----

----

| 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)  |

| Title of each classCommon Stock, par value $0.00001 |   | Name of each exchange on which registeredNasdaq Capital Market |
|-----------------------------------------------------|--------|----------------------------------------------------------------|

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

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

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| PART I        |                                                                                                               | 5  |
|---------------|--------------------------------------------------------------------------------------------------------------------|----|
| Item 1.       | Business                                                                                                           | 5  |
| Item 1A. | Risk Factors                                                                                                       | 13 |
| Item 1B. | Unresolved Staff Comments                                                                                          | 22 |
| Item 2.       | Properties                                                                                                         | 22 |
| Item 3.       | Legal Proceedings                                                                                                  | 22 |
| Item 4.       | [Removed and Reserved]                                                                                             | 22 |
| PART II       |                                                                                                               | 23 |
| Item 5.       | Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 23 |
| Item 6.       | Selected Financial Data                                                                                            | 23 |
| Item 7.       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 24 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                                         | 27 |
| Item 8.       | Financial Statements and Supplementary Data                                                                        | 27 |
| Item 9.       | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 28 |
| Item 9A. | Controls and Procedures                                                                                            | 28 |
| Item 9B. | Other Information.                                                                                                 | 32 |
| 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                                          | 39 |
| Item 14.      | Principal Accounting Fees and Services                                                                             | 39 |
| PART IV       |                                                                                                               | 41 |
| Item 15.      | Exhibits                                                                                                           | 41 |

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A

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| · | PLX-PAD -  Intermittent Claudication and Critical Limb Ischemia |
|--------|----------------------------------------------------------------------|

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| · | Other product candidates |
|--------|--------------------------|

| Indication                       | Status           |
|----------------------------------|------------------|
| Diabetic Foot Ulcers             | Proof of concept |
| Adjuvant Hip Replacement Surgery | Pre-clinical     |
| Athletic Injuries                | Pre-clinical     |
| Inflammatory Bowel Disease       | Proof of concept |
| Multiple Sclerosis               | Proof of concept |
| Neuropathic Pain                 | Pre-clinical     |
| Ischemic Stroke                  | Pre-clinical     |
| Adjuvant for UCB Transplantation | Pre-clinical     |
| Radiation exposure               | Proof of concept |

----

2 See Circulation. 2009;119:e21-e181. Published online before print December 15, 2008.

3 See The Sage Group: The Sage Group Report of April 17, 2007 (http://thesagegroup.us/pages/news/april17_2007.php)

4 See Histological changes after implantation of autologous bone marrow mononuclear cells for chronic critical limb ischemia. Bone Marrow Transplant. 2007 May; 39(10):647-8.

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|   | · | Our propriety expansion method for 3D Stromal Cells; |
|--------|--------|------------------------------------------------------|

|   | · | Composition of matter claims on the cells; |
|--------|--------|--------------------------------------------|

|   | · | The therapeutic use of PLX cells for the treatment of a large variety of medical conditions; and |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | Selection criteria for determination of cells suitable for administration. |
|--------|--------|----------------------------------------------------------------------------|

----

| Patent                                                                                                |   | Jurisdiction                                                                                                                                              |   | Subject Matter                                                       |   | Related Product(s) |   |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------|--------|--------|
| Method And Apparatus For Maintenance And Expansion Of Hemopoietic Stem Cells And/Or Progenitor Cells  |   | United StatesJapan, Europe, Mexico, Australia, South Africa, Israel, Russia, New Zealand, India, China, Hong Kong, Canada                                 |   | Process and methods                                                  |   | PLX                |   |   |
|  Methods for Cell Expansion and Uses of Cells and Conditioned Media Produced Thereby for Therapy |   |  United StatesJapan, Europe, Mexico, Australia, South Africa, Israel, Russia, New Zealand, India, China, Hong Kong, Canada, Brazil, Korea, Singapore |   |  Process and methods, Composition of matter, Method of treating |   |  PLX          |   |   |
|  Adherent Cells from Adipose or Placenta Tissues and Use Thereof in Therapy                      |   |  United StatesJapan, Europe, Mexico, Australia, South Africa, Israel, Russia, New Zealand, India, China, Hong Kong, Canada, Brazil, Korea, Singapore |   |  Composition of matter, Method of treating                      |   |  PLX          |   |   |

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| · | Pre-clinical laboratory and animal tests conducted in compliance with the 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Submission to the FDA of an Investigational New Drug, or IND application, which must become effective before clinical testing in humans can begin; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | Conducting adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for its intended indication conducted in compliance with Good Clinical Practice, or GCP, requirements; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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 pre-clinical 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Compliance with current Good Manufacturing Practices, or cGMP regulations and standards,  pre-clinical laboratory and animal testing; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Filing a Clinical Trial Application (CTA) with the various member states or a centralized procedure; Voluntary Harmonisation Procedure (VHP), a procedure which makes it possible to obtain a coordinated assessment of an application for a clinical trial that is to take place in several European countries. Obtaining approval of affiliated Ethic Committees of research institutions or other clinical sites to introduce the biologic drug candidate into humans in clinical trials; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Adequate and well-controlled clinical trials to establish the safety and efficacy of the product for its intended use; and |
|--------|----------------------------------------------------------------------------------------------------------------------------|

| · | Submission to EMA for a Marketing Authorization (MAA); Review and approval of the MAA (Marketing Authorization Application). |
|--------|------------------------------------------------------------------------------------------------------------------------------|

----

----

1A. 

----

|   | · | the FDA or the EMA 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, EMA, 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. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

----

|   | · | 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 2,021,545 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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Staff Comments

Proceedings.

----

 II

| Quarter Ended      | High  | Low   |
|--------------------|-------|-------|
| September 30, 2009 | $1.81 | $1.25 |
| December 31, 2009  | $1.36 | $0.90 |
| March 31, 2010     | $1.27 | $1.06 |
| June 30, 2010      | $1.32 | $1.01 |
| September 30, 2010 | $1.62 | $1.01 |
| December 31, 2010  | $1.64 | $1.24 |
| March 31, 2011     | $4.20 | $1.54 |
| June 30, 2011      | $3.15 | $2.56 |

ect

----

t

----

----

----

|   | · | internal costs associated with research and development activities; |
|--------|--------|---------------------------------------------------------------------|

|   | · | payments made to consultants and subcontractors such as research organizations; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | manufacturing development costs; |
|--------|--------|----------------------------------|

|   | · | personnel-related expenses, including salaries, benefits, travel, and related costs for the personnel involved in research and development; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | activities relating to the preclinical studies and clinical trials; and |
|--------|--------|-------------------------------------------------------------------------|

|   | · | facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, as well as laboratory and other supplies. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

ive

----

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|                                                             | 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 - 16  |
|                                                             |            |
| Consolidated Statements of Cash Flows                            | F - 17 - F - 19 |
|                                                             |            |
| Notes to Consolidated Financial Statements                       | F - 20 - F - 48 |

----

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

REPORT OF INDEPENDENT 

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

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

|                                                       |   |   |   |   | June 30, |   |
|------------------------------------------------------------|--------|--------|--------|--------|----------|--------|
|                                                       |   | Note   |   |   | 2011     |   |   | 2010 |   |
| ASSETS                                                     |   |   |   |   |     |   |   |   |   |
|                                                       |   |   |   |   |     |   |   |   |   |
| CURRENT ASSETS:                                            |   |   |   |   |     |   |   |   |   |
|                                                       |   |   |   |   |     |   |   |   |   |
| Cash and cash equivalents                                  |   |   | 3      |   |     | $      | 42,829 |   |   | $ | 1,583 |   |
| Short term bank deposit                                    |   |   |   |   |     |   | - |   |   |   | 913 |   |
| Prepaid expenses                                           |   |   |   |   |     |   | 314 |   |   |   | 41 |   |
| Accounts receivable from the Office of the Chief Scientist |   |   |   |   |     |   | - |   |   |   | 706 |   |
| Other accounts receivable                                  |   |   |   |   |     |   | 154 |   |   |   | 362 |   |
| Total current assets                                       |   |   |   |   |     |   | 43,297 |   |   |   | 3,605 |   |
|                                                       |   |   |   |   |     |   |   |   |   |   |   |   |
| LONG-TERM ASSETS:                                          |   |   |   |   |     |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |     |   |   |   |   |   |   |   |
| Long-term deposits and restricted deposits                 |   |   |   |   |     |   | 179 |   |   |   | 168 |   |
| Severance pay fund                                         |   |   |   |   |     |   | 452 |   |   |   | 294 |   |
| Property and equipment, net                                |   |   | 4      |   |     |   | 2,088 |   |   |   | 1,555 |   |
| Total long-term assets                                     |   |   |   |   |     |   | 2,719 |   |   |   | 2,017 |   |
|                                                       |   |   |   |   |     |   |   |   |   |   |   |   |
| Totalassets                                                |   |   |   |   |     | $      | 46,016 |   |   | $ | 5,622 |   |

----

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

|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   | June 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                    |   | Note   |   |   | 2011     |   |   | 2010 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |     |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |
| CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |     |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |
| Trade payables                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   | $        | 1,177  |   |   | $ | 791 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |     | 208    |   |   |   | 118 |   |
| Other accounts payable                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 5      |   |     |   | 633 |   |   |   | 372 |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |     |   | 2,018 |   |   |   | 1,281 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| LONG-TERM LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |     |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| Accrued severance pay                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |     |   | 576 |   |   |   | 360 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   | 576 |   |   |   | 360 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                           |   |   | 6      |   |     |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                              |   |   | 7      |   |     |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |   |   |   |
| Share capital:                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |     |   |   |   |   |   |   |   |
|      Common stock  $0.00001 par value:     Authorized: 100,000,000 shares.     Issued:  42,443,185 shares as of June 30, 2011, 21,458,707 shares as of June 30, 2010.     Outstanding:  42,443,185 shares as of June 30, 2011, 20,888,781 shares as of June 30, 2010. |   |   |   |   |     |   | - (*) |   |   |   | - (*) |   |
|      Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |     |   | 94,375 |   |   |   | 44,086 |   |
|      Accumulated deficit during the development stage                                                                                                                                                                                                                                                                                                                               |   |   |   |   |     |   | (50,953 | ) |   |   | (40,105 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   | 43,422 |   |   |   | 3,981 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |     | $      | 46,016 |   |   | $ | 5,622 |   |

| (*) | Less than $1. |
|-----|---------------|

----

| CONSOLIDATED STATEMENTS OF OPERATIONS                       |
|-------------------------------------------------------------|
| U.S. Dollars in thousands (except share and per share data) |

|                                                                                                |   |   |   |   |    Year ended June 30, |    |                     | Period from May 11, 2001 (Inception) throughJune 30, |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------------|---------|--------------------------|------------------------------------------------------|--------|
|                                                                                                |   | Note   |   |   | 2011                                  |    |                     | 2010                                                 |   |   | 2009 |   |   | 2011 |   |
|                                                                                                |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |
| Research and development expenses                                                                   |   |   |   |   | $                                     | 8,311   |                     |                                                 | $      | 6,123 |   |   | $ | 4,792 |   |   | $ | 31,591 |   |
| Less participation by the Office of the Chief Scientist and other parties                           |   |   |   |   |                                  | (1,682  | )                        |                                                 |   | (1,822 | ) |   |   | (1,651 | ) |   |   | (6,754 | ) |
| Research and development expenses, net                                                              |   |   |   |   |                                  | 6,629   |                     |                                                 |   | 4,301 |   |   |   | 3,141 |   |   |   | 24,837 |   |
| General and administrative expenses                                                                 |   |   |   |   |                                  | 4,485   |                     |                                                 |   | 3,138 |   |   |   | 3,417 |   |   |   | 24,996 |   |
| Know how write-off                                                                                  |   |   |   |   |                                  | -       |                     |                                                 |   | - |   |   |   | - |   |   |   | 2,474 |   |
|                                                                                                |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Operating loss                                                                                      |   |   |   |   |                                  | (11,114 | )                        |                                                 |   | (7,439 | ) |   |   | (6,558 | ) |   |   | (52,307 | ) |
|                                                                                                |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Financial expenses (income), net                                                                    |   |   | 8      |   |                                  |    | (266                     | )                                                    |   |   | 14 |   |   |   | 78 |   |   |   | (1,354 | ) |
|                                                                                                |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for the period                                                                             |   |   |   |   |                                  | $       | (10,848                  | )                                                    |   | $ | (7,453 | ) |   | $ | (6,636 | ) |   | $ | (50,953 | ) |
|                                                                                                |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss per share:                                                                                     |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted net loss per share                                                                |   |   |   |   |                                  | $       | (0.35                    | )                                                    |   | $ | (0.44 | ) |   | $ | (0.63 | ) |   |   |   |   |
|                                                                                                |   |   |   |   |                                  |    |                     |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares used  in computing basic and diluted net loss per share |   |   |   |   |                                  |    |     31,198,825 |                                                 |   |   |     17,004,998 |   |   |   |     10,602,880 |   |   |   |   |   |

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| 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) |   |
| 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 |   |

----

| 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 |   |

----

| 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  |   |               |   | (*)    |                                       |   |   | -                                |   |   |   | - |   |   |   | (*) |   |

----

| 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 |   |

----

| 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 ASC 815-40                           |   |         | -       |   |               |   | -      |                                       |   |   | (8                               | )      |   |   | - |   |   |   | (8 | ) |
| Net loss for the year                                                                                              |   |         | -       |   |               |   | -      |                                       |   |   | -                                |   |   |   | (2,439 | ) |   |   | (2,439 | ) |
| Balance as of  June  30, 2006                                                                  |   |         | 319,218 |   |               | $      | (*)    |                                       |   | $      | 6,445                            |   |   | $ | (7,089 | ) |   | $ | (644 | ) |

----

| 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 |   |
| Stock based Compensation to employees, directors and         non-employees consultants                                                                        |   |         | -         |   |               |   | -      |                          |   |   | 3,324                           |   |   |                                       | -      |   |                      |   | - |   |   |   | - |   |   |   | 3,324 |   |
| Exercise of warrants related to the April 3, 2006 agreement net of issuance costs of $114                                                                                                        |   |         | 75,692    |   |               |   | (*)    |                          |   |   | 1,022                           |   |   |                                       | -      |   |                      |   | - |   |   |   | - |   |   |   | 1,022 |   |
| 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 |   |

----

| 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’ |   |   | Total Comprehensive |   |
|---------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|--------------------|--------|--------|-------------------------------|--------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|---------------------------|--------|--------|---------------------|--------|
|                                                                                        |   | Shares       |      |   | Amount             |   |   | Capital                       |   |   | Stock                           |   |   | Loss                                       |   |   | Stage                     |   |   | Equity              |   |   | Loss |   |
| 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 | ) |

----

| 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’ |   |   | 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 |   |               |   | (*)    |                          |   |   | (*)                             |   |   |                                       | -      |   |                      |   | -      |                |   |   | -       |   |   |   | - |   |   |   |   |
| Stock based Compensation to employees, directors and non-employees consultants            |   |         | -         |   |               |   | -      |                          |   |   | 4,747                           |   |   |                                       | -      |   |                      |   | -      |                |   |   | -       |   |   |   | 4,747 |   |   |   |   |
| 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 | ) |

----

| 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’ |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|--------------------|--------|--------|--------------------------------------------|--------|--------|---------------------------|--------|
|                                                                                                          |   | 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 |   |
| Stock based Compensation to employees, directors and non-employees consultants                                |   |         | 450,853    |   |               |   | (*)    |                                       |   |   | 2,106                     |   |   |   | - |   |   |   | 2,106 |   |
| Net loss for the period                                                                                       |   |         | -          |   |               |   | -      |                                       |   |   | -                         |   |   |   | (6,636 | ) |   |   | (6,636 | ) |
| Balance as of June 30, 2009                                                                                   |   |         | 13,676,886 |   |               | $      | (*)    |                                       |   | $      | 36,046                    |   |   | $ | (32,652 | ) |   | $ | 3,394 |   |

----

| 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’ |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|--------------------|--------|--------|--------------------------------------------|--------|--------|---------------------------|--------|
|                                                                                                            |   | Shares       |       |   | Amount             |   |   | Capital                                    |   |   | Stage                     |   |   | Equity |   |
| Balance as of July 1, 2009                                                                                      |   |         | 13,676,886 |   |               | $      | (*)    |                                       |   | $      | 36,046                    |   |   | $ | (32,652 | ) |   | $ | 3,394 |   |
| Issuance of common stock and warrants related to November 2008 through January 2009 agreements (on July 2009)   |   |         | 1,058,708  |   |               |   | (*)    |                                       |   |   | 794                       |   |   |   | - |   |   |   | 794 |   |
| Issuance of common stock and warrants related to October 2009 agreements, net of issuance costs of $242         |   |         | 2,702,822  |   |               |   | (*)    |                                       |   |   | 2,785                     |   |   |   | - |   |   |   | 2,785 |   |
| Issuance of common stock and warrants related to April 2010 agreements,  net of issuance costs of $54 |   |         | 2,393,329  |   |               |   | (*)    |                                       |   |   | 2,627                     |   |   |   | - |   |   |   | 2,627 |   |
| Issuance of common stock related to investor relations agreements                                               |   |         | 45,033     |   |               |   | (*)    |                                       |   |   | 63                        |   |   |   | - |   |   |   | 63 |   |
| Exercise of options by employee                                                                                 |   |         | 3,747      |   |               |   | (*)    |                                       |   |   | 2                         |   |   |   | - |   |   |   | 2 |   |
| Stock based Compensation to employees, directors and non-employees consultants                                  |   |         | 1,008,256  |   |               |   | (*)    |                                       |   |   | 1,769                     |   |   |   | - |   |   |   | 1,769 |   |
| Net loss for the period                                                                                         |   |         | -          |   |               |   | -      |                                       |   |   |  -                   |   |   |   | (7,453 | ) |   |   | (7,453 | ) |
| Balance as of June 30, 2010                                                                                     |   |         | 20,888,781 |   |               | $      | (*)    |                                       |   | $      | 44,086                    |   |   | $ | (40,105 | ) |   | $ | 3,981 |   |

----

| 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’ |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|--------------------|--------|--------|--------------------------------------------|--------|--------|---------------------------|--------|
|                                                                                                                          |   | Shares       |       |   | Amount             |   |   | Capital                                    |   |   | Stage                     |   |   | Equity |   |
| Balance as of July 1, 2010                                                                                                    |   |         | 20,888,781 |   |               | $      | (*)    |                                       |   | $      | 44,086                    |   |   | $ | (40,105 | ) |   | $ | 3,981 |   |
| Issuance of common stock and warrants related to October 2010 agreements,  net of issuance costs of $244            |   |         | 4,375,000  |   |               |   | (*)    |                                       |   |   | 5,006                     |   |   |   | - |   |   |   | 5,006 |   |
| Issuance of common stock and warrants related to February 2011 secondary offering,  net of issuance costs of $2,970 |   |         | 12,650,000 |   |               |   | (*)    |                                       |   |   | 38,142                    |   |   |   | - |   |   |   | 38,142 |   |
| Exercise of warrants by investors and finders                                                                                 |   |         | 2,442,714  |   |               |   | (*)    |                                       |   |   | 3,593                     |   |   |   | - |   |   |   | 3,593 |   |
| Exercise of options by employees and consultants                                                                              |   |         | 103,943    |   |               |   | (*)    |                                       |   |   | 68                        |   |   |   | - |   |   |   | 68 |   |
| Issuance of common stock related to investor relations agreements                                                             |   |         | 90,000     |   |               |   | (*)    |                                       |   |   | 155                       |   |   |   | - |   |   |   | 155 |   |
| Stock based Compensation to employees, directors and non-employees consultants                                                |   |         | 1,892,747  |   |               |   | (*)    |                                       |   |   | 3,325                     |   |   |   | - |   |   |   | 3,325 |   |
| Net loss for the period                                                                                                       |   |         | -          |   |               |   | -      |                                       |   |   | -                         |   |   |   | (10,848 | ) |   |   | (10,848 | ) |
| Balance as of June 30, 2011                                                                                                   |   |         | 42,443,185 |   |               | $      | (*)    |                                       |   | $      | 94,375                    |   |   | $ | (50,953 | ) |   | $ | 43,422 |   |

----

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

|                                                                                                                      |   | Year ended June 30, |    | Period from May 11, 2001 (inception)Through June 30, |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------------------------------------|--------|
|                                                                                                                      |   | 2011                |    |                                                 | 2010   |   |   | 2009 |   |   | 2011 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                     |   |                |    |                                                 |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |                |    |                                                 |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                  |   | $                   | (10,848 | )                                                    |   | $ | (7,453 | ) |   | $ | (6,636 | ) |   | $ | (50,953 | ) |
|                                                                                                                      |   |                |    |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments to reconcile net loss to net cash used in operating activities:                                               |   |                |    |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |                |    |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                                                              |   |                | 312     |                                                 |   |   | 207 |   |   |   | 173 |   |   |   | 1,064 |   |
| Capital loss                                                                                                              |   |                | 8       |                                                 |   |   | - |   |   |   | - |   |   |   | 12 |   |
| Impairment of property and equipment                                                                                      |   |                | 11      |                                                 |   |   | 2 |   |   |   | 5 |   |   |   | 65 |   |
| Know-how write-off                                                                                                        |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 2,474 |   |
| Amortization of deferred issuance costs                                                                                   |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 604 |   |
| Stock-based compensation to employees, directors and non-employees consultants                                            |   |                | 3,325   |                                                 |   |   | 1,819 |   |   |   | 2,106 |   |   |   | 15,989 |   |
| Stock compensation to investor relations consultants                                                                      |   |                | 155     |                                                 |   |   | 13 |   |   |   | 133 |   |   |   | 1,368 |   |
| Know-how licensors – imputed interest                                                                               |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 55 |   |
| Salary grant in shares and warrants                                                                                       |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 711 |   |
| Decrease (increase) in other accounts receivable                                                                          |   |                | 656     |                                                 |   |   | (307 | ) |   |   | (247 | ) |   |   | (136 | ) |
| Decrease (increase) in prepaid expenses                                                                                   |   |                | (273    | )                                                    |   |   | 59 |   |   |   | 250 |   |   |   | (224 | ) |
| Increase (decrease) in trade payables                                                                                     |   |                | 455     |                                                 |   |   | 132 |   |   |   | (54 | ) |   |   | 1,044 |   |
| Increase (decrease) in other accounts payable and   accrued expenses                                       |   |                | 375     |                                                 |   |   | 120 |   |   |   | (96 | ) |   |   | 360 |   |
| Increase in interest receivable on short-term deposit                                                                     |   |                | 15      |                                                 |   |   | (15 | ) |   |   | - |   |   |   | - |   |
| Increase in accrued interest due to related parties                                                                       |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 3 |   |
| Linkage differences and interest on long-term  restricted lease deposit                                         |   |                | (4      | )                                                    |   |   | 1 |   |   |   | - |   |   |   | (5 | ) |
| Change in fair value of liability in respect of warrants                                                                  |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | (2,696 | ) |
| Fair value of warrants granted to investors                                                                               |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 651 |   |
| Amortization of discount and changes in accrued interest on convertible debentures                                        |   |                | -       |                                                 |   |   | - |   |   |   | - |   |   |   | 128 |   |
| Amortization of discount and changes in accrued interest from marketable securities                                       |   |                | -       |                                                 |   |   | - |   |   |   | (3 | ) |   |   | (9 | ) |
| Impairment, realized loss and Loss from sale of investments of available-for-sale marketable    securities |   |                | -       |                                                 |   |   | - |   |   |   | 75 |   |   |   | 478 |   |
| Accrued severance pay, net                                                                                                |   |                | 58      |                                                 |   |   | 14 |   |   |   | 32 |   |   |   | 124 |   |
| Net cash used in operating activities                                                                                     |   |                | (5,755  | )                                                    |   | $ | (5,408 | ) |   | $ | (4,262 | ) |   | $ | (28,893 | ) |

----

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

|                                                           |   | Year ended June 30, |   |   | Period from May 11, 2001 (inception)throughJune 30, |   |
|----------------------------------------------------------------|--------|---------------------|--------|--------|-----------------------------------------------------|--------|
|                                                           |   | 2011                |   |   | 2010                                                |   |   | 2009 |   |   | 2011 |   |
|                                                           |   |                |   |   |                                                |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                          |   |                |   |   |                                                |   |   |   |   |   |   |   |
|                                                           |   |                |   |   |                                                |   |   |   |   |   |   |   |
| Acquisition of Pluristem Ltd. (1)                              |   | $                   | -      |   |                                                | $      | - |   |   | $ | - |   |   | $ | 32 |   |
| Purchase of property and equipment                             |   |                | (962   | )      |                                                |   | (389 | ) |   |   | (313 | ) |   |   | (2,956 | ) |
| Investment in short-term deposits                              |   |                | -      |   |                                                |   | (2,500 | ) |   |   | - |   |   |   | (2,500 | ) |
| Proceeds from short-term deposits                              |   |                | 898    |   |                                                |   | 1,602 |   |   |   | - |   |   |   | 2,500 |   |
| Proceeds from sale of property and equipment                   |   |                | 29     |   |                                                |   | - |   |   |   | - |   |   |   | 61 |   |
| Investment in long-term deposits                               |   |                | (14    | )      |                                                |   | (12 | ) |   |   | (8 | ) |   |   | (243 | ) |
| Repayment of long-term restricted deposit                      |   |                | 13     |   |                                                |   | 3 |   |   |   | 38 |   |   |   | 80 |   |
| Purchase of available for sale marketable securities           |   |                | -      |   |                                                |   | - |   |   |   | - |   |   |   | (3,784 | ) |
| Proceeds from sale of available for sale marketable securities |   |                | -      |   |                                                |   | - |   |   |   | 1,113 |   |   |   | 3,314 |   |
| Purchase of know-how                                           |   |                | -      |   |                                                |   | - |   |   |   | - |   |   |   | (2,062 | ) |
| Net cash provided by (used in) investing activities            |   |                | (36    | )      |                                                |   | (1,296 | ) |   |   | 830 |   |   |   | (5,558 | ) |
|                                                           |   |                |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                          |   |                |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock and warrants, net of issuance costs   |   | $                   | 43,400 |   |                                                | $      | 5,954 |   |   | $ | 5,462 |   |   | $ | 70,745 |   |
| Exercise of warrants and options                               |   |                | 3,661  |   |                                                |   | 2 |   |   |   | - |   |   |   | 4,685 |   |
| Issuance of convertible debenture                              |   |                | -      |   |                                                |   | - |   |   |   | - |   |   |   | 2,584 |   |
| Issuance expenses related to convertible debentures            |   |                | -      |   |                                                |   | - |   |   |   | - |   |   |   | (440 | ) |
| Repayment of know-how licensors                                |   |                | -      |   |                                                |   | - |   |   |   | - |   |   |   | (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 |   |
| Repayment of long-term loan                                    |   |                | (24    | )      |                                                |   | (8 | ) |   |   | (14 | ) |   |   | (51 | ) |
| Net cash provided by financing activities                      |   |                | 47,037 |   |                                                |   | 5,948 |   |   |   | 5,448 |   |   |   | 77,280 |   |
|                                                           |   |                |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents               |   |                | 41,246 |   |                                                |   | (756 | ) |   |   | 2,016 |   |   |   | 42,829 |   |
| Cash and cash equivalents at the beginning of the period       |   |                | 1,583  |   |                                                |   | 2,339 |   |   |   | 323 |   |   |   | - |   |
| Cash and cash equivalents at the end of the period             |   |                | 42,829 |   |                                                | $      | 1,583 |   |   | $ | 2,339 |   |   | $ | 42,829 |   |

----

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

|                                                                     |   | Year ended June 30, |   |   | Period from May 11, 2001 (inception)throughJune 30, |   |
|--------------------------------------------------------------------------|--------|---------------------|--------|--------|-----------------------------------------------------|--------|
|                                                                     |   | 2011                |   |   | 2010                                                |   |   | 2009 |   |   | 2011 |   |
|                                                                     |   |                |   |   |                                                |   |   |   |   |   |   |   |
| (a)   Supplemental disclosure of cash flow activities:         |   |                |   |   |                                                |   |   |   |   |   |   |   |
| Cash paid during the period for:                                         |   |                |   |   |                                                |   |   |   |   |   |   |   |
| Taxes paid due to non-deductible expenses                           |   | $                   | 11     |   |                                                | $      | 7 |   |   | $ | 33 |   |   | $ | 65 |   |
| Interest paid                                                            |   | $                   | -      |   |                                                | $      | 2 |   |   | $ | 3 |   |   | $ | 18 |   |
|                                                                     |   |                |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| (b)   Supplemental disclosure of non-cash activities:          |   |                |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Classification of liabilities and deferred issuance expenses into equity |   | $                   | -      |   |                                                | $      | - |   |   | $ | - |   |   | $ | 97 |   |
| Conversion of convertible debenture                                      |   | $                   | -      |   |                                                | $      | - |   |   | $ | - |   |   | $ | 2,227 |   |
| Purchase of property and equipment in credit                             |   | $                   | 123    |   |                                                | $      | 192 |   |   | $ | 20 |   |   | $ | 123 |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 1:-  GENERAL |
|------------------------|

| a. | Pluristem Therapeutics Inc., a Nevada corporation, was incorporated on May 11, 2001. Pluristem Therapeutics Inc. has a wholly owned subsidiary, Pluristem Ltd. (the “Subsidiary”), which is incorporated under the laws of the State of Israel. Pluristem Therapeutics Inc. and the Subsidiary are referred to as the “Company". |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b. | The Company is devoting substantially all of its efforts towards conducting research and development of placental-derived 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 Accounting Standards Codification TM (“ASC”) 915. In the course of such activities, the Company have sustained operating losses and expects such losses to continue in the foreseeable future. The Company has not generated any revenues or product sales and has not achieved profitable operations or positive cash flows from operations. The Company's accumulated losses during the development stage aggregatedto $50,953 through June 30, 2011 and the Company incurred net loss of $10,848 and negative cash flow from operating activities in the amount of $5,755 for the year ended June 30, 2011. 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, entering into licensing technology agreements such as United Therapeutics Corporation agreement and from grants to supports its R&D activity. In the longer term, the Company plans to finance its operations from revenues from sales of products. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c. | Since December 10, 2007, the Company’s shares of common stock have been traded on the NASDAQ Capital Market under the symbol PSTI. On May 7, 2007, the Company’s shares also began trading on Europe’s Frankfurt Stock Exchange, under the symbol PJT. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On December 19, 2010, the Company’s shares began trading on the Tel-Aviv Stock Exchange, under the symbol “PLTR”. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

| 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 ASC 830, "Foreign Currency Matters". 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.) |
|-------------------------------------------------|

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

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

| d. | Cash and 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. | Short-term bank deposit |
|----|-------------------------|

|   | Bank deposits with original maturities of more than three months but less than one year are presented as part of short-term investments. Deposits are presented at their cost including accrued interest. Interest on deposits is recorded as financial income. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Long-term restricted deposit with maturities of more than one year used to secure lease agreement and hedge transactions not designated as hedging accounting instruments are 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               | 10-15                                                                                     |
| 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. |

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

|   | The Company's long-lived assets and identifiable intangibles are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation". ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 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 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 andreplaces SAB 107, “Share-Based Payments”. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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% for the options and shares granted to employees and 0% for the options and shares granted to directors and officers of the Company. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The fair value of the Company's stock options granted to employees and directors for the year ended June 30, 2009 was estimated using the following assumptions (during fiscal years 2010, 2011 there were no options grants to employees or directors): |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                     | Year ended June 30, 2009 |
|--------------------------|--------------------------|
| Risk free interest rate  | 1.8 %                    |
| Dividend yields          | 0 %                      |
| Volatility               | 132 %                    |
| Expected term (in years) | 6                        |

|   | The assumptions below are relevant to restricted shares and restricted shares units granted in 2011 and 2010: |
|--------|---------------------------------------------------------------------------------------------------------------|

|   | In accordance with ASC 718, restricted shares or restricted shares units are measured at their fair value as if it was vested and issued on the grant date. All restricted shares and restricted shares units to employees and non-employees granted in 2011 and 2010 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 and restricted shares units 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 share granted during years 2011 and 2010 was $1.88 and $1, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company applies ASC 718 and ASC 505 with respect to options and warrants issued to non-employees. ASC 718 requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.) |
|--------------------------------------------------------|

| j. | Research and Development expenses and R&D grants |
|----|------------------------------------------------------|

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

|   | R&D grants from the government of Israel and other parties 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| k. | Participation of research and development expenses by other parties |
|----|---------------------------------------------------------------------|

|   | In February 2011, the Company received a cash grant of $244 under the U.S. government's Qualifying Therapeutic Discovery Project ("QTDP") to fund its research and development costs incurred in fiscal years 2009 and 2010. The QTDP program was created by Congress as part of the Patient Protection and Affordable Care Act. The Company recorded the grant in 2011 as a reduction of research and development expenses. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| l. | 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 ASC 260, “Earnings Per Share”.  All outstanding stock options and unvested Restricted stock units 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| m. | Income taxes |
|----|--------------|

|   | The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This Topic 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 provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ASC 740 establishes a single model to address accounting for uncertain tax positions. ASC 740 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. ASC 740 also provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of the provisions of ASC 740 did not have a material impact on the Company's consolidated financial position and results of operation. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.) |
|--------------------------------------------------------|

| n. | Concentration of credit risk |
|----|------------------------------|

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

|   | The majority of the Company’s cash and cash equivalents and short-term and long-term deposits are invested in dollar instruments of major banks in Israel.  Generally, these deposits may be redeemed upon demand and therefore bear minimal risk. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o. | 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, 2011, 2010 and 2009 amounted to approximately $225, $134, and $120, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

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

|   | The carrying amounts of our financial instruments, including cash and cash equivalents, short-term deposits, other receivables, 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 ASC 820, “Fair value and disclosure”. ASC 820 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, ASC 820 establishes a three-tier value hierarchy. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The hierarchy is broken down into three levels based on the inputs as follows: |
|--------|--------------------------------------------------------------------------------|

|   | · Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
|--------|--------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.) |
|--------------------------------------------------------|

| p. | Fair value of financial instruments (cont.): |
|----|----------------------------------------------|

|   | The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company’s Derivatives are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging. Those derivatives consist primarily of forward and options contracts the Company uses to hedge the Company’s exposures to currencies other than the U.S. dollar. The Company recognized derivative instruments as either assets or liabilities and measures those instruments at fair value. Since the derivative instruments that the Company holds do not meet the definition of  hedging instruments under ASC 815, the Company recognizes changes in the fair values in its statement of income in financial income, net, in the same period as the remeasurement gain and loss of the related foreign currency denominated assets and liabilities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The fair value of the forward and options contracts as of June 30, 2011 and 2010 were recorded as on asset of $7 and aliability of $6, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Adoption of New Accounting Standards during the period: |
|--------|----|---------------------------------------------------------|

|   | In July 21, 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosure guidance will significantly expand the existing disclosure requirements surrounding finance receivables and the allowance for loan losses. The objectives of the enhanced disclosures are to provide information that will enable readers of financial statements to understand the nature of credit risk in financing receivables, how that risk is analyzed in determining the related allowance for loan losses, and changes to the allowance during the reporting period. The new disclosures are required starting in the first interim or annual reporting period on or after December 31, 2010. The adoption of the new guidance doesnot have a material impact on its consolidated financial statements. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Recently issued accounting Standards |
|--------|----|--------------------------------------|

|   | In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The new guidance does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within GASP or International Financial Reporting Standards ("IFRSs"). The new guidance also changes the working used to describe many requirements in GAAP for measuring fair value and for disclosing information about fair value measurements and it clarifies the FASB's intent about the application of existing fair value measurements. The new guidance applies prospectively and is effective for interim and annual periods beginningafter December 15, 2011. The Company will adopt the provisions of this new guidance on January 1, 2012. The Company do not expect the adoption of the new provisions to have a material impact on its consolidated financial position, results of operations or cash flows. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 3:-   CASH AND CASH EQUIVALENTS |
|------------------------------------------------|

|                         |   | June 30, |   |
|------------------------------|--------|----------|--------|
|                         |   | 2011     |   |   | 2010 |   |
|                         |   |     |   |   |   |   |
| In U.S. dollars              |   | $        | 42,021 |   |   | $ | 1,271 |   |
| In New Israeli Shekels (NIS) |   |     | 806    |   |   |   | 304 |   |
| Other currencies             |   |     | 2      |   |   |   | 8 |   |
|                         |   | $        | 42,829 |   |   | $ | 1,583 |   |

| NOTE 4:-  PROPERTY AND EQUIPMENT, NET |
|--------------------------------------------|

|                               |   | June 30, |   |
|------------------------------------|--------|----------|--------|
|                               |   | 2011     |   |   | 2010 |   |
| Cost:                              |   |     |   |   |   |   |
| Laboratory equipment               |   | $        | 1,864  |   |   | $ | 1,452 |   |
| Computers and peripheral equipment |   |     | 207    |   |   |   | 150 |   |
| Office furniture and equipment     |   |     | 95     |   |   |   | 80 |   |
| Leasehold improvements             |   |     | 744    |   |   |   | 430 |   |
| Vehicle                            |   |     | 68     |   |   |   | 63 |   |
| Total Cost                         |   |     | 2,978  |   |   |   | 2,175 |   |
| Accumulated depreciation:          |   |     |   |   |   |   |   |   |
| Laboratory equipment               |   |     | 551    |   |   |   | 383 |   |
| Computers and peripheral equipment |   |     | 138    |   |   |   | 116 |   |
| Office furniture and equipment     |   |     | 36     |   |   |   | 24 |   |
| Leasehold improvements             |   |     | 155    |   |   |   | 71 |   |
| Vehicle                            |   |     | 10     |   |   |   | 26 |   |
| Total accumulated depreciation     |   |     | 890    |   |   |   | 620 |   |
| Property and equipment, net        |   | $        | 2,088  |   |   | $ | 1,555 |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 5:-  OTHER ACCOUNTS PAYABLE |
|---------------------------------------|

|                                       | June 30, |
|--------------------------------------------|----------|
|                                       | 2011     |   | 2010 |
|                                       |     |   |
| Accrued payroll                            | $        | 155 |   | $ | 102 |
| Payroll institutions                       |     | 143 |   |   | 91 |
| Accrued vacation                           |     | 275 |   |   | 150 |
| Liability in respect of hedge transactions |     | - |   |   | 5 |
| Current maturities of long-term obligation |     | 60 |   |   | 24 |
|                                       | $        | 633 |   | $ | 372 |

| NOTE 6:-  COMMITMENTS AND CONTINGENCIES |
|----------------------------------------------|

| a. | The Subsidiary leases facilities under operating lease agreements. 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").  The Subsidiary may extend the leasing period by 60 months, if an advanced notice is given. As of June 30, 2011 the monthly payment on leasing is approximately $20. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 $111. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Lease expenses amounted $245, $227 and $218 for the years ended June 30, 2011, 2010 and 2009, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------|

|   | As of June 30, 2011 future rental commitments under the existing lease agreement and supplement are as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------|

| Year ended June 30, 2012 |   | $      | 260 |   |
|--------------------------|--------|--------|-----|--------|
| Year ended June 30, 2013 |   |   | 43  |   |
| Total                    |   | $      | 303 |   |

| b. | The Subsidiary leases 14 cars under operating lease agreements, which expire in years 2011 through 2014. The monthly payment is approximately $13 and is linked to the CPI. In order to secure these agreements, the Subsidiary pledged a deposit in the amount of $35. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Lease expenses amounted to $148, $116 and $86 for the years ended June 30, 2011, 2010 and 2009, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------|

|   | As of June 30, 2011 future rental commitments under the existing lease agreements are as follows: |
|--------|--------------------------------------------------------------------------------------------------------|

| Year ended June 30, 2012 |   | $      | 151 |   |
|--------------------------|--------|--------|-----|--------|
| Year ended June 30, 2013 |   |   | 118 |   |
| Year ended June 30, 2014 |   |   | 43  |   |
| Total                    |   | $      | 312 |   |

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

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 6:-  COMMITMENTS AND CONTINGENCIES (CONT.) |
|------------------------------------------------------|

| 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 theseroyalties 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. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.     | See note 7 n relating the May 2007 Agreement. |
|----------------------------|----------------------------------------------------|

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS |
|-------------------------------------------------------|

| a. | On December 22, 2009, the Company’s authorized common stock was increased from 30,000,000 shares with a par value of $0.00001 per share to 100,000,000 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. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b. | On July 9, 2001, the Company issued 175,500 shares of common stock in consideration for $2.50, 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 $1.40 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 $2.00 per share, for cancellation, for no consideration. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

| 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 share of 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 |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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. | In October 2004, the Company consummated a private placement offering (“the October 2004 Agreement”) pursuant to which it issued 42,500 units. Each unit is comprised of one share of 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

| g. | On January 24, 2005, the Company consummated 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. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  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 finder's 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 $720and the amount of the deferred issuance costs was $178. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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. 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. | In November  2005-January 2006, a total of 450 warrants were issued to finders as finder fees related to the January 24, 2005 Agreement, were exercised. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

| l. | 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 $15.00 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 $15.00 and half of which are exercisable at $15.40 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 $15.00 per share. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a.   | 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. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | The warrants, issued as of April 3, 2006, become first exercisable on the 65th day after issuance. |
|----------------|----------------------------------------------------------------------------------------------------|

|   | In accordance with ASC 815-40, 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 ASC 815-40, , 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 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -  SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------|

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

| m. | On May 14, 2007, the Company consummated a private equity placement with a group of investors for an equity investment (the “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 at a per share price of $2.50, and warrants to purchase shares at an exercise price of $5.00 exercisable until five years after the closing date of the agreement. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | During 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| n. | 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. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

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

|   | · | 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 2 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 161,724 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.  The Company received a general release from some of the investors, and issued them warrants to purchase 105,583 shares of its common stock. On November 9, 2010, all of such warrants expiredunexercised. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o. | 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. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| p. | 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. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

| q. | From 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 purchaseprice 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. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| r. | 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 purchaseprice 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. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| s. | 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 was 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 theCompany’s common stock. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| t. | 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. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: - SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------|

| u. | 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.  Upon the occurrence of such event, certain investors had an option from prior agreements from November 2008 through January 2009 to purchase additional shares and warrants. Accordingly, certain investors purchased 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.  The warrants are exercisable for a period of 4 years and six months commencing six months following the issuance. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| v. | On October 12, 2009, certain institutional investors purchased 2,702,822 shares of the Company’s common stock and warrants to purchase 1,081,129 shares of common stock. The price per share of common stock was $1.12, and the exercise price of the warrants was $1.60 per share. The warrants will be exercisable for a period of five years commencing six months following the issuance thereof.  The gross proceeds received from this offering were approximately $3,027. Total cash costs related to this placement amounted to $242. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| w. | On April 27, 2010, the Company closed a private placement pursuant to which it sold to certain investors 2,393,329 shares of common stock and warrants to purchase 717,999 shares of common stock and 717,999 shares of common stock, at exercise prices per share of $1.25 (the “$1.25 Warrants”) and $1.40 (the “$1.40 Warrants”), respectively.  The price per share of common stock was $1.12.  The aggregate gross proceeds from the sale of the common stock and the warrants were $2,681.  The warrants are exercisable six months following the issuance thereof, for a period of two and a half years and five years thereafter for the $1.25 Warrants and the $1.40 Warrants, respectively. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company paid a transaction fee to finders in an amount of $54 in cash and issued them warrants exercisable at an exercise price of $1.12 per share to purchase 146,144 shares of the Company’s common stock. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| x. | On October 18, 2010, the Company closed a private placement, pursuant to which the Company sold 4,375,000 shares of the Company's common stock at a price of $1.20 per share and warrants to purchase 2,625,000 shares of common Stock, at an exercise price per share of $1.80.  No separate consideration was paid for the warrants.  The warrants have a term of four years and are exercisable starting six months following the issuance thereof.   The aggregate gross proceeds from the sale of the shares and the warrants were $5,250.   |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In connection with the purchase agreements, the Company agreed to file a resale registration statement with the Securities and Exchange Commission covering the shares and the shares of common stock issuable upon the exercise of the warrants within 60 days from closing. The registration statement was filed and on December 10, 2010 it became effective. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| y. | On February 1, 2011, the Company closed a firm commitment underwritten public offering of 11,000,000 units, with each unit consisting of one share of the Company's common stock and one warrant to purchase 0.4 shares of common stock, at a purchase price of $3.25 per unit. The warrants sold in the offering will be exercisable for a period of five years commencing six months following issuance, at an exercise price of $4.20 per share.  Also, on February 1, 2011 the Company closed the exercise by the underwriters of their full overallotment option to purchase an additional 1,650,000 shares of common stock and warrants to purchase 660,000 shares of common stock.  The aggregate net proceeds to the Company were $38,142, after deducting underwriting commissions and discounts andexpenses payable by the Company associated with the offering. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: - SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------|

| z. | In January-June 2011, a total of 769,391 warrants were exercised via a “cashless” manner, resulting in the issuance of 362,746 shares of common stock to investors of the Company.  In addition 2,079,968 warrants were exercised and resulted in the issuance of 2,079,968 shares of common stock by investors of the Company. The aggregate cash consideration received was $3,593. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| aa. | The following table summarizes the issuance of shares of common stock to the Company’s investor relations consultants as compensation for their services since July 1, 2007: |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   |   |                    |   |   |   |                                                        |   |   |   | Expenses in the statements of operations for the |   |
|-------------------------------------|--------|--------|-------------------------|--------|--------|--------|-------------------------------------------------------------|--------|--------|--------|--------------------------------------------------|--------|
|   Period of service            |   |   | Number of shares issued |   |   |   | Fair market value of the shares issued at the issuance date |   |   |   | Year ended June 30, 2009                         |   |   |   | Year ended June 30, 2010 |   |   |   | Year ended June 30, 2011 |   |
| July – December 2007          |   |   | 10,000                  |   |   | $      | 149                                                         |   |   | $      | -                                                |   |   | $ | - |   |   | $ | - |   |
| February – July 2008          |   |   | 7,500                   |   |   |   | 18                                                          |   |   |   | -                                                |   |   |   | - |   |   |   | - |   |
| March - September 2008              |   |   | 3,500                   |   |   |   | 8                                                           |   |   |   | 2                                                |   |   |   | - |   |   |   | - |   |
| April – June 2008             |   |   | 50,000                  |   |   |   | 102                                                         |   |   |   | -                                                |   |   |   | - |   |   |   | - |   |
| July 2008 – June 2009         |   |   | 16,129                  |   |   |   | 10                                                          |   |   |   | 10                                               |   |   |   | - |   |   |   | - |   |
| July –September 2008          |   |   | 40,000                  |   |   |   | 46                                                          |   |   |   | 46                                               |   |   |   | - |   |   |   | - |   |
| October 2008                        |   |   | 750                     |   |   |   | 1                                                           |   |   |   | 1                                                |   |   |   | - |   |   |   | - |   |
| October 2008                        |   |   | 20,000                  |   |   |   | 12                                                          |   |   |   | 12                                               |   |   |   | - |   |   |   | - |   |
| December 2008 – November 2009 |   |   | 50,000                  |   |   |   | 24                                                          |   |   |   | 14                                               |   |   |   | 10 |   |   |   | - |   |
| February – July 2009          |   |   | 9,510                   |   |   |   | 12                                                          |   |   |   | 12                                               |   |   |   | - |   |   |   | - |   |
| February – April 2009         |   |   | 30,000                  |   |   |   | 32                                                          |   |   |   | 32                                               |   |   |   | - |   |   |   | - |   |
| April 2009                          |   |   | 3,500                   |   |   |   | 4                                                           |   |   |   | 4                                                |   |   |   | - |   |   |   | - |   |
| July  2009                |   |   | 1,929                   |   |   |   | 3                                                           |   |   |   | -                                                |   |   |   | 3 |   |   |   | - |   |
| July 2010 – June 2011         |   |   | 90,000                  |   |   |   | 155                                                         |   |   |   | -                                                |   |   |   | - |   |   |   | 155 |   |
| Total                               |   |   | 332,818                 |   |   | $      | 576                                                         |   |   | $      | 133                                              |   |   | $ | 13 |   |   | $ | 155 |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

| bb. | Options, warrants, restricted stock and restricted stock units to employees, directors and consultants: |
|-----|---------------------------------------------------------------------------------------------------------|

|   | The Company has approved two incentive option plans from 2003 and from 2005 (the “2003 Plan" and the “2005 Plan”, and collectively, the “Plans”).  Under the Plans, options, restricted stock and restricted stock units (the “Awards”) may be granted to the Company’s officers, directors, employees and consultants. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Each option granted under the 2005 Plan, as it was amended and restated on January 21, 2009 is exercisable through the expiration date of the 2005 Plan, which is December 31, 2018, unless stated otherwise.  The Awards vest over two years from the date of grant unless other vesting schedules are specified. Any Awards that are cancelled or forfeited before expiration become available for future grants. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of June 30, 2011, the number of shares of common stock authorized for issuance under the 2005 Plan amounted to 10,196,803.  2,335,748 shares are still available for future grant under the 2005 Plan as of June 30, 2011.  Under the 2003 Plan 20,500 options are authorized for issuance, and 13,040 options are still available for future grant. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company accounted for its options to employees and directors under the fair value method in accordance with ASC 718. A summary of the Company’s share option activity for options granted to employees and directors under the Plans is as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                         |   | Year ended June 30,2011 |      |
|----------------------------------------------|--------|-------------------------|-----------|
|                                         |   | Number                  |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Contractual Terms (in years) |   |   | Aggregate Intrinsic Value Price |   |
| Options outstanding at beginning of period   |   |                    | 2,351,919 |   |   | $ | 3.73 |   |   |   |   |   |   |   |
| Options exercised                            |   |                    | (99,943   | ) |   |   | 0.68 |   |   |   |   |   |   |   |
| Options forfeited                            |   |                    | (51,360   | ) |   |   | 4.81 |   |   |   |   |   |   |   |
| Options outstanding at end of the period     |   |                    | 2,200,616 |   |   | $ | 3.84 |   |   |   | 5.73 |   |   | $ | 1,244 |   |
| Options exercisable at the end of the period |   |                    | 2,200,616 |   |   | $ | 3.84 |   |   |   | 5.73 |   |   | $ | 1,244 |   |
| Options vested and expected to vest          |   |                    | 2,200,616 |   |   | $ | 3.84 |   |   |   | 5.73 |   |   | $ | 1,244 |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: - SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------|

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

|   | Aggregate intrinsic value of 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, 2011. This amount changes based on the fair market value of the Company’s common stock. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Compensation expenses related to options granted to employees and directors were recorded as follows: |
|--------|-------------------------------------------------------------------------------------------------------|

|                                |   | Year ended June 30, |   |   | Period from inception through June 30, |   |
|-------------------------------------|--------|---------------------|--------|--------|---------------------------------------------|--------|
|                                |   | 2011                |   |   | 2010                                        |   |   | 2011 |   |
| Research and development expenses   |   | $                   | 2      |   |                                        | $      | 73 |   |   | $ | 2,582 |   |
| General and administrative expenses |   |                | 2      |   |                                        |   | 138 |   |   |   | 5,538 |   |
|                                |   |                |   |   |                                        |   |   |   |   |   |   |   |
|                                |   | $                   | 4      |   |                                        | $      | 211 |   |   | $ | 8,120 |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -  SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------|

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

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

|                                                      |   | Year ended June 30, 2011 |    |
|-----------------------------------------------------------|--------|--------------------------|---------|
|                                                      |   | Number                   |    |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Contractual Terms (in years) |   |   | Aggregate Intrinsic Value Price |   |
| Options and warrants outstanding at beginning of period   |   |                     | 389,750 |   |   | $ | 3.97 |   |   |   |   |   |   |   |
| Options and warrants granted                              |   |                     | 82,000  |   |   | $ | 1.24 |   |   |   |   |   |   |   |
| Options and warrants exercised                            |   |                     | (18,000 | ) |   | $ | 1.00 |   |   |   |   |   |   |   |
| Options and warrants forfeited                            |   |                     | (28,750 | ) |   | $ | 2.75 |   |   |   |   |   |   |   |
| Options and warrants outstanding at end of the period     |   |                     | 425,000 |   |   | $ | 3.65 |   |   |   | 4.99 |   |   | $ | 563 |   |
|                                                      |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options and warrants exercisable at the end of the period |   |                     | 374,252 |   |   | $ | 4.01 |   |   |   | 5.14 |   |   | $ | 466 |   |
|                                                      |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options and warrants vested and expected to vest          |   |                     | 425,000 |   |   | $ | 3.65 |   |   |   | 4.99 |   |   | $ | 563 |   |

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

|                                |   | Year ended June 30, |   |   | Period from inception through June 30, |   |
|-------------------------------------|--------|---------------------|--------|--------|----------------------------------------|--------|
|                                |   | 2011                |   |   | 2010                                   |   |   | 2011 |   |
| Research and development expenses   |   | $                   | 32     |   |                                   | $      | 90 |   |   | $ | 1,638 |   |
| General and administrative expenses |   |                | 73     |   |                                   |   | 71 |   |   |   | 874 |   |
|                                |   | $                   | 105    |   |                                   | $      | 161 |   |   | $ | 2,512 |   |

|   | Future expenses related to options and warrants granted to consultants for an average time of two years is $61. |
|--------|-----------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

|   | On August 12, 2010, the Company's Compensation Committee approved a grant of total 270,000 restricted shares to two of the Company's officers as a bonus. The Company estimated at the grant date that the terms of the grant are probable. The shares became fully vested upon meeting a certain milestone. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On October 28, 2010, the Company's Audit Committee approved a grant of a total of 1,453,000 restricted stock units to the Company's employees and directors. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On May 18, 2011, the Company's Audit Committee approved a grant of a total of 812,020 restricted stock units to the Company's employees and directors. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table summarizes the activities for unvested restricted stock units and restricted stock granted to employees and directors for the year ended June 30, 2011: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Number |            |
|--------------------------------------|--------|--------|-----------------|
| Unvested at the beginning of period  |   |   | 1,356,665       |   |
| Granted                              |   |   | 2,535,020       |   |
| Forfeited                            |   |   | (62,203         | ) |
| Vested                               |   |   | (1,690,527      | ) |
| Unvested at the end of the period    |   |   |  2,138,955 |   |
| Expected to vest after June 30, 2011 |   |   | 2,091,695       |   |

|   | Compensation expenses related to restricted stock and restricted stock units granted to employees and directors were recorded as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   | Year ended June 30, |   |   | Period from inception through June 30, |   |
|-------------------------------------|--------|---------------------|--------|--------|---------------------------------------------|--------|
|                                |   | 2011                |   |   | 2010                                        |   |   | 2011 |   |
| Research and development expenses   |   | $                   | 1,027  |   |                                        | $      | 582 |   |   | $ | 1,859 |   |
| General and administrative expenses |   |                | 1,717  |   |                                        |   | 775 |   |   |   | 2,884 |   |
|                                |   | $                   | 2,744  |   |                                        | $      | 1,357 |   |   | $ | 4,743 |   |

|   | Future expenses related to restricted stock and restricted stock units granted to employees and directors for an average time of two years is $2,762. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -  SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------|

|   | During the year ended June 30, 2011, the Company granted to several consultants and service providers restricted stock and restricted stock units. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table summarizes the activities for unvested restricted stock units and restricted stock granted to consultants for the year ended June 30, 2011: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Number |     |
|--------------------------------------|--------|--------|----------|
| Unvested at the beginning of period  |   |   | 73,261   |   |
| Granted                              |   |   | 282,106  |   |
| Vested                               |   |   | (205,369 | ) |
| Unvested at the end of the period    |   |   | 149,998  |   |
| Expected to vest after June 30, 2011 |   |   | 149,998  |   |

|                                |   | Year ended June 30, |   |   | Period from inception through June 30, |   |
|-------------------------------------|--------|---------------------|--------|--------|---------------------------------------------|--------|
|                                |   | 2011                |   |   | 2010                                        |   |   | 2011 |   |
| Research and development expenses   |   | $                   | 294    |   |                                        | $      | 40 |   |   | $ | 386 |   |
| General and administrative expenses |   |                | 178    |   |                                        |   | 50 |   |   |   | 228 |   |
|                                |   | $                   | 472    |   |                                        | $      | 90 |   |   | $ | 614 |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 7: -   SHARE CAPITAL AND STOCK OPTIONS (CONT.) |
|---------------------------------------------------------------|

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

|  Warrants / Options   |   | Exercise Priceper Share |                 |       | Options and Warrants for Common Stock |   |       | Options and WarrantsExercisable |   |   | Weighted Average Remaining Contractual Terms(in years) |   |
|----------------------------|--------|-------------------------|----------------------|------------|---------------------------------------|--------|------------|---------------------------------|--------|--------|--------------------------------------------------------|--------|
| Warrants:                  |   |                    | $ 1.00               |       |                                  |   | 2,059,972  |                            |   |   | 2,059,972                                              |   |   |   | 2.42 |   |
|                       |   |                    | $ 1.12               |       |                                  |   | 114,794    |                            |   |   | 114,794                                                |   |   |   | 0.82 |   |
|                       |   |                    | $ 1.20               |       |                                  |   | 12,500     |                            |   |   | 12,500                                                 |   |   |   | 1.30 |   |
|                       |   |                    | $ 1.25 - $ 1.28 |       |                                  |   | 774,642    |                            |   |   | 774,642                                                |   |   |   | 1.49 |   |
|                       |   |                    | $ 1.40 - $ 1.50      |       |                                  |   | 1,806,707  |                            |   |   | 1,806,707                                              |   |   |   | 3.33 |   |
|                       |   |                    | $ 1.60               |       |                                  |   | 181,221    |                            |   |   | 181,221                                                |   |   |   | 3.78 |   |
|                       |   |                    | $ 1.80 - $ 1.96      |       |                                  |   | 3,987,545  |                            |   |   | 3,987,545                                              |   |   |   | 2.98 |   |
|                       |   |                    | $ 2.50               |       |                                  |   | 81,298     |                            |   |   | 81,298                                                 |   |   |   | 0.96 |   |
|                       |   |                    | $ 4.20               |       |                                  |   | 5,060,000  |                            |   |   | -                                                      |   |   |   | 5.09 |   |
|                       |   |                    | $ 5.00               |       |                                  |   | 2,394,585  |                            |   |   | 2,394,585                                              |   |   |   | 0.99 |   |
| Total warrants             |   |                    |                 |       |                                  |   | 16,473,264 |                            |   |   | 11,413,264                                             |   |   |   |   |   |
|                       |   |                    |                 |       |                                  |   |       |                            |   |   |                                                   |   |   |   |   |   |
| Options:                   |   |                    | $ 0.00               |       |                                  |   | 98,000     |                            |   |   | 82,252                                                 |   |   |   | 8.27 |   |
|                       |   |                    | $ 0.62               |       |                                  |   | 494,612    |                            |   |   | 494,612                                                |   |   |   | 7.19 |   |
|                       |   |                    | $ 1.04 - $ 1.45      |       |                                  |   | 145,006    |                            |   |   | 110,006                                                |   |   |   | 4.12 |   |
|                       |   |                    | $ 2.97               |       |                                  |   | 20,000     |                            |   |   | 20,000                                                 |   |   |   | 6.86 |   |
|                       |   |                    | $ 3.50               |       |                                  |   | 991,794    |                            |   |   | 991,794                                                |   |   |   | 5.12 |   |
|                       |   |                    | $ 3.72 - $ 3.80      |       |                                  |   | 32,924     |                            |   |   | 32,924                                                 |   |   |   | 5.22 |   |
|                       |   |                    | $ 4.00               |       |                                  |   | 42,500     |                            |   |   | 42,500                                                 |   |   |   | 5.30 |   |
|                       |   |                    | $ 4.38 - $ 4.40      |       |                                  |   | 474,360    |                            |   |   | 474,360                                                |   |   |   | 5.72 |   |
|                       |   |                    | $ 6.80               |       |                                  |   | 36,250     |                            |   |   | 36,250                                                 |   |   |   | 6.37 |   |
|                       |   |                    | $ 8.20               |       |                                  |   | 46,670     |                            |   |   | 46,670                                                 |   |   |   | 4.54 |   |
|                       |   |                    | $ 20.00              |       |                                  |   | 142,500    |                            |   |   | 142,500                                                |   |   |   | 4.98 |   |
| Total options              |   |                    |                 |       |                                  |   | 2,524,616  |                            |   |   | 2,473,868                                              |   |   |   |   |   |
|                       |   |                    |                 |       |                                  |   |       |                            |   |   |                                                   |   |   |   |   |   |
| Total warrants and options |   |                    |                 | 18,997,880 |                                  |   |       | 13,887,132                      |   |   |                                                   |   |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 8:-  FINANCIAL EXPENSES (INCOME), NET |
|-------------------------------------------------|

|                                                      |   | Year ended June 30, |   |   | Period from May 11, 2001 (Inception) through June 30, |   |
|-----------------------------------------------------------|--------|---------------------|--------|--------|------------------------------------------------------------|--------|
|                                                      |   | 2011                |   |   | 2010                                                       |   |   | 2009 |   |   | 2011 |   |
|                                                      |   |                |   |   |                                                       |   |   |   |   |   |   |   |
| Foreign currency translation differences                  |   | $                   | (29    | )      |                                                       | $      | (68 | ) |   | $ | 69 |   |   | $ | (137 | ) |
| Interest on short-term bank credit and bank's expenses    |   |                | 13     |   |                                                       |   | 13 |   |   |   | 5 |   |   |   | 77 |   |
| Interest on long-term loan                                |   |                | -      |   |                                                       |   | 2 |   |   |   | 3 |   |   |   | 8 |   |
| Interest accrued on know-how licenses                     |   |                | -      |   |                                                       |   | - |   |   |   | - |   |   |   | 69 |   |
| Interest income on deposits                               |   |                | (236   | )      |                                                       |   | (18 | ) |   |   | (14 | ) |   |   | (404 | ) |
| Deferred issuance expenses amortization                   |   |                | -      |   |                                                       |   | - |   |   |   | - |   |   |   | 604 |   |
| Discount amortization                                     |   |                | -      |   |                                                       |   | - |   |   |   | - |   |   |   | 105 |   |
| Interest expenses of debenture                            |   |                | -      |   |                                                       |   | - |   |   |   | - |   |   |   | 74 |   |
| Change in fair value of warrants                          |   |                | -      |   |                                                       |   | - |   |   |   | - |   |   |   | (2,696 | ) |
| Loss related to marketable securities                     |   |                | -      |   |                                                       |   | - |   |   |   | 66 |   |   |   | 247 |   |
| Interest expenses related to warrants issued to investors |   |                | -      |   |                                                       |   | - |   |   |   | - |   |   |   | 651 |   |
| Expenses (income) of derivatives                          |   |                | (14    | )      |                                                       |   | 85 |   |   |   | (51 | ) |   |   | 48 |   |
|                                                      |   | $                   | (266   | )      |                                                       | $      | 14 |   |   | $ | 78 |   |   | $ | (1,354 | ) |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 9:-TAXES ON INCOME |
|-------------------------|

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

|   | 1. | Pluristem Therapeutics Inc. is taxed under U.S. tax laws. |
|--------|----|-----------------------------------------------------------|

|   | 2. | The Subsidiary is taxed under the Israeli income Tax Ordinance and was taxed also under the Income Tax (Inflationary Adjustments) Law, 1985 (the “law"). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Results of the Subsidiary for tax purposes were 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 ASC 740, 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 ofinflation immune assets and carried forward tax losses will no longer be linked to the Israeli consumer price index. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The subsidiary, has not received final tax assessments since its incorporation, however, the assessments of the subsidiary are deemed final through 2006. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | 1. | Pluristem Therapeutics Inc.: |
|--------|----|------------------------------|

|   | The tax rates applicable to Pluristem Therapeutics Inc. whose place of incorporation is Nevada 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Subsidiary – |
|--------|----|------------------------|

|   | On July 2009, the Knesset passed The Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 - 24%, 2012 – 23%, 2013 – 22%, 2014 – 21%, 2015 – 20%, 2016 – 18% and thereafter. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 the rate of the Israeli corporate tax (2011-24%). |
|--------|-------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 9:-  TAXES ON INCOME (CONT.) |
|----------------------------------------|

| C. | Tax rates applicable to the Company (Cont.): |
|----|----------------------------------------------|

|   | 2. | The Subsidiary (cont.) – |
|--------|----|--------------------------------|

|   | On July 7, 2010, the Subsidiary has received a Pre-Ruling (the "Ruling") from the Israeli Tax Authority. According to the Ruling, the Subsidiary has been granted the status of "Benefited Enterprise" according to the Amendment to the Encouragement Law (the "Program"). The subsidiary chose the year 2007 as the election year of the Program, and chose to benefit from "alternative benefits track". Accordingly, the Subsidiary is entitled to tax benefits for a period of seven consecutive years, starting in the year in which the Subsidiary first generates taxable income. The Subsidiary which is located at National Priority Zone "B", entitled to an exemption from corporate tax in the first six years and to a reduced tax rate of 25% during the remaining benefited period (one year). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The beginning of the benefit period is determined as from the year in which the Benefited Company first generates taxable income, subject to limitation of 12 years from the election year. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | As of June 30, 2011, Pluristem Therapeutics Inc. had U.S. federal net operating loss carryforward for income tax purposes in the amount of approximately $13,571. 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 Subsidiary in Israel has accumulated losses for tax purposes as of June 30, 2011, in the amount of approximately $18,996, which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| NOTE 9:-  TAXES ON INCOME (CONT.) |
|----------------------------------------|

|   | 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, |   |
|------------------------------------------------------|--------|----------|--------|
|                                                 |   | 2011     |   |   | 2010 |   |
| Deferred tax assets:                                 |   |     |   |   |   |   |
| U.S. net operating loss carryforward                 |   | $        | 4,750  |   |   | $ | 3,656 |   |
| Israeli net operating loss carryforward              |   |     | 4,559  |   |   |   | 3,201 |   |
| Allowances and reserves                              |   |     | 96     |   |   |   | 54 |   |
|                                                 |   |     |   |   |   |   |   |   |
| Total deferred tax assets before valuation allowance |   |     | 9,405  |   |   |   | 6,911 |   |
| Valuation allowance                                  |   |     | (9,405 | ) |   |   | (6,911 | ) |
|                                                 |   |     |   |   |   |   |   |   |
| Net deferred tax asset                               |   | $        | -      |   |   | $ | - |   |

|   | As of June 30, 2010 and June 30, 2011, the Company has 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In 2009, 2010 and 2011, the main reconciling item of the statutory tax rate of the Company (26% to 35% in 2009, 25% to 35% in 2010 and 24% to 35% in 2011) to the effective tax rate (0%) is tax loss carryforwards and other deferred tax assets for which a full valuation allowance was provided. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           |
|------------------------------------------------------|
| U.S. Dollars in thousands (except per share amounts) |

| a. | On June 20, 2011 the Company entered into an exclusive out-license agreement with United Therapeutics Corporation for the use of the Company's Placental expanded cells to develop and commercialize a cell-based product for the treatment of Pulmonary Hypertension. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the terms of the agreement, United Therapeutics Corporation will make an upfront payment of $7,000 to the Company. The Company is eligible to receive regulatory milestone payments and other payments accumulating together with the upfront payment to a total of approximately $55,000 and reimbursement of costs of its development and clinical activities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Following commercialization, United Therapeutics Corporation shall purchase commercial supplies from the Company at a specified margin over Company cost. In addition United Therapeutics Corporation will pay to the Company specified royalties as a percentage from its gross profits generated from the developed product. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The agreement requires the Company to request the consent of the Office of Chief Scientist in Israel before the closing of the agreement. On August 2, 2011, the agreement became effective following the consent of the Office of the Chief Scientist of Israel. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b. | In July 2011 the Company has entered into an agreement with MTM – Scientific Industries Center Haifa Ltd., for the leasing and construction of a new state-of-the-art GMP manufacturing facility. The new facility will be located near the Company’s headquarters and existing facilities in MATAM Park, Haifa, Israel. According to the agreement, the lease of the new facility is expected to commence in January 2012 for a period of approximately 5 years with an option to extend the lease for an additional 5 years period. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

es 

----

h

ART

| Name             | Position Held With Company                                                        | Age | Date First Elected or Appointed                        |
|------------------|-----------------------------------------------------------------------------------|-----|--------------------------------------------------------|
| Zami Aberman     | Chief Executive Officer, President,Directorand Chairman of the Board of Directors | 57  | September 26, 2005November 21, 2005 April 3, 2006 |
| Yaky Yanay       | Chief Financial Officer, Secretary                                                | 40  | November 1, 2006                                       |
| Nachum Rosman    | Director                                                                          | 64  | October 9, 2007                                        |
| Doron Shorrer    | Director                                                                          | 58  | October 2, 2003                                        |
| Hava Meretzki    | Director                                                                          | 42  | October 2, 2003                                        |
| Isaac Braun      | Director                                                                          | 58  | July 6, 2005                                           |
| Israel Ben-Yoram | Director                                                                          | 50  | January 26, 2005                                       |
| Mark Germain     | Director                                                                          | 61  | May 17, 2007                                           |
| Shai Pines       | Director                                                                          | 57  | December 8, 2008                                       |

----

----

----

| § | 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| § | 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. |
|--------|-------------------------------------------------------------------------------------------------------|

----

Co

| Nameand Principal Position          | Year        | Salary($) (1) | Stock-based Awards($)(2) | Non-Equity Incentive Plan Compensa-tion($) | AllOther Compensa-tion($) | Total($)  |
|-------------------------------------|-------------|---------------|--------------------------|--------------------------------------------|---------------------------|-----------|
| Zami AbermanChief Executive Officer | 2011        | 383,081 (3)   | 900,900                  | 0                                          | 0                         | 1,283,981 |
| 2010                                | 331,917 (3) | 227,068       | 0                        | 0                                          | 558,985                   |
| Yaky YanayChief Financial Officer   | 2011        | 200,760       | 629,400                  | 0                                          | 27,398 (4)                | 857,558   |
| 2010                                | 159,820     | 107,362       | 0                        | 19,385 (4)                                 | 286,567                   |

----

|  (a) | Mr. Aberman is engaged with us as a consultant and receives consulting fee.  As of May 11, 2011, Mr. Aberman’s monthly consulting fee was increased from $25,000 to $31,250. In addition, Mr. Aberman is entitled once a year to receive an additional amount that equals the monthly consulting fee. The U.S. dollar rate will be not less then 4.35 NIS per $.  All amounts above are paid plus value added tax.  Mr. Aberman is also entitled to one and a half percent (1.5%) from amounts received by us from non diluting funding and strategic deals. During May 2009 until April 2010, Mr. Aberman participated in a voluntary reduction of 15% of his consulting fee, in exchange for 35,500 shares of our common stock, and during May 2010 until April 2011, Mr. Aberman participated in an additional voluntary reduction of 15% of his consulting fee.  In exchange for such voluntary reduction in his consulting fee and waiving his rights to receive 25 accrued vacation days, he received 78,267 shares of our common stock.  |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)       | As of May 11, 2011 Mr. Yanay's monthly salary was increased from 42,500 NIS to 53,125 NIS. 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.  Furthermore, Mr. Yanay is entitled to a bonus of 1.0% from amounts received by us from non diluting funding and strategic deals. During May 2009 until April 2010, Mr. Yanay participated in a voluntary reduction of 15% of 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.  Since May 2010 until April 2011, Mr. Yanay participated in an additional voluntary reduction of 15% of his salary.  In exchange for the salary reduction and waiving his rights to receive 20 accrued vacation days, he received 35,243 shares of our common stock.                                                                                 |

----

| 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 | - | - |
| 105,000                                     | - | 4.38 | 12/25/2017 | - | - |
| 110,000                                     | - | 0.62 | 10/30/2018 | - | - |
| -                                           | - | - | - | 34,998 (1) | $101,494 |
| -                                           | - | - | - | 120,000 (3) | $384,000 |
| -                                           | - | - | - | 150,000 (5) | $435,500 |
| Yaky Yanay*                                 | 62,500 | - | 4.38 | 12/25/2017 | - | - |
| 12,500                                      | - | 4.00 | 9/17/2016 | - | - |
| 50,000                                      | - | 3.50 | 1/23/2017 | - | - |
| 55,000                                      | - | 0.62 | 10/30/2018 | - | - |
| -                                           | - | - | - | 17,496 (2) | $50,738 |
| -                                           | - | - | - | 60,000 (4) | $174,000 |
| -                                           | - | - | - | 150,000 (6) | $435,000 |

|   | (1) | 34,998 restricted shares vest in six installments of 5,833 shares on each of July 22, 2011, August 22, 2011, September 22, 2011, October 22, 2011, November 22, 2011, December 22, 2011. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | 17,496 restricted shares vest in six installments of 2,916 shares on each of July 22, 2011, August 22, 2011, September 22, 2011, October 22, 2011, November 22, 2011, December 22, 2011. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | 120,000 restricted shares vest in six installments of 20,000 shares on each of  July 28, 2011, October 28, 2011, January 28, 2012, April 28, 2012, July 28, 2012 and October 28, 2012. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | 60,000 restricted shares vest in six installments of 10,000 shares on each of  July 28, 2011, October 28, 2011, January 28, 2012, April 28, 2012, July 28, 2012 and October 28, 2012. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | 150,000 restricted shares vest in one installment of 37,500 shares on November 18, 2011, and six installments of 18,750 shares on each of February 18, 2012, May 18, 2012, August 18, 2012, November 18, 2012, February 18, 2013 and May 18, 2013. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | 150,000 restricted shares vest in one installment of 37,500 shares on November 18, 2011, and six installments of 18,750 shares on each of February 18, 2012, May 18, 2012, August 18, 2012, November 18, 2012, February 18, 2013 and May 18, 2013. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Name             | Fees Earned or Paid in Cash ($) | Stock-based Awards ($) (1) | Total ($) |
|------------------|---------------------------------|----------------------------|-----------|
| Mark Germain     | 11,527                          | 184,894                    | 196,421   |
| Nachum Rosman    | 27,856                          | 248,494                    | 276,350   |
| Doron Shorrer    | 28,446                          | 248,494                    | 276,940   |
| Hava Meretzki    | 16,983                          | 184,894                    | 201,877   |
| Isaac Braun      | 18,362                          | 184,894                    | 203,256   |
| Israel Ben-Yoram | 27,240                          | 248,494                    | 275,734   |
| Shai Pines       | 20,478                          | 184,894                    | 205,372   |

| (1) | The fair value recognized for the stock-based awards was determined as of the grant date in accordance with FASB ASC Topic 718. Assumptions used in the calculations for these amounts are included in Note 2(i) to our consolidated financial statements for fiscal 2011 included elsewhere in this Annual Report on Form 10-K. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Certain Beneficial 

| Name and Address of Beneficial Owner                                               | Beneficial Number of Shares(1) | Percentage |
|------------------------------------------------------------------------------------|--------------------------------|------------|
|                                                                               |                           |       |
| Directors and Named Executive Officers                                             |                           |       |
|                                                                               |                           |       |
| Zami AbermanChief Executive Officer, Chairman of the Board, President and Director | 1,274,985(2)                   | 2.9%       |
|                                                                               |                           |       |
| Shai PinesDirector                                                                 | 93,932                         | *          |
|                                                                               |                           |       |
| Hava MeretzkiDirector                                                              | 194,624(3)                     | *          |
|                                                                               |                           |       |
| Doron ShorrerDirector                                                              | 236,188(4)                     | *          |
|                                                                               |                           |       |
| Israel Ben-YoramDirector                                                           | 216,208(5)                     | *          |
|                                                                               |                           |       |
| Isaac BraunDirector                                                                | 193,355(6)                     | *          |
|                                                                               |                           |       |
| Nachum RosmanDirector                                                              | 183,182(7)                     | *          |
|                                                                               |                           |       |
| Mark GermainDirector                                                               | 438,932(8)                     | 1.0%       |
|                                                                               |                           |       |
| Yaky YanayChief Financial Officer and Secretary                                    | 540,711(9)                     | 1.3%       |
|                                                                               |                           |       |
| Directors and Executive Officers as a group (9 persons)                            |  3,372,117(10)            | 7.6%       |
|                                                                               |                           |       |
| 5% Shareholders                                                                    |                           |       |
|                                                                               |                           |       |
| Bangor Holdings Ltd.                                                               | 4,064,286(11)                  | 9.1%       |

----

----

| 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)     |   |                                                                                        | 2,517,156 |   |                                                                        | $      | 3.91   |                                                                                         |   |   | 2,335,748 |   |
| Equity compensation plan not approved by security holders (2) |   |                                                                                        | 108,460   |   |                                                                        | $      | 1.58   |                                                                                         |   |   | 13,040 |   |
| Total                                                         |   |                                                                                        | 2,625,616 |   |                                                                        | $      | 3.81   |                                                                                         |   |   | 2,348,788 |   |

|   | (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. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

and Director Independence.

|                                                                                                                                                                                                                                                                                                                                                                                                               |   | Twelve months ended on June 30, 2011 |    |   | Twelve months ended on June 30, 2010 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|--------|--------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |    |   |                                 |   |
| Audit Fees                                                                         |   | $                                    | 70,000  |   |                                 | $      | 70,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |    |   |                                 |   |   |   |
| Audit-Related Fees                                                                 |   | None                                 |    |   | None                                 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |    |   |                                 |   |   |   |
| Tax Fees                                                                           |   | $                                    | 16,164  |   |                                 | $      | 5,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |    |   |                                 |   |   |   |
| All Other Fees                                                                     |   | $                                    | 60,235  |   |                                 | $      | 8,879 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |    |   |                                 |   |   |   |
| Total Fees                                                                         |   | $                                    | 146,399 |   |                                 | $      | 83,879 |   |

----

| 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. |

----

IV

|  3.1 | Composite Copy of the Company’s Articles of Incorporation as amended on December 22, 2009 (incorporated by reference to Exhibit 3.1 of our quarterly report on Form 10-Q filed February 11, 2010). |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 dated October 18, 2010 (incorporated by reference to Exhibit 4.1 of our current report on Form 8-K filed on October 12, 2010). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2 | Form of Warrant Agreement by and between Pluristem Therapeutics Inc. and  American Stock Transfer & Trust Company, LLC (including the form of Warrant certificate) (incorporate by reference to Exhibit 4.2 of our quarterly report on Form 10-Q filed on February 9, 2011). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.1 | Consulting Agreement dated September 26, 2005 between Pluristem Ltd. and Rose High Tech Ltd. (incorporated by reference to Exhibit 10.25 of our quarterly report on Form 10-QSB filed February 9, 2006).+ |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.2* | Summary of Lease Agreement dated January 22, 2003, by and between Pluristem Ltd. and MTM – Scientific Industries Center Haifa Ltd., as supplemented on December 11, 2005, June 12, 2007 and July 19, 2011. |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  10.3 | Assignment Agreement dated May 15, 2007 between Pluristem Therapeutics Inc. and 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). |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.4 | Assignment Agreement dated May 15, 2007 between Pluristem Therapeutics Inc. and 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). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.5* ^ | Exclusive License Agreement dated June 19, 2011, between Pluristem Ltd. and United Therapeutics Corporation. |
|---------|--------------------------------------------------------------------------------------------------------------|

| 10.6 | Form of Regulation D Securities Purchase Agreement for Common Stock and Warrants (incorporated by reference from Exhibit 10.1 of our current report on Form 8-K filed on October 12, 2010). |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.7 | Form of Regulation S Securities Purchase Agreement for Common Stock and Warrants (incorporated by reference to Exhibit 10.2 of our current report on Form 8-K filed on October 12, 2010). |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.8* | Summary of Directors’ Ongoing Compensation. |
|-------|---------------------------------------------------|

| 10.9 | 2003 Stock Option Plan (incorporated by reference to Exhibit 4.1 of our registration statement on Form S-8 filed on December 29, 2003) (Registration no. 333-111591). |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.10 | 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). |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 10.11 | Form of Stock Option Agreement under the Amended and Restated 2005 Stock Option Plan. (incorporated by reference to Exhibit 10.4 of our annual report on Form 10-K filed September 23, 2009). + |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.12 | Form of Restricted Stock Agreement under the Amended and Restated 2005 Stock Option Plan. (incorporated by reference to Exhibit 10.16 of our annual report on Form 10-K filed September 23, 2009). + |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.13 | Form of Restricted Stock Agreement (Israeli directors and officers) under the Amended and Restated 2005 Stock Option Plan. (incorporated by reference to Exhibit 10.17 of our annual report on Form 10-K filed September 23, 2009). + |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14.1* | Amended and Restated Code of Business Conduct and Ethics adopted by the Board of Directors. |
|-------|---------------------------------------------------------------------------------------------|

| 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). |
|------|------------------------------------------------------------------------------------------------------------------------------------------------|

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

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