
| | beginning of year      |                         
| | Options granted        |                         
| | Options forfeited      |                         
| |                        |                         
| | Options outstanding at |                         
| | end of the period      |                         
| |                        |                         
| | Options exercisable at |                         
| | the end of the period  |                         
| |                        |                         
| | Options vested and     |                         
| | expected to vest       |                         
| |                        |                         
| |                        |                         

| |                        | Year ended June 30,
2008
| | ---------------------- | ------------------------
|
|
|
|
| | Options outstanding at |                         
| | beginning of year      |                         
| | Options granted        |                         
| | Options forfeited      |                         
| |                        |                         
| | Options outstanding at |                         
| | end of the period      |                         
| |                        |                         
| | Options exercisable at |                         
| | the end of the period  |                         
| |                        |                         
| | Options vested and     |                         
| | expected to vest       |                         
| |                        |                         
| |                        |                         

| | Intrinsic
value of exercisable options (the difference between the Companys closing stock
price on the last trading day in the period and the exercise price, multiplied by the
number of in-the-money options) represents the amount that would have been received by
the employees and directors option holders had all option holders exercised their options
on June 30, 2009. This amount changes based on the fair market value of the Companys
stock.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 41

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stock to employees, directors and           consultants
(cont.):
|-- | -------------------------------------------------------------------------------------------------

| | a. | Options
to employees and directors (cont.):
| | -- | -------------------------------------------

| | Compensation
expenses related to options granted to employees and directors were recorded to research
and development expenses and general and administrative expenses, as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                      | Year ended June 30, | Period from
inception through
June 30,
| | -------------------- | ------------------- | --------------------------------------
|
|
|
|
| | Research and         |                     |                                       
| | development expenses |                     |                                       
| | General and          |                     |                                       
| | administrative       |                     |                                       
| | expenses             |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       

F - 42

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stocks to employees,directors and           consultants
(cont.):
|-- | -------------------------------------------------------------------------------------------------

| | b. | Options
and warrants to non-employees:
| | -- | --------------------------------------

| | On
September 1, 2008, the Company entered into a consulting agreement. Pursuant to the
agreement the Company granted the consultant fully vested warrants to purchase 15,000
shares of the Companys common stock effective upon signing the consulting
agreement. The warrants were not granted under the Companys options plans.
According to the agreement, additional warrants to purchase 35,000 shares of the Companys
common stock will be granted subject to a service condition. As of June 30, 2009, the
Company assumes that the service condition of this grant will not be achieved and the
warrants will not be granted. The Company did not record any expenses related to the
service based warrants. All warrants are exercisable for five years at an exercise price
of $1.91 per share.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the 15,000 warrants was $13. The Company accounted for its options to
consultants under the fair value method in accordance of SFAS 123(R) 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. The fair value for these options was
estimated using Black-Scholes option-pricing model with the following assumptions:
risk-free interest rates of 3.10%, expected dividend yield of 0%, expected volatility of
129%, and a weighted-average contractual life of the options of five years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 21, 2009, the Company granted 10,000 options exercisable at a price of $0.62 per
share to a Company consultant under the 2005 Plan. The fair value of these options at the
grant date was $6. The fair value was estimated using Black-Scholes option-pricing model
with the following assumptions: risk-free interest rates of 2.56%, expected dividend
yield of 0%, expected volatility of 132%, and a weighted-average contractual life of the
options of 10 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 26, 2009, the Company granted 100,000 options exercisable at a price of $1.34 per
share to a Company consultant. The options vest in twelve equal monthly installments of
8,333 shares. The fair value of these options at the grant date was $120. The fair value
was estimated using Black-Scholes option-pricing model with the following assumptions:
risk-free interest rates of 1.87%, expected dividend yield of 0%, expected volatility of
144%, and a contractual life of the options of five years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the Companys activity related to options and warrants to consultants is
as follows:
| | -------------------------------------------------------------------------------------------------

| |                                  | Year ended June 30,2009
| | -------------------------------- | -----------------------
|
|
|
|
| | Options and warrants outstanding |                        
| | at beginning of year             |                        
| | Options and warrants granted     |                        
| | Options and warrants forfeited   |                        
| |                                  |                        
| | Options and warrants outstanding |                        
| | at end of the period             |                        
| |                                  |                        
| |                                  |                        
| | Options and warrants exercisable |                        
| | at the end of the period         |                        
| |                                  |                        
| |                                  |                        
| | Options and warrants vested and  |                        
| | expected to vest                 |                        
| |                                  |                        
| |                                  |                        

F - 43

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stock to employees, directors and           consultants
(cont.):
|-- | -------------------------------------------------------------------------------------------------

| | b. | Options
and warrants to non-employees (cont.):
| | -- | ----------------------------------------------

| |                             | Year ended June 30,
2008
| | --------------------------- | ------------------------
|
|
|
|
| | Options outstanding at      |                         
| | beginning of year           |                         
| | Options granted             |                         
| | Options forfeited           |                         
| |                             |                         
| | Options outstanding at end  |                         
| | of the period               |                         
| |                             |                         
| | Options exercisable at the  |                         
| | end of the period           |                         
| |                             |                         
| | Options vested and expected |                         
| | to vest                     |                         
| |                             |                         
| |                             |                         

| | Compensation
expenses related to options and warrants granted to consultants were recorded as follows:
| | ------------------------------------------------------------------------------------------------------

| |                      | Year ended June 30, | Period from
inception
through June 30,
| | -------------------- | ------------------- | --------------------------------------
|
|
|
|
| | Research and         |                     |                                       
| | development expenses |                     |                                       
| | General and          |                     |                                       
| | administrative       |                     |                                       
| | expenses             |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       
| |                      |                     |                                       

F - 44

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stock to employees, directors and           consultants
(cont.):
|-- | -------------------------------------------------------------------------------------------------

| | c. | Restricted
stock to employees and directors:
| | -- | --------------------------------------------

| | In
December 2008, the Company issued a total of 427,228 shares of its common stock to its
directors and employees at a price of $0.40 per share. The issuance was made in exchange
for a voluntary reduction, for six months, in the cash compensation payable to such
directors and employees. These shares were not granted under the Companys options
plans.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 12, 2009, the Company granted 852,500 shares of restricted stock to the Companys
employees and directors under the 2005 Plan. The fair value of these shares at the grant
date was $964.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 11, 2009, the Company granted 159,671 shares of restricted stock to the Companys
employees and directors under the 2005 Plan. The shares were issued in exchange for a
voluntary reduction of one year in the cash compensation such directors and employees
were entitled to. The fair value of these shares at the grant date was $200.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the Companys restricted stock granted to employees and directors is as
follows:
| | ---------------------------------------------------------------------------------------------

| |                              | Year ended June 30, 2009
| | ---------------------------- | ------------------------
|
|
|
|
| | Restricted stock outstanding |                         
| | at beginning of year         |                         
| |                              |                         
| | Restricted stock granted     |                         
| |                              |                         
| | Restricted stock forfeited   |                         
| |                              |                         
| | Restricted stock outstanding |                         
| | at end of the period         |                         
| |                              |                         
| | Restricted stock vested at   |                         
| | the end of the period        |                         
| |                              |                         
| | Restricted stock vested and  |                         
| | expected to vest             |                         
| |                              |                         
| |                              |                         

| | Compensation
expenses related to restricted stock granted to employees and directors were recorded to
research and development expenses and general and administrative expenses, as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         | Year ended June 30, | Period from
inception through
June 30,
| | ----------------------- | ------------------- | --------------------------------------
|
|
|
|
| | Research and            |                     |                                       
| | development expenses    |                     |                                       
| | General and             |                     |                                       
| | administrative expenses |                     |                                       
| |                         |                     |                                       
| |                         |                     |                                       
| |                         |                     |                                       
| |                         |                     |                                       

F - 45

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS (CONT.)

|x. | Options,
warrants and restricted stock to employees, directors and           consultants
(cont.):
|-- | -------------------------------------------------------------------------------------------------

| | d. | Restricted
stock to consultants:
| | -- | --------------------------------

| | In
December 2008, the Company issued 23,625 shares of its common stock to its consultant.
The issuance was made in exchange for a voluntary reduction for six months in the cash
compensation such consultant was entitled to. These shares were not granted under the
Companys options plans.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 12, 2009, the Company granted 45,000 shares of restricted stock to Company
consultants under the 2005 Plan. The fair value of these shares at the grant date was $54.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 11, 2009, the Company granted 4,636 shares of restricted stock to a Company
consultant under the 2005 Plan. The fair value of these shares at the grant date was $6.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the Companys restricted stock granted to consultants is as follows:
| | ---------------------------------------------------------------------------------

| |                            | Year ended June 30, 2009
| | -------------------------- | ------------------------
|
|
|
|
| | Restricted stock           |                         
| | outstanding at beginning   |                         
| | of year                    |                         
| | Restricted stock granted   |                         
| | Restricted stock forfeited |                         
| |                            |                         
| | Restricted stock           |                         
| | outstanding at end of the  |                         
| | period                     |                         
| |                            |                         
| | Restricted stock vested    |                         
| | at the end of the period   |                         
| |                            |                         
| | Restricted stock vested    |                         
| | and expected to vest       |                         
| |                            |                         
| |                            |                         

| | Compensation
expenses related to restricted stock granted to consultants were recorded to research and
development expenses and general and administrative expenses, as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         | Year ended June 30, | Period from
inception through
June 30,
| | ----------------------- | ------------------- | --------------------------------------
|
|
|
|
| | Research and            |                     |                                       
| | development expenses    |                     |                                       
| | General and             |                     |                                       
| | administrative expenses |                     |                                       
| |                         |                     |                                       
| |                         |                     |                                       
| |                         |                     |                                       
| |                         |                     |                                       

F - 46

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

|y. | Summary
of warrants and options:
|-- | --------------------------------

| | A
summary of all the warrants and options outstanding as of June 30, 2009 is presented in
this table:
| | -----------------------------------------------------------------------------------------------------

|Warrants / Options | Exercise Price per
Share | Options and
Warrants for
Common Stock | Options and
Warrants
Exercisable | Weighted Average
Remaining Contractual
Terms
|------------------ | ------------------------ | ------------------------------------- | -------------------------------- | --------------------------------------------
|
|
|
|
|Warrants:          |                          |                                       | $ 0.75                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 1.00                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 1.30 - $ 1.50                  |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 1.80 - $ 2.00                  |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 2.50                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 4.40                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 5.00                           |                                             
|                   |                          |                                       |                                  |                                             
|Total warrants     |                          |                                       |                                  |                                             
|                   |                          |                                       |                                  |                                             
|                   |                          |                                      
|Options:           |                          |                                       | $ 0.62                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 1.04                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 1.34                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 2.97                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 3.50                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 3.72 - $ 3.80                  |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 4.00                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 4.38 - $ 4.40                  |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 6.80                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 8.20                           |                                             
|                   |                          |                                      
|                   |                          |                                       | $ 20.00                          |                                             
|                   |                          |                                       |                                  |                                             
|Total options      |                          |                                       |                                  |                                             
|                   |                          |                                       |                                  |                                             
|Total warrants and |                          |                                      
|options            |                          |                                       |                                  |                                             
|                   |                          |                                       |                                  |                                             
|                   |                          |                                       |                                  |                                             

F - 47

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 9:  FINANCIAL
EXPENSES (INCOME), NET

| |                              | Year ended June 30, | Period from
May 11, 2001
(Inception)
through June 30,
2009
| | ---------------------------- | ------------------- | ----------------------------------------------------------
|
|
|
|
| | Foreign currency translation |                     |                                                           
| | differences                  |                     |                                                           
| | Interest on short-term bank  |                     |                                                           
| | credit and bank's expenses   |                     |                                                           
| | Interest on long-term loan   |                     |                                                           
| | Interest accrued on know-how |                     |                                                           
| | licenses                     |                     |                                                           
| | Interest income on deposits  |                     |                                                           
| | Deferred issuance expenses   |                     |                                                           
| | amortization                 |                     |                                                           
| | Discount amortization        |                     |                                                           
| | Interest expenses of         |                     |                                                           
| | debenture                    |                     |                                                           
| | Change in fair value of      |                     |                                                           
| | warrants                     |                     |                                                           
| | Loss (income) related to     |                     |                                                           
| | marketable securities        |                     |                                                           
| | Interest expenses related to |                     |                                                           
| | warrants issued to           |                     |                                                           
| | investors                    |                     |                                                           
| | Expenses (income) of         |                     |                                                           
| | derivatives                  |                     |                                                           
| |                              |                     |                                                           
| |                              |                     |                                                           
| |                              |                     |                                                           
| |                              |                     |                                                           

F - 48

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 10:  TAXES ON INCOME

|A. | Tax
laws applicable to the companies:
|-- | -------------------------------------

| | 1. | The
Company is taxed under U.S. tax laws.
| | -- | -----------------------------------------

| | 2. | The
Subsidiary is taxed under the Israeli income Tax Ordinance and the Income
               Tax (Inflationary Adjustments) Law, 1985: (the law).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | Results
of the Companys Subsidiary for tax purposes are measured and reflected in real
terms in accordance with the changes in the CPI. As explained in Note 2, the financial
statements are presented in U.S. dollars. The difference between the rate of change in
Israeli CPI and the rate of change in the NIS/U.S. dollar exchange rate causes a
difference between taxable income or loss and the income or loss before taxes reflected
in the financial statements. In accordance with paragraph 9(f) of SFAS 109, the Company
has not provided deferred income taxes on this difference between the reporting currency
and the tax bases of assets and liabilities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 26, 2008, the Israeli Parliament (the Knesset) enacted the Income Tax Law
(Inflationary Adjustments) (Amendment No. 20) (Restriction of Effective Period), 2008,
which the Company refers to as the Inflationary Adjustments Amendment. In accordance with
the Inflationary Adjustments Amendment, the effective period of the Inflationary
Adjustments Law will cease at the end of the 2007 tax year and as of the 2008 tax year
the provisions of the law shall no longer apply, other than the transitional provisions
intended at preventing distortions in the tax calculations. In accordance with the
Inflationary Adjustments Amendment, commencing the 2008 tax year, income for tax purposes
will no longer be adjusted to a real (net of inflation) measurement basis. Furthermore,
the depreciation of inflation immune assets and carried forward tax losses will no longer
be linked to the Israeli consumer price index.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|B. | Tax
assessments:
|-- | ----------------

| | The
Company and the Subsidiary have not received final tax assessments since its
incorporation.
| | -----------------------------------------------------------------------------------------------

|C. | Tax
rates applicable to the Group:
|-- | ----------------------------------

| | 1. | The
Subsidiary 
| | -- | ----------------

| | In
June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision),
2004 was passed by the Knesset (Israeli parliament) and on July 25, 2005,
another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005,
according to which the corporate tax rate is to be progressively reduced to the following
tax rates: 2006  31%, 2007  29%, 2008  27%, 2009  26%, 2010 and
thereafter  25%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
above amendment did not have an effect on the Subsidiarys financial position and
results of operations.
| | ------------------------------------------------------------------------------------------------------------

| | Israeli
companies are generally subject to capital gains tax at rate of 25% for capital gains
(other than gains deriving from the sale of listed securities) derived after January 1,
2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 49

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 10:  TAXES ON INCOME
(CONT.)

| | 2. | The
Company:
| | -- | ------------

| | The
tax rates applicable to the Company whose place of incorporation is the U.S. are
corporate (progressive) tax at the rate of up to 35%, excluding State tax and Local tax
if any, which rates depend on the state-and city in which the Company will conduct its
business.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to the tax laws applicable to Israeli residents, dividend received from a foreign
resident company is subject to tax in Israel at the rate of 25% in the hands of its
recipient. According to the tax laws applicable in the U.S., tax at the rate of 30% is
withheld and, based on the treaty for the avoidance of double taxation of Israel and the
U.S., it may be reduced to either 25% or 12.5% (dependent on the identity of the
shareholder). To enjoy the benefits of the tax treaty, certain procedural requirements
need to be satisfied.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|D. | Carryforward
losses for tax purposes
|-- | ------------------------------------

| | As
of June 30, 2009, the Company had U.S. federal net operating loss carryforward for
income tax purposes in the amount of approximately $9,405. Net operating loss
carryforward arising in taxable years beginning after August 6, 1997 can be carried
forward and offset against taxable income for 20 years and expiring between 2022 and 2028.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys Subsidiary in Israel has accumulated losses for tax purposes as of June 30,
2009, in the amount of approximately $8,286, which may be carried forward and offset
against taxable income and capital gain in the future for an indefinite period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                      | June 30,
| | ---------------------------------------------------- | --------
|
|
|
|
| | Deferred tax assets:                                 |         
| | U.S. net operating loss carryforward                 |         
| | Israeli net operating loss carryforward              |         
| | Allowances and reserves                              |         
| |                                                      |         
| |                                                      |         
| | Total deferred tax assets before valuation allowance |         
| | Valuation allowance                                  |         
| |                                                      |         
| |                                                      |         
| | Net deferred tax asset                               |         
| |                                                      |         
| |                                                      |         

F - 50

---

---

|                                                    
|----------------------------------------------------
|PLURISTEM
THERAPEUTICS
INC. AND ITS SUBSIDIARY      
|(A Development Stage
Company)                       
|                                                    
|NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS          
|                                                    
|U.S. Dollars in thousands (except per share
amounts)

# NOTE 10:  TAXES ON INCOME
(CONT.)

| | As
of June 30, 2009, the Company and its Subsidiary have provided valuation allowances
in respect of deferred tax assets resulting from tax loss carryforward and other
temporary differences, since they have a history of operating losses and current
uncertainty concerning its ability to realize these deferred tax assets in the future.
Management currently believes that 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reconciliation
of the theoretical tax expense (benefit) to the actual tax expense (benefit):
| | --------------------------------------------------------------------------------------------

| | In
2007, 2008 and 2009, the main reconciling item of the statutory tax rate of the Company
and its Subsidiary (29% to 35% in 2007, 27% to 35% in 2008 and 26% to 35% in 2009) to the
effective tax rate (0%) is tax loss carryforwards and other deferred tax assets for which
a full valuation allowance was provided.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 11:  SUBSEQUENT
EVENTS

On July 7, 2009, the Company
announced that the first patient has been enrolled in a Phase I clinical trial of its
PLX-PAD product. Certain investors had an option, by giving the Company notice no later
than 10 business days following the release of an official announcement by the Company
that it initiated its first human clinical trials, to purchase additional shares and
warrants. Following receipt of such investors notice, the Company issued in July
2009 1,058,708 shares of common stock at a purchase price of $0.75 per share, for an
aggregate purchase price of $794, and warrants to purchase up to an additional 1,058,708
shares of common stock with an exercise price of $1.50 per share.

F - 51

---

---

Item 9. Changes
 in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A(T). Controls
 and Procedures

Evaluation of Disclosure Controls and
Procedures

We conducted an evaluation
under the supervision of the Chief Executive Officer and Chief Financial
Officer (its principal executive officer and principal financial officer,
respectively), regarding the effectiveness of the Companys disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act) as of June
30, 2009. Based on the aforementioned evaluation, management has concluded that
our disclosure controls and procedures were effective as of June 30, 2009.

Managements Report on Internal Control
over Financial Reporting

Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial reporting has been
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles generally accepted in
the United States of America.

Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of our assets; provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and
expenditures are being made only in accordance with authorization of our
management and directors; and provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Management assessed the
effectiveness of our internal control over financial reporting at June 30,
2009. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework.
Based on that assessment under those criteria, management has determined that,
at June 30, 2009, our internal control over financial reporting was effective.

This annual report does not
include an attestation report of our 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 SEC that permit us to provide only
managements report in this annual report.

Changes in Internal Control Over Financial
Reporting

There have been no changes
in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth
quarter of fiscal year 2009 that have materially affected, or are reasonably
likely to materially affect, internal
control over financial reporting.

- 28 -

---

---



Item 9B. Other
 Information

None.

PART III

Item 10. Directors,
 Executive Officers and Corporate Governance.

As of June 30, 2009, our
directors and executive officers, their ages, positions held, and duration of
such, are as follows:

|                  |  |                                                                                          |  |     |  |                                                     
|----------------- |  | ---------------------------------------------------------------------------------------- |  | --- |  | ----------------------------------------------------
|Name              |  | Position Held With Company                                                               |  | Age |  | Date First Elected or Appointed                     
|                  |  |                                                                                          |  |     |  |                                                     
|                 
|Zami
 Aberman     |  | Chief
 Executive Officer, President,
 Director
 and Chairman of the Board of 
 Directors |  | 55  |  | September
 26, 2005
 November 21, 2005April
 3, 2006
|Yaky
 Yanay       |  | Chief
 Financial Officer, Secretary                                                      |  | 38  |  | November
 1, 2006                                   
|Nachum
 Rosman    |  | Director                                                                                 |  | 63  |  | October
 9, 2007                                    
|Doron
 Shorrer    |  | Director                                                                                 |  | 56  |  | October
 2, 2003                                    
|Hava
 Meretzki    |  | Director                                                                                 |  | 40  |  | October
 2, 2003                                    
|Isaac
 Braun      |  | Director                                                                                 |  | 56  |  | July
 6, 2005                                       
|Israel
 Ben-Yoram |  | Director                                                                                 |  | 48  |  | January
 26, 2005                                   
|Mark
 Germain     |  | Director                                                                                 |  | 59  |  | May
 17, 2007                                       
|Shai
 Pines       |  | Director                                                                                 |  | 55  |  | December
 8, 2008                                   

Business Experience

The following is a brief
account of the education and business experience of each director and executive
officer during at least the past five years, indicating each persons principal
occupation during the period, and the name and principal business of the
organization by which they were employed.

Zami Aberman

Mr. Aberman
became our Chief Executive Officer and President in September 2005 and a
director of our Company in November 2005. Mr. Aberman has served as our
Chairman of the Board since April 2006, and between May 2007 and February 2009
he was Co-chairman with Mr. Mark Germain. He has 20 years of experience in
marketing and management in the hi-tech industry. He held Chief Executive and
Chairman positions in companies in Israel, the United States, Europe, Japan and
Korea. Mr. Aberman operated within
high-tech global companies in the fields of automatic optical inspection,
network security, video over IP, software, chip design and robotic
markets. Mr. Aberman serves as the
chairman of Rose Hitech Ltd., a private investment company; as the chairman of
VLScom Ltd., a private company specializing in video compression for HDTV and
video over IP and as a director of Ori Software Ltd., a private company engaged
in data management. Before serving in
those positions he served, between 2002 and 2005, as the President and CEO of
Elbit Vision Systems, a public company traded on the OTCBB market (EVSNF.OB)
which supplies inspection systems for the microelectronic industry.

In 1992, Mr.
Aberman was awarded the Rothschild Prize for excellence in his field from the
President of the State of Israel. Mr.
Aberman holds a B.Sc. in Mechanical Engineering from Ben Gurion University in
Israel.

- 29 -

---

---



Yaky Yanay

Mr. Yanay was appointed as
our Chief Financial Officer and Secretary on November 1, 2006. 
Prior to joining us, Mr. Yanay was the Chief Financial Officer of Elbit Vision
System Ltd. (EVSNF.OB), a company engaged in automatic optical inspection. Mr.
Yanay holds a bachelors degree with honors in business administration and
accounting from the college of management studies in Rishon Le Zion, Israel and
is a Certified Public Accountant in Israel.

Nachum Rosman

Mr. Rosman
became a director of our company in October, 2007. In 1999, Mr. Rosman founded Talecity Ltd., a movie production
company, and has since been serving as its Chief Financial Officer. In addition he provides management and
consulting services to startup companies in the financial, organizational and
human resource aspects of their operations.
Mr. Rosman also serves as a director at several privately held
companies. Throughout his career, Mr.
Rosman held Chief Executive and Chief Financial Officer positions in Israel,
the United States and England. In these
positions he was responsible, among other things, for finance management, fund
raising, acquisitions and technology sales.

Mr. Rosman
holds a B.Sc. in Management Engineering and an M.Sc. in Operations Research
from the Technion, Haifa, Israel. Mr.
Rosman also participated in a Ph.D. program in Investments and Financing at the
Tel Aviv University, Israel.

Doron Shorrer

Mr. Shorrer
became a director of our company in October, 2003. Between 2002 and 2004 he was Chairman of the Boards of Phoenix
Insurance Company, one of the largest insurance companies in Israel, and of
Mivtachim Pension Benefit Group, the largest pension fund in Israel. Prior to
serving in these positions, Mr. Shorrer held senior positions that included
Arbitrator at the Claims Resolution Tribunal for Dormant Accounts in
Switzerland; Economic and Financial Advisor, Commissioner of Insurance and
Capital Markets for the State of Israel; Member of the board of directors of
Nechasim of the State of Israel; Member Committee for the Examination of
Structural Changes in the Capital Market (The Brodet Committee); General
Director of the Ministry of Transport; Co-Founder and director of an accounting
firm with offices in Jerusalem, Tel-Aviv and Haifa; Member of the Lecture Staff
of the Amal School Chain; Chairman of a Public Committee for
Telecommunications; and Economic Consultant to the Ministry of Energy. Among many areas of expertise, Mr. Shorrer
formulates, implements and administers business planning in the private and
institutional sector in addition to consulting on economic, accounting and
taxation issues to a large audience ranging from private concerns to government
ministries.

Mr. Shorrer
holds a B.A. in Economics and Accounting and an M.A. in Business Administration
(specialization in finance and banking) from the Hebrew University of Jerusalem
and is a Certified Public Accountant (ISR).

Hava Meretzki

Ms. Meretzki
became a director of our company in October, 2003. Ms. Meretzki is an attorney
and is a partner in the law firm of Meretzki - Tavor  in Haifa,
Israel. Ms. Meretzki specializes in
civil, trade and labor law and is presently Vice-Chairman for the National
Council of the Israel Bar Association.
Recently Ms. Meretzki was nominated to be a member of the committee that
nominates legal advisers for Israeli governmental companies.

Ms. Meretzki
received a Bachelors Degree in Law from the Hebrew University in 1991 and was
admitted to the Israel Bar Association in 1993.

- 30 -

---

---



Isaac Braun

Mr. Braun
became a director of our company in July, 2005. Mr. Braun is a business veteran with entrepreneurial, industrial
and manufacturing experience. He is a
co-founder and has been a board member of several hi-tech start-ups in the
areas of e-commerce, security, messaging, search engines and
biotechnology. Mr. Braun is involved
with advising private companies on raising financing and business development.

Israel Ben-Yoram

Mr. Ben-Yoram
became a director of our company in January, 2005. He has been a director and partner in the accounting firm of Mor,
Ben-Yoram and Partners in Israel since 1985.
In addition, since 1992, Mr. Ben-Yoram has been a shareholder and has
served as the head director of Mor, Ben-Yoram Ltd., a private company in Israel
in parallel to the operation of Mor, Ben-Yoram and Partners. This company provides management services,
economic consulting services and other professional services to businesses.

Mr. Ben-Yoram
received a B.A. in accounting from the University of Tel Aviv, an M.A. in
Economics from the Hebrew University of Jerusalem, an LLB and an MBA from Tel
Aviv University and an LLM from Bar Ilan University.

Mark Germain

Mr. Germain
became a director of our company in May 2007.
Between May 2007 and February 2009, Mr. Germain served as Co-Chairman of
our Board. For more than five years,
Mr. Germain has been a merchant banker serving primarily the biotech and life
sciences industries. He has been
involved as a founder, director, Chairman of the Board of, and/or investor in,
over twenty companies in the biotech field, and assisted many of them in
arranging corporate partnerships, acquiring technology, entering into mergers
and acquisitions, and executing financings and going public transactions. He graduated from New York University School
of Law in 1975, Order of the Coif, and was a partner in a New York law firm
practicing corporate and securities law before leaving in 1986. Since then, and until he entered the biotech
field in 1991, he served in senior executive capacities, including as president
of a public company sold in 1991.  In addition to being Co-Chairman of the
Company, Mr. Germain is a director of the following publicly traded companies:
Stem Cell Innovations, Inc., ChromaDex, Inc., Omnimmune Corp. and Collexis
Holdings, Inc. He is also a co-founder
and director of a number of private companies in the biotechnology field.

Shai Pines

Mr. Pines
became a director of our company in December, 2008. Mr. Pines is a lawyer admitted to practice law in the State of
Israel since 1981. He is a partner with, and heads the Commercial and
International Transactions Department of, the Israeli law firm of Hamburger
Evron & Co. Since 2000 Mr. Pines served as a member of the Supervisory
Board of Globe Trade Centre SA (GTC), a Polish company, which is traded on the
Warsaw Stock Exchange, and from 2000 to 2005 as a member of the Supervisory
Board of GTC International BV, a Dutch private company. Mr. Pines is also a
member of the Board of Governors of the Law Faculty of the Tel-Aviv University
since 2006. Mr. Pines holds an MBA degree from Kellogg School of Management,
Northwestern University, & the Leon Recanati Graduate School of Business
Administration, Tel-Aviv University and an LL.B. degree from Tel-Aviv
University.

There are no
family relationships between any of the directors or officers named above.

- 31 -

---

---



Audit Committee and Audit Committee Financial Expert

The members of our Audit
Committee are Doron Shorrer, Nachum Rosman and Israel Ben-Yoram. Doron Shorrer is the Chairman of the Audit
Committee, and our Board of Directors has determined that Israel Ben-Yoram is
an Audit Committee financial expert and that all members of the Audit
Committee are independent as defined by the rules of the SEC and the NASDAQ
rules and regulations. The Audit Committee operates under a charter that was
approved by our Board on August 29, 2007.
The charter is posted on our website at www.pluristem.com. The information
on our website is not incorporated by reference into this Annual Report. The primary responsibilities of our Audit Committee
include:

|  |                                                                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Appointing,
 compensating and retaining our registered independent public accounting firm;                                                                                                                                          
|  |                                                                                                                                                                                                                                     
|· | Overseeing the
 work performed by any outside accounting firm;                                                                                                                                                                      
|  |                                                                                                                                                                                                                                     
|· | Assisting the
 Board in fulfilling its responsibilities by reviewing: (i) the financial
 reports provided by us to the SEC, our stockholders or to the general public,
 and (ii) our internal financial and accounting controls; and
|  |                                                                                                                                                                                                                                     
|· | Recommending,
 establishing and monitoring procedures designed to improve the quality and
 reliability of the disclosure of our financial condition and results of
 operations.                                                     

Our Audit Committee held
six meetings during fiscal 2009.

Other Committees of the Board

Compensation Committee

The members of our
Compensation Committee are Doron Shorrer, Nachum Rosman and Israel Ben-Yoram. The Board has determined that all of the members
of the Compensation Committee are independent as defined by the rules of the
SEC and NASDAQ rules and regulations. The Compensation Committee operates under
a written charter that was approved by our Board on August 29, 2007. The charter is posted on our website at
www.pluristem.com. The primary responsibilities of our Compensation Committee
include:

|  |                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Reviewing,
 negotiating and approving, or recommending for approval by our Board of the
 salaries and incentive compensation of our executive officers;    
|  |                                                                                                                                                            
|· | Administering
 our equity based plans and making recommendations to our Board with respect
 to our incentivecompensation plans and equitybased plans; and
|  |                                                                                                                                                            
|· | Periodically
 reviewing and making recommendations to our Board with respect to director
 compensation.                                                    

Our Compensation Committee held two meetings during fiscal 2009. 
Nominating/Corporate Governance; Director Candidates.

The Company does not
have a Nominating Committee or Corporate Governance Committee or any committees
of a similar nature, nor any charter governing the nomination process. Our Board does not believe that such
committees are needed for a company our size.
However, our independent directors will consider stockholder suggestions
for additions to our Board.

Code of Ethics

Effective August 29, 2008,
our Board of Directors adopted a Code of Business Conduct and Ethics that
applies to, among other persons, members of our Board of Directors, our
officers including our Chief Executive Officer (being our principal executive
officer) and our Chief Financial Officer (being our principal financial and
accounting officer), contractors, consultants and advisors.

Our Code of Business Conduct
and Ethics is filed with the SEC as an exhibit to our annual report on Form
10-KSB filed on September 23, 2005. We will provide a copy of the Code of Business
Conduct and Ethics to any person without charge, upon request. Requests can be
sent to: Pluristem Therapeutics Inc., MATAM Advanced Technology Park, Building
No. 20, Haifa 31905, Israel.

- 32 -

---

---



Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the
Securities Exchange Act requires our executive officers and directors, and
persons who own more than 10% of our common stock, to file reports regarding
ownership of, and transactions in, our securities with the SEC and to provide
us with copies of those filings. Based solely on our review of the copies of
such forms received by us, or written representations from certain reporting
persons, we believe that during fiscal year ended June 30, 2009, all filing
requirements applicable to its officers, directors and ten percent beneficial
owners were complied with.

Item 11. Executive Compensation.

The following table shows
the particulars of compensation paid to the following persons, where
applicable, for the year ended June 30, 2009, chief executive officer and chief
financial officer. We do not currently
have any other executive officers, nor did we during the year ended June 30,
2009.

SUMMARY COMPENSATION TABLE

|                             |  |      |  |                 |         |                             |  |                                              |  |                             |        |            |  |        |     |  |         | 
|---------------------------- |  | ---- |  | --------------- | ------- | --------------------------- |  | -------------------------------------------- |  | --------------------------- | ------ | ---------- |  | ------ | --- |  | ------- | 
|Name
 and Principal Position |  | Year |  | Salary
 ($) (1) |         | Stock-based
 Awards
 ($)(2) |  | Non-Equity
 Incentive Plan Compensation
 ($) |  | All Other Compensation
 ($) |        | Total
 ($)
|                             |  |      |  |                 |         |                             |  |                                              |  |                             |        |           
|                             |  |      |  |                 |         |                             |  |                                              |  |                             |        |            |  |        |     |  |         | 
|Zami Aberman                 |  | 2009 |  |                 | 247,918 | (3)                         |  | 332,380                                      |  |                             | 0      |            |  | 0      |     |  | 580,298 | 
|Chief Executive Officer      |  | 2008 |  |                 | 312,565 | (3)                         |  | 412,051                                      |  |                             | 41,287 | (6)        |  | 0      |     |  | 765,903 | 
|Yaky Yanay                   |  | 2009 |  |                 | 140,974 |                             |  | 159,057                                      |  |                             | 0      |            |  | 19,220 | (5) |  | 319,251 | 
|Chief Financial Officer (4)  |  | 2008 |  |                 | 168,475 |                             |  | 245,268                                      |  |                             | 28,945 | (6)        |  | 21,982 | (5) |  | 464,670 | 

(1)          Salary
payments which were in New Israeli Shekel, or NIS, were translated into US$ at
the then current exchange rate for each payment.

(2)          The
dollar value recognized for the stock-based awards was determined in accordance
with SFAS No. 123(R). Assumptions used in the calculations for these amounts are
included in Note 2(i) to our consolidated financial statements for fiscal 2009
included elsewhere in this Annual Report on Form 10-K.

(3)          Includes
$16,757, and $15,463 paid to Mr. Aberman as compensation for services as a
director in 2009 and 2008, respectively.

(4)          On
November 10, 2008, Mr. Yanay received 1,600 warrants in connection with
participating in an equity investment in the company in May 2007. The warrants vested immediately, exercisable
at $1.90 per share for two years. Such securities are not reflected in the
table above.

(5)          Represents
cost to us in connection with the car made available to Mr. Yanay. The company
also pays the tax associated with this benefit which is part of the amount in
the Salary column in the table above.

(6)          Consists
of amounts paid pursuant to agreements relating to completed financing
transactions.

- 33 -

---

---



We have the following
written agreements and other arrangements concerning compensation with our
executive officers:

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | A consulting
 agreement, or the Consulting Agreement, dated September 26, 2005, with Zami
 Aberman, under which Mr. Aberman received a consulting fee of $13,000 per
 month in NIS, at the then current exchange rate. On September 18, 2006, the Board amended the Consulting
 Agreement by increasing the monthly consulting fee to an amount of NIS that
 equals $15,000 effective as of September 2006. The U.S. dollar rate will be not less then 4.35 NIS per $. We further agreed to pay Mr. Aberman up to
 two percent (2%) of any financings we conducted.
 On March 11,
 2007, the Board approved an amendment to the Consulting Agreement as follows:
 Mr. Abermans engagement with us will not be for less than three (3) years,
 and his bonus plan has been amended so instead of two percent (2%) bonus of
 amounts raised by us through investments, debentures, loans or otherwise, Mr.
 Aberman will be entitled to one and a half percent (1.5%) from amounts
 received by us from non diluting funding and strategic deals.
 On August
 29, 2007, the Board approved that Mr. Abermans monthly consulting fee shall
 be $20,000, starting in August 2007, and that upon receipt of a clinical
 trial approval, the monthly consulting fee will be increased to $25,000. As of July 2009, and upon initiation of our
 clinical trial, Mr. Abermans compensation increased to $25,000 (before the
 voluntary reduction discussed below). In addition, Mr. Aberman is entitled
 once a year to receive an additional amount that equals the monthly
 consulting fee. All amounts above are
 paid plus value added tax.
 During November 2008 until
 April 2009, Mr. Aberman participated in a voluntary reduction of 25% of the
 monthly consulting fee he was entitled to receive, and a full reduction of
 the annual additional amount that equals the monthly consulting fee, in
 exchange for issuance of 133,036 shares of our common stock. Starting May 2009, Mr.
 Aberman agreed to participate in another voluntary reduction of 15%, which
 will last 12 months, in exchange for 35,500 shares of our common stock.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(b) | An agreement
 with Yaky Yanay, dated November 1, 2006, under which Mr. Yanay is paid 35,500
 NIS per month. In addition, Mr. Yanay
 is entitled once a year to receive an additional amount that equals his
 monthly salary. Mr. Yanay is provided
 with a cellular phone and a company car pursuant to the terms of his
 agreement. We have agreed to pay Mr.
 Yanay up to 1.4% bonus of any financings we conduct. We subsequently amended this bonus
 arrangement and accordingly the bonus to which Mr. Yanay is entitled is 1.4%
 from amounts received by us from non diluting funding and strategic deals.
 During November 2008 until
 April 2009, Mr. Yanay participated in a voluntary reduction of 25% on the
 monthly consulting fee he was due to receive, in exchange for the issuance of
 45,000 shares of our common stock.
 Starting May 2009, Mr. Yanay agreed to participate in another
 voluntary reduction of 15%, which will last 12 months on his monthly salary
 and a full reduction of his annual additional amount that equals his monthly
 salary, in exchange for 21,300 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

We have no plans or
arrangements in respect of remuneration received or that may be received by our
executive officers to compensate such officers in the event of termination of
employment (as a result of resignation, retirement, change of control) or a
change of responsibilities following a change of control, except for the
following: (i) options issued to Mr. Aberman fully vest upon a change of
control, and in the event of termination of the Consulting Agreement, he will
be entitled to 50% acceleration of all of his unvested options and to receive
an adjustment fee that equals the monthly consulting fees multiplied by 3 plus
the number of years the Consulting Agreement is in force from the second year,
but in any event no more than nine years in the aggregate; and (ii) Mr. Yanay
may be entitled, under Israeli law and practice, to a severance payment that
equals a months salary for each twelve-month period of employment with the
company.

- 34 -

---

---



Pension, Retirement or Similar Benefit Plans

There are no arrangements or
plans in which we provide pension, retirement or similar benefits for directors
or executive officers. Our directors and executive officers may receive stock
options or restricted shares at the discretion of our Board in the future.

Outstanding Equity Awards at the End of
Fiscal 2009

The following table presents
the outstanding equity awards held as of June 30, 2009 by our executive
officers:

|                                             |  |                                                                      |  |                                                                        |        |                           |  |                         |  |                                            |            |                                                  |  |         |     |  |   |         | 
|-------------------------------------------- |  | -------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ------ | ------------------------- |  | ----------------------- |  | ------------------------------------------ | ---------- | ------------------------------------------------ |  | ------- | --- |  | - | ------- | 
|Number
 of Securities Underlying Unexercised | 
|                                             | 
|                                             |  | Option
 Awards                                                       |  | Stock
 Awards                                                          |       
|                                             |  |                                                                      |  |                                                                        |       
|Name                                         |  | Number
 of securities underlying unexercised options (#) exercisable |  | Number
 of securities underlying unexercised options (#) unexercisable |        | Option
 exercise price($) |  | Option
 expiration date |  | Number
 of shares that have not vested (#) |            | Market
 value of shares that have not vested ($) | 
|                                             |  |                                                                      |  |                                                                        |        |                           |  |                         |  |                                            |            |                                                  | 
|                                            
|Zami Aberman                                 |  | 22,500                                                               |  |                                                                        |       |                           |  | 4.40                    |  |                                            | 1/16/2016  |                                                  |  |        |     |  |   |        | 
|                                             |  | 30,000                                                               |  |                                                                        |       |                           |  | 4.00                    |  |                                            | 10/30/2016 |                                                  |  |        |     |  |   |        | 
|                                             |  | 250,000                                                              |  |                                                                        |       |                           |  | 3.50                    |  |                                            | 1/23/2017  |                                                  |  |        |     |  |   |        | 
|                                             |  | 78,750                                                               |  |                                                                        | 26,250 | (1)                       |  | 4.38                    |  |                                            | 12/25/2017 |                                                  |  |        |     |  |   |        | 
|                                             |  | 36,668                                                               |  |                                                                        | 73,332 | (2)                       |  | 0.62                    |  |                                            | 10/30/2018 |                                                  |  |        |     |  |   |        | 
|                                             |  |                                                                     |  |                                                                        |       |                           |  |                        |  |                                            |           |                                                  |  | 140,000 | (5) |  | $ | 191,800 | 
|                                             |  |                                                                     |  |                                                                        |       |                           |  |                        |  |                                            |           |                                                  |  | 38,700  | (6) |  | $ | 53,019  | 
|Yaky Yanay*                                  |  | 46,876                                                               |  |                                                                        | 15,624 | (3)                       |  | 4.38                    |  |                                            | 12/25/2017 |                                                  |  |        |     |  |   |        | 
|                                             |  | 12,500                                                               |  |                                                                        |       |                           |  | 4.00                    |  |                                            | 9/17/2016  |                                                  |  |        |     |  |   |        | 
|                                             |  | 50,000                                                               |  |                                                                        |       |                           |  | 3.50                    |  |                                            | 1/23/2017  |                                                  |  |        |     |  |   |        | 
|                                             |  | 18,334                                                               |  |                                                                        | 36,666 | (4)                       |  | 0.62                    |  |                                            | 10/30/2018 |                                                  |  |        |     |  |   |        | 
|                                             |  |                                                                     |  |                                                                        |       |                           |  |                        |  |                                            |           |                                                  |  | 70,000  | (7) |  | $ | 95,900  | 
|                                             |  |                                                                     |  |                                                                        |       |                           |  |                        |  |                                            |           |                                                  |  | 21,300  | (8) |  | $ | 29,181  | 

*The above securities do not
include warrants received from participation in equity investments.

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Options to purchase 26,250
 shares will vest in 6 installments of 4,375 shares on July 26, 2009, August
 26, 2009, September 26, 2009, October 26, 2009, November 26, 2009 and
 December 26, 2009.                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (2) | Options to purchase 73,332
 shares will vest in 7 installments of 4,584 shares on July 30, 2009, August
 30, 2009, September 30, 2009, October 30, 2009, November 30, 2009, December
 30, 2009 and January 30, 2010, and 6 installments of 4,583 shares on February
 28, 2010, March 30, 2010, April 30, 2010, May 30, 2010, June 30, 2010 and
 July 30, 2010, and 3 installments of 4,582 shares on August 30, 2010,
 September 30, 2010 and October 30, 2010.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (3) | Options to purchase 15,624
 shares will vest in 6 installments of 2,604 shares on July 26, 2009, August
 26, 2009, September 26, 2009, October 26, 2009, November 26, 2009 and
 December 26, 2009.                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (4) | Options to purchase 36,666
 shares will vest in 10 installments of 2,292 shares on July 30, 2009, August
 30, 2009, September 30, 2009, October 30, 2009, November 30, 2009, December
 30, 2009, January 30, 2010, February 28, 2010, March 30, 2010 and April 30,
 2010, and 6 installments of 2,291 shares on May 30, 2010, June 30, 2010 and
 July 30, 2010, August 30, 2010, September 30, 2010 and October 30, 2010.                                      

- 35 -

---

---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | 140,000 restricted shares
 that will vest in one installment of 35,000 shares on August 12, 2009, 6
 installments of 5,834 shares on September 12, 2009, October 12, 2009, November
 12, 2009, December 12, 2009, January 12, 2010, February 12, 2010, and 12
 installments of 5,833 shares on March 12, 2010 and April 12, 2010, May 12,
 2010, June 12, 2010, July 12, 2010, August 12, 2010, September 12, 2010,
 October 12, 2010, November 12, 2010, December 12, 2010, January 12, 2011 and
 February 12, 2011.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (6) | 38,700 restricted shares
 that will vest in one installment of 19,350 shares on November 11, 2009, 6
 installments of 3,225 shares on December 12, 2009, January 12, 2010, February
 12, 2010, March 12, 2010 and April 12 2010 and May 12, 2010.                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (7) | 70,000 restricted shares
 that will vest in one installment of 17,500 shares on August 12, 2009, 12
 installments of 2,917 shares on September 12, 2009, October 12, 2009,
 November 12, 2009, December 12, 2009, January 12, 2010, February 12, 2010,
 March 12, 2010 and April 12, 2010, May 12, 2010, June 12, 2010, July 12,
 2010, August 12, 2010, and 6 installments of 2,916 shares on September 12,
 2010, October 12, 2010, November 12, 2010, December 12, 2010, January 12,
 2011, February 12, 2011.    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (8) | 21,300 restricted shares
 that will vest in one installment of 10,650 shares on November 11, 2009, 6
 installments of 1,775 shares on December 12, 2009, January 12, 2010, February
 12, 2010, March 12, 2010 and April 12 2010 and May 12, 2010.                                                                                                                                                                                                                                                                    

Aggregated Option/Exercises in Last Fiscal Year and
2009 Fiscal Year End Option/Values

During the fiscal year ended
June 30, 2009, no stock options were exercised by our executive officers.

Long-Term Incentive Plans-Awards in Last Fiscal Year

We have no long-term
incentive plans, other than the stock option plans described below under Item
12.

Compensation of Directors

The following table provides
information regarding compensation earned by, awarded or paid to each person
for serving as a director who is not an executive officer during Fiscal 2009:

|                 |  |                                 |  |                            |        |           |  |         |  | 
|---------------- |  | ------------------------------- |  | -------------------------- | ------ | --------- |  | ------- |  | 
|Name             |  | Fees Earned or Paid in Cash ($) |  | Stock-based Awards ($) (1) |        | Total ($) | 
|                 |  |                                 |  |                            |        |           | 
|                
|Mark Germain     |  | 68,654                          |  |                            | 75,694 |           |  | 144,348 |  | 
|Nachum Rosman    |  | 15,389                          |  |                            | 62,894 |           |  | 78,283  |  | 
|Doron Shorrer    |  | 15,306                          |  |                            | 62,894 |           |  | 78,200  |  | 
|Hava Meretzki    |  | 14,895                          |  |                            | 62,894 |           |  | 77,789  |  | 
|Isaac Braun      |  | 15,753                          |  |                            | 62,894 |           |  | 78,647  |  | 
|Israel Ben-Yoram |  | 17,208                          |  |                            | 62,894 |           |  | 80,102  |  | 
|Shai Pines       |  | 6,417                           |  |                            | 45,874 |           |  | 52,291  |  | 

|    |                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The dollar value
 recognized for the stock-based awards was determined in accordance with SFAS
 No. 123(R). Assumptions used in the calculations for these amounts are
 included in Note 2(i) to our consolidated financial statements for fiscal
 2009 included elsewhere in this Annual Report on Form 10-K.

- 36 -

---

---



We reimburse our directors
for expenses incurred in connection with attending board meetings and provide
the following compensation for directors: annual compensation of $8,400;
meeting participation fees of $750 per in-person meeting; and for meeting
participation by telephone, $350 per meeting. On February 7, 2007, the Board
raised the annual director fee to $10,000. On May 17, 2007, the Board decided
that the dollar rate would be not less then 4.25 dollar per NIS. Starting
November 2008, the directors participated in a voluntary reduction of 25% on
their monthly fee in exchange for issuance of shares of our common stock.

Mr. Germain was entitled to
receive a consulting fee of $10,000 per month since March 11, 2007 until
February 12, 2009 (before reductions). Since February 12, 2009, Mr. Germain has
been entitled to the same director fee as the other directors.

During fiscal 2009 we paid a
total of $153,623 to directors as compensation. This amount does not include
compensation to Mr. Aberman in his capacity as a director which is reflected in
the Summary Compensation Table for Fiscal 2009 above. As of June 30, 2009, the
directors (not including the chairman) held 1,103,797 options and restricted
shares of which 679,495 were exercisable or vested, as the case may be. On
March 5, 2007 the Board approved the acceleration of the vesting of directors
stock options and restricted stocks in the following circumstances: (1)
termination of a directors position by the stockholders will result in the
acceleration of 100% of any unvested options and (2) termination of a
directors position by resignation will result in the acceleration of 50% of
any unvested options.

Other than as described in
the preceding two paragraphs, we have no present formal plan for compensating
our directors for their service in their capacity as directors. Directors are
entitled to reimbursement for reasonable travel and other out-of-pocket
expenses incurred in connection with attendance at meetings of our Board. The
Board may award special remuneration to any director undertaking any special
services on our behalf other than services ordinarily required of a director.
Other than indicated in this statement, no director received and/or accrued any
compensation for his or her services as a director, including committee
participation and/or special assignments during fiscal 2009.

Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholders Matters.

The following table sets forth
certain information, to the best knowledge and belief of the Company, as of
September 10, 2009 (unless provided herein otherwise), with respect to holdings
of our common stock by (1) each person known by us to be the beneficial owner
of more than 5% of the total number of shares of our common stock outstanding
as of such date; (2) each of our directors; (3) each of our executive officers;
and (4) all of our directors and our executive officers as a group.

|                                                                                                              |  |                                |      |            |      |   | 
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---- | ---------- | ---- | - | 
|Name and Address of Beneficial Owner                                                                          |  | Beneficial Number of Shares(1) |      | Percentage |     
|                                                                                                              |  |                                |      |            |     
|                                                                                                              |  |                                |      |            |      |   | 
|Directors and Named
 Executive Officers                                                                       |  |                                |      |            |      |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Zami Aberman
 Chief Executive Officer, Chairman of the Board, President and
 Director                         |  | 638,958                        | (2)  |            | 3.9  | % | 
|                                                                                                              |  |                                |      |            |      |   | 
|Shai Pines Director                                                                                           |  | 11,668                         |      |            | *    |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Hava Meretzki                                                                                                 |  |                                |      |            |      |   | 
|Director                                                                                                      |  | 96,529                         | (3)  |            | *    |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Doron Shorrer                                                                                                 |  |                                |      |            |      |   | 
|Director                                                                                                      |  | 118,093                        | (4)  |            | *    |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Israel Ben-Yoram                                                                                              |  |                                |      |            |      |   | 
|Director                                                                                                      |  | 98,113                         | (5)  |            | *    |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Isaac Braun                                                                                                   |  |                                |      |            |      |   | 
|Director                                                                                                      |  | 95,260                         | (6)  |            | *    |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Nachum Rosman                                                                                                 |  |                                |      |            |      |   | 
|Director                                                                                                      |  | 65,669                         | (7)  |            | *    |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Mark Germain                                                                                                  |  |                                |      |            |      |   | 
|Director                                                                                                      |  | 340,419                        | (8)  |            | 2.1  | % | 
|                                                                                                              |  |                                |      |            |      |   | 
|Yaky Yanay                                                                                                    |  |                                |      |            |      |   | 
|Chief Financial Officer
 and Secretary                                                                        |  | 257,228                        | (9)  |            | 1.6  | % | 
|                                                                                                              |  |                                |      |            |      |   | 
|Directors and Executive
 Officers as a group (9 persons)                                                      |  | 1,721,937                      | (10) |            | 10.1 | % | 
|                                                                                                              |  |                                |      |            |      |   | 
|5% Shareholders                                                                                               |  |                                |      |            |      |   | 
|                                                                                                              |  |                                |      |            |      |   | 
|Capela
 Overseas Ltd
 Goldman Sachs International Christchurch Court #10 - 15 Newgate Street London
 EC1A 7HD |  | 1,434,933                      | (11) |            | 8.8  | % | 
|                                                                                                              |  |                                |      |            |      |   | 
|Bangor Holdings Ltd.                                                                                          |  |                                |      |            |      |   | 
|Wickhams Cay, Road
 Town, Tortola, British Virgin Islands                                                    |  | 2,190,000                      | (12) |            | 13.1 | % | 

---

* = less than 1%


- 37 -

---

---



(1) Based on 15,796,181 shares of common stock issued and outstanding
as of September 10, 2009. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of
common stock subject to options, warrants or right to purchase or through the
conversion of a security currently exercisable or convertible, or exercisable
or convertible within 60 days, are reflected in the table above and are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such option or warrants, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.

(2) Includes options to acquire 453,754 shares.

(3) Includes options to acquire 79,361 shares.

(4) Includes options to acquire 100,925 shares.

(5) Includes options to acquire 78,445 shares.

(6) Includes options to acquire 78,092 shares.

(7) Includes options to acquire 48,501 shares.

(8) Includes options to acquire 291,251 shares.

(9) Includes options to acquire 147,294 shares and 21,600 warrants.

(10) Includes options to acquire 1,277,623 shares and 21,600 warrants.

(11) This information is based on a report from American
Stock Transfer and Trust Company, LLC, the companys transfer agent dated August 25, 2009 and consists of 571,600
warrants.

(12) This information is based on a report from American
Stock Transfer and Trust Company, LLC, the companys transfer agent dated August 25, 2009 and consists of 900,000
warrants.

- 38 -

---

---



Equity Compensation Plan Information

On November
25, 2003, our Board of Directors adopted our 2003 Stock Option Plan. Under the 2003
Stock Option Plan, options may be granted to our officers, directors, employees
and consultants or the officers, directors, employees and consultants of our
subsidiary. Pursuant to the Plan, we reserved for issuance 20,500 shares of our
common stock. As of June 30, 2009, there were 10,501 shares of our common stock
still available for future grant under the plan.

On November
21, 2005, our Board of Directors adopted our 2005 Stock Option Plan. Under the
2005 Stock Option Plan, options may be granted to our officers, directors,
employees and consultants or the officers, directors, employees and consultants
of our subsidiary. Pursuant to the 2005 Stock Option Plan, we reserved for
issuance 75,000 shares of our common stock. On January 24, 2007 our Board of
Directors amended the 2005 Stock Option Plan to reserve for issuance 1,400,000
shares of our common stock. On August 29, 2007, we reserved an additional
500,000 of common stock for the 2005 option plan, and on August 28, 2008 an
additional 90,000 shares of common stock.

At our annual meeting of our
stockholders held on January 21, 2009, our stockholders approved the adoption
of the Amended and Restated 2005 Stock Option Plan of the Company, or the 2005
Plan, amending the 2005 Stock Option Plan in order to: (i) increase the number
of shares of common stock authorized for issuance thereunder from 1,990,000 to
be equal to 16% of the number of shares of common stock issued and outstanding
on a fully diluted basis immediately prior to the grant of securities; (ii)
allow the issuance of shares of common stock and units for such shares of
common stock; and (iii) set the termination date of the 2005 Plan to be
December 31, 2018.

On September
1, 2008, we entered into a consulting agreement. Pursuant to the agreement we
granted the consultant fully vested warrants to purchase 15,000 shares of our
common stock effective upon signing the contract. The warrants were not granted
under our options plans. According to the agreement, additional warrants to
purchase 35,000 shares of our common stock will be granted subject to a service
condition. As of June 30, 2009, we assume that the service condition of this
grant will not be achieved and the warrants will not be granted. All warrants
are exercisable for five years at an exercise price of $1.91 per share.

In December 2008, we issued
a total of 450,853 shares of our common stock to our directors, employees and
consultants at a price per share of $0.40 per share. The issuance was made in
exchange for a voluntary reduction in the cash compensation for a period of six
months such directors and employees were due to receive in consideration for
their services. These shares were not granted under our option plans.

- 39 -

---

---



The following table
summarizes certain information regarding our equity compensation plans as of
June 30, 2009:

|                                                              |  |                                                                                               |           |                                                                              |   |                                                                                               |  |  |         | 
|------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- | --------- | ---------------------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------- |  |  | ------- | 
|Plan
 Category                                                |  | Number of
 securities to be issued upon exercise of outstanding options, warrants and
 rights |           | Weighted-average exercise price of outstanding options,
 warrants and rights |   | Number of securities remaining available for future
 issuance under equity compensation plans | 
|                                                              |  |                                                                                               |           |                                                                              |   |                                                                                               | 
|                                                             
|Equity compensation plan approved by security holders (1)     |  |                                                                                               | 3,688,914 |                                                                              | $ | 3.74                                                                                          |  |  | 687,996 | 
|Equity compensation plan not approved by security holders
(2) |  |                                                                                               | 756,742   |                                                                              | $ | 2.64                                                                                          |  |  | 10,501  | 
|                                                              |  |                                                                                               |           |                                                                              |   |                                                                                               |  |  |         | 
|Total                                                         |  |                                                                                               | 4,445,656 |                                                                              | $ | 3.71                                                                                          |  |  | 698,497 | 
|                                                              |  |                                                                                               |           |                                                                              |   |                                                                                               |  |  |         | 

| |     |                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Includes
 awards granted under the 2005 Plan.                                                                                              
| |     |                                                                                                                                            
| | (2) | Includes
 awards granted under the 2003 Stock Option Plan and awards not granted under
 either the 2003 Stock Option Plan or the 2005 Plan.

Item 13. Certain Relationships and Related Transactions and
Director Independence.

No director, executive
officer, principal shareholder holding at least 5% of our common shares, or any
family member thereof, had any material interest, direct or indirect, in any
transaction, or proposed transaction, during the years ended June 30, 2008 and
June 30, 2009, in which the amount involved in the transaction exceeded or
exceeds the lesser of $120,000 or one percent of the average of our total
assets at the year end for the last two completed fiscal years.

Item 14. Principal Accounting Fees and Services

The fees for services
provided by Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global to the Company in the last two fiscal years were as follows:

|                   |  |                                       |        |                                       |   |        | 
|------------------ |  | ------------------------------------- | ------ | ------------------------------------- | - | ------ | 
|                   |  | Twelve months ended on
 June 30, 2009 |        | Twelve months ended on
 June 30, 2008 |  
|                   |  |                                       |        |                                       |  
|                   |  |                                       |        |                                       |   |        | 
|Audit Fees         |  | $                                     | 40,000 |                                       | $ | 50,000 | 
|                   |  |                                       |        |                                       |   |        | 
|Audit-Related Fees |  |                                       | None   |                                       |   | None   | 
|                   |  |                                       |        |                                       |   |        | 
|Tax Fees           |  | $                                     | 13,250 |                                       | $ | 12,724 | 
|                   |  |                                       |        |                                       |   |        | 
|All Other Fees     |  | $                                     | 19,135 |                                       | $ | 2,535  | 
|                   |  |                                       |        |                                       |   |        | 
|                   |  |                                       |        |                                       |   |        | 
|Total Fees         |  | $                                     | 72,385 |                                       | $ | 65,259 | 
|                   |  |                                       |        |                                       |   |        | 

Audit Fees. These fees were comprised of professional services rendered in
connection with the audit of our consolidated financial statements for our
annual report on Form 10-K and the review of our quarterly consolidated
financial statements for our quarterly reports on Form 10-Q that are customary
under auditing standards generally accepted in the United States.

Tax Fees. These fees relate to our tax compliance and tax planning.

- 40 -

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---



All Other Fees. These fees were comprised mainly of fees of transfer pricing study
and fees relating to the preparation and filing of an application with the
Israeli Office of Chief Scientist and ongoing advice in executing the approved
applications.

SEC rules require that
before Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global,
is engaged by us to render any auditing or permitted non-audit related service,
the engagement be:

|   |                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Pre-approved by our audit
 committee; or                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                            
|2. | entered into pursuant to
 pre-approval policies and procedures established by the audit committee,
 provided the policies and procedures are detailed as to the particular
 service, the audit committee is informed of each service, and such policies
 and procedures do not include delegation of the audit committees
 responsibilities to management.

The audit committee
pre-approves all services provided by our independent auditors. All of the
above services and fees were reviewed and approved by the audit committee
before the services were rendered.

The audit committee has
considered the nature and amount of fees billed by Kost Forer Gabbay &
Kasierer, a member of Ernst & Young Global, and believes that the provision
of services for activities unrelated to the audit is compatible with
maintaining Kost Forer Gabbay & Kasierers independence.

- 41 -

---

---



PART IV

Item 15. Exhibits.

|      |                                                                                                                                                                                                                                                     
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   | Composite
 Copy of the Companys Articles of Incorporation as amended on June 4, 2008
 and on July 1, 2008. (incorporated by reference to Exhibit 3.1 of our annual
 report on Form 10-K filed September 29, 2008).                                 
|      |                                                                                                                                                                                                                                                     
|3.2   | Amended
 By-laws (incorporated by reference to Exhibit 3.1 of our current report on
 Form 8-K filed January 22, 2007).                                                                                                                              
|      |                                                                                                                                                                                                                                                     
|4.1   | Form
 of Common Stock Purchase Warrant (incorporated by reference from Exhibit 4.1
 of our current report on Form 8-K filed on August 6, 2008).                                                                                                     
|      |                                                                                                                                                                                                                                                     
|4.2   | Common
 Stock Purchase Warrant dated September 22, 2008 with Bangor Holdings Ltd. (incorporated by
 reference to Exhibit 4.1 of our current report on Form 8-K filed on September
 23, 2008).                                                       
|      |                                                                                                                                                                                                                                                     
|4.3   | Form
 of Common Stock Purchase Warrant dated January 29, 2009 issued by the
 registrant (incorporated by reference to Exhibit 4.1 of our current report on
 Form 8-K filed on February 3, 2009).                                                    
|      |                                                                                                                                                                                                                                                     
|4.4   | Form
 of Common Stock Purchase Warrant dated May 5, 2009 (incorporated by
 reference from Exhibit 4.1 of our current report on Form 8-K filed on May 6,
 2009).                                                                                     
|      |                                                                                                                                                                                                                                                     
|10.1  | Exclusive,
 World Wide Patent and Technology License and Assignment Agreement
 (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K
 filed May 6, 2003).                                                                    
|      |                                                                                                                                                                                                                                                     
|10.2  | Consulting
 Agreement dated September 26, 2005 with Rose High Tech Ltd. (incorporated by
 reference to Exhibit 10.25 of our quarterly report on Form 10-QSB filed
 February 9, 2006).+                                                              
|      |                                                                                                                                                                                                                                                     
|10.3  | Form
 of Subscription Agreement for Common Stock and Warrants of the Registrant (incorporated by
 reference to Exhibit 10.1 of our current report on Form 8-K filed on February
 3, 2009).                                                          
|      |                                                                                                                                                                                                                                                     
|10.4* | Form
 of Stock Option Agreement under the Amended and Restated 2005 Stock Option
 Plan. +                                                                                                                                                           
|      |                                                                                                                                                                                                                                                     
|10.5  | Assignment Agreement dated
 May 15, 2007 with each of Technion Research and Development Foundation Ltd.,
 Shai Meretzki, Dr. Shoshana Merchav (incorporated
 by reference to Exhibit 10.1 of our current report on Form 8-K filed on May
 24, 2007).
|      |                                                                                                                                                                                                                                                     
|10.6  | Assignment Agreement dated
 May 15, 2007 with Yeda Research and Development Ltd. in (incorporated by reference to Exhibit 10.2 of
 our current report on Form 8-K filed on May 24, 2007).                                                           
|      |                                                                                                                                                                                                                                                     
|10.7  | Subscription Agreement
 dated May 17, 2007 in respect of a private placement (incorporated by reference to Exhibit 10.3 of our current report on
 Form 8-K filed on May 24, 2007).                                                                  
|      |                                                                                                                                                                                                                                                     
|10.8  | Placement
 Agency Agreement dated July 31, 2008 with Rodman & Renshaw (incorporated
 by reference to Exhibit 1.1 of our current report on Form 8-K filed on August
 6, 2008)                                                                        

- 42 -

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---



|                                             |                                                                                                                                                                                                                  
|-------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9                                         | Securities
 Purchase Agreement dated August 5, 2008 with the investors named therein
 (incorporated by reference from Exhibit 10.1 of our current report on Form
 8-K filed on August 6, 2008).                  
|                                             |                                                                                                                                                                                                                  
|10.10                                        | Securities
 Purchase Agreement with Bangor
 Holdings Ltd. (incorporated by reference to from Exhibit 10.1 of our current
 report on Form 8-K filed on September 23, 2008).                                       
|                                             |                                                                                                                                                                                                                  
|10.11                                        | Form of
 a Letter of Agreement dated January 26, 2008 between the registrant and
 certain investors (incorporated by reference to Exhibit 10.2 of our
 quarterly report on Form 10-Q filed on February 13, 2009).
|                                             |                                                                                                                                                                                                                  
|10.12                                        | Form
 of Securities Purchase Agreement dated May 5, 2009 (incorporated by reference from Exhibit
 10.1 of our current report on Form 8-K filed on May 6, 2009).                                                  
|                                             |                                                                                                                                                                                                                  
|10.13                                        | Summary
 of Directors Ongoing Compensation (incorporated by reference to Exhibit 10.1 of
 our quarterly report on Form 10-Q filed on May 11, 2009).                                                             
|                                             |                                                                                                                                                                                                                  
|10.14                                        | 2003
 Stock Option Plan (incorporated by reference to Exhibit 4.1 of our
 registration statement on Form S-8 filed on December 29, 2003).                                                                        
|                                             |                                                                                                                                                                                                                  
|10.15                                        | The Amended and Restated
 2005 Stock Option Plan (incorporated by
 reference to Exhibit 10.1 of our current report on Form 8-K filed on January
 23, 2009).                                                      
|                                             |                                                                                                                                                                                                                  
|10.16*                                       | Form
 of Restricted Stock Agreement under the Amended and Restated 2005 Stock
 Option Plan. +                                                                                                                    
|                                             |                                                                                                                                                                                                                  
|10.17*                                       | Form
 of Restricted Stock Agreement (Israeli directors and officers) under the
 Amended and Restated 2005 Stock Option Plan. +                                                                                   
|                                             |                                                                                                                                                                                                                  
|14.1                                         | Code of Business Conduct
 and Ethics and Compliance Program adopted by the Board of Directors (incorporated by reference to Exhibit 14.1 of
 our annual report on Form 10-KSB filed on September 23, 2005).      
|                                             |                                                                                                                                                                                                                  
|21.1                                         | List of Subsidiaries of
 the Company (incorporated by reference to
 Exhibit 21.1 of our annual report on Form 10-K filed on September 29, 2008).                                                                 
|                                             |                                                                                                                                                                                                                  
|23.1*                                        | Consent of Kost Forer
 Gabbay & Kasierer, A member of Ernst & Young Global.                                                                                                                                      
|                                             |                                                                                                                                                                                                                  
|31.1*                                        | Certification pursuant to
 Rule 13a-14(a)/15d-14(a) of Zami Aberman.                                                                                                                                             
|                                             |                                                                                                                                                                                                                  
|31.2*                                        | Certification pursuant to
 Rule 13a-14(a)/15d-14(a) of 2002 of Yaky Yanay.                                                                                                                                       
|                                             |                                                                                                                                                                                                                  
|32.1**                                       | Certification pursuant to
 18 U.S.C. Section 1350 of Zami Aberman.                                                                                                                                               
|                                             |                                                                                                                                                                                                                  
|32.2**                                       | Certification pursuant to
 18 U.S.C. Section 1350 of Yaky Yanay.                                                                                                                                                 
|                                             |                                                                                                                                                                                                                  
|*Filed herewith.                            
|                                             |                                                                                                                                                                                                                  
|** Furnished herewith                       
|                                             |                                                                                                                                                                                                                  
|+ Management contract or
 compensation plan.

- 43 -

---

---



SIGNATURES

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

Pluristem Therapeutics Inc.

|                                              |                  | 
|--------------------------------------------- | ---------------- | 
|By:                                           | /s/ Zami Aberman
|                                              |                 
|(Zami Aberman, Chief
 Executive Officer,     
|Principal Executive
 Officer)                
|Date: September 23, 2009                     
|                                             
|By:                                           | /s/ Yaky Yanay  
|                                              |                 
|Yaky Yanay, Chief
 Financial Officer         
|(Principal Financial and
 Accounting Officer)
|Dated: September 23, 2009                    

Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                                                                     |                      | 
|-------------------------------------------------------------------- | -------------------- | 
|By:                                                                  | /s/ Zami Aberman     | 
|                                                                     |                     
|Zami Aberman, Chief
 Executive Officer (Principal Executive Officer)
|Chairman of the Board and
 Director                                 
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Yaky Yanay       | 
|                                                                     |                     
|Yaky Yanay, Chief
 Financial Officer                                
|(Principal Financial and
 Accounting Officer)                       
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Doron Shorrer    | 
|                                                                     |                     
|Doron Shorrer, Director                                             
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Hava Meretzki    | 
|                                                                     |                     
|Hava Meretzki, Director                                             
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Isaac Braun      | 
|                                                                     |                     
|Isaac Braun, Director                                               
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Israel Ben-Yoram | 
|                                                                     |                     
|Israel Ben-Yoram, Director                                          
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Nachum Rosman    | 
|                                                                     |                     
|Nachum Rosman, Director                                             
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Mark Germain     | 
|                                                                     |                     
|Mark Germain, Director                                              
|Dated: September 23, 2009                                           
|                                                                    
|By:                                                                  | /s/ Shai
 Pines      | 
|                                                                     |                     
|Dated:
 September 23, 2009                                          

- 44 -

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