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# UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-K

(Mark One)

|[X] | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF           1934
|--- | ----------------------------------------------------------------------------------------------

For the fiscal year ended June 30, 2008

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|- | ----------------------------------------------------------------------------------------

For the transition period from o to o

Commission file number 001-31392

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

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|Nevada                                                         | 98-0351734                          
|                                                               |                                     
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

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|------------------------------------------------------------- | ----------
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|MATAM Advanced Technology Park,Building No. 20, Haifa, Israel | 31905     
|                                                              |           
|(Address of principal executive offices)                      | (Zip Code)

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

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

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|----------------------------------------------------- | -----------------------------------------------
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|
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|Title of each class Common Shares, par value $0.00001 | Name of each exchange on which registeredNasdaq
|                                                      |                                                
|                                                      |                                                

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

|                
|----------------
|                
|(Title of class)

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

Yes o No x

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

Yes  o No x

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o



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Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

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

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

Yes  o No x

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

# $22,053,393

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

8,369,870 as of September
9, 2008

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TABLE OF CONTENTS

|            |                                                                                                              |   
|----------- | ------------------------------------------------------------------------------------------------------------ | --
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|PART I      |                                                                                                              | 5 
|Item 1.     | Business                                                                                                     | 5 
|Item 1A.    | Risk Factors                                                                                                 | 12
|Item 1B.    | Unresolved Staff Comments                                                                                    | 19
|Item 2.     | Properties                                                                                                   | 20
|Item 3.     | Legal Proceedings                                                                                            | 20
|Item 4.     | Submission of Matters to a Vote of Security Holders                                                          | 20
|PART II     |                                                                                                              | 21
|Item 5.     | Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 21
|Item 6.     | Selected Financial Data                                                                                      | 21
|Item 7.     | Management's Discussion and Analysis of Financial Condition and Results of Operations                        | 22
|Item 7A.    | Quantitative and Qualitative Disclosures About Market Risk                                                   | 25
|Item 8.     | Financial Statements and Supplementary Data                                                                  | 26
|Item 9.     | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         | 27
|Item 9A(T). | Controls and Procedures                                                                                      | 27
|Item 9B.    | Other Information.                                                                                           | 28
|PART III    |                                                                                                              | 28
|Item 10.    | Directors, Executive Officers and Corporate Governance                                                       | 28
|Item 11.    | Executive Compensation                                                                                       | 32
|Item 12.    | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 36
|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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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

In this annual report, unless
otherwise specified, all dollar amounts are expressed in United States dollars and all
references to common shares refer to the common shares in our capital stock.

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

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# PART I

# Item 1. Business.

# Corporate History

We are engaged in the business of the
development of stem cell production technology and the development and commercialization
of cell therapy products. We were incorporated in the State of Nevada under the name
A.I. Software, Inc. on May 11, 2001. On June 10, 2003, we acquired from the
Weizmann Institute of Science and the Technion-Israel Institute of Technology 100% of the
issued and outstanding shares of a research and development company based in Israel called
Pluristem, Ltd. Pluristem, Ltd. was incorporated under the law of Israel on January 22,
2003 and has the facilities and personnel to conduct research and development in the field
of stem cell research. As a result, Pluristem, Ltd. became our wholly owned subsidiary as
of June 10, 2003.

On June 25, 2003, we changed our name
from A.I. Software, Inc. to Pluristem Life Systems, Inc. From May
2003 until March 2006, our business was focused on the development of stem cell production
technology. In 2003, our plan was to develop that technology to the point where we could
license it to medical scientists and practitioners for their use in producing cell therapy
products for sale in the marketplace. On March 6, 2006, we announced that our company was
taking a new direction. Instead of looking to license our stem cell production technology,
we decided to focus on developing the technology with the goal of producing cell therapy
products ourselves for sale in the marketplace. On July 5, 2006 and October 16, 2006, we
announced that our subsidiary, Pluristem Ltd., achieved a breakthrough in our preclinical
study of bone marrow transplantation: The preclinical study showed that by adding PLX
(PLacenta eXpanded cells) to Umbilical Cord Blood (UCB) stem cells during Bone Marrow
Transplantation (BMT), hematopoietic stem cell engraftment in mice showed up to a 500%
increase in engraftment after irradiation and chemotherapy. On January 8, 2008 we
announced that we achieved favorable results in demonstrating a revascularization effect
after using our propriety PLX-PAD cells for the treatment of limb ischemia associated with
peripheral artery disease (PAD). On April 7, 2008, we announced that the results from
Fraunhofer Institutes (Germany) additional pre-clinical study utilizing our
proprietary PLX cells in treating ischemic stroke showed statistical significance
utilizing functional as well as anatomical endpoints.

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

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

# Our Current Business

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

These placental adherent stromal
cells (ASCs) are expanded in the Companys proprietary PluriXTM three-dimensional
bioreactor, which imitates the natural microstructure of bone marrow and does not require
supplemental growth factors or other exogenous materials. Pluristem believes that the
resultant PLX (PLacental eXpanded) cells efficacy may be related to the secretion of
cytokines or other potent immune modulators. Furthermore, PLX cells are immune privileged
and have immunomodulatory properties, thus protecting the recipient from immunological
reactions that often accompany transplantations.

Pluristems first product in
development, PLX-PAD, is intended to improve the quality of life of millions of people
suffering from peripheral artery disease (PAD). The Companys products in development
also include PLX-IBD, targeting Inflammatory Bowel Disease (IBD); PLX-MS, targeting
Multiple Sclerosis; PLX-BMT, targeting the global shortfall of matched tissue for bone
marrow transplantation (BMT) by improving the engraftment of hematopoietic stem cells
(HSCs) contained in umbilical cord blood; and PLX-STROKE, targeting ischemic stroke.

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# Medical Background

Stem Cells

Unspecialized cells that can renew
themselves for long periods through cell division and have the ability to differentiate
into specialized cells are called stem cells. Stem cells are separated from other cells
within the body by three general properties: (1) they are capable of self-division and
self-renewal over long time periods; (2) they are unspecialized; and (3) they can give
rise to specialized cells. Stem cells offer the possibility of renewable sources of
replacement cells and new tissues to treat many kinds of diseases, conditions, and
disabilities. All stem cells originate from three places: (1) certain adult tissues
(adult); (2) UCB (umbilical); and (3) the human embryo (embryonic). Stem cells obtained
from a person after birth are adult stem cells and are found within various tissues that
make up the body. These stem cells act as a repair and maintenance systems, dividing
regularly to provide the body with specialized cells to take the place of those that
perish. Pluristems technology employs only adult adherent stem cells from the
placenta.

Critical Limb Ischemia

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

PAD, and CLI as the natural endpoint
of PAD, is aggravated by conditions such as hypercholesterolemia, smoking and diabetes
with the incidence doubling in patients with these risk factors. Utilizing the commonly
used Fontaine classification of the severity of PAD, CLI falls within Fontaines
Grade III (pain at rest) or Grade IV (tissue necrosis and is manifested clinically as rest
pain in the affected limb, nonhealing wounds (because of the increased metabolic
requirements of wound healing) or tissue necrosis (gangrene). The severity of the
manifestations is often a reflection of the degree of obstruction in the arterial
perfusion of the extremity.

Analysis of data from the
19992000 National Health and Nutrition Examination Survey indicates that 4.3% of the
American population over 40 years of age, or approximately seven million people, suffer
from PAD. PAD increases significantly with age, rising to as high as approximately 20% of
the population of those over the age of seventy which has resulted in a growing market for
therapies intended to treat this disorder. It has been estimated that CLI affects
approximately 1.1 million US patients and is anticipated to grow to approximately 1.4
million patients by 2015 according to The Sage Group Report of September 12, 2005.This
could result in approximately 160,000 to 200,000 PAD-amputations performed annually in the
United States.

Bone Marrow
Transplantation (BMT)

Each year, hundreds of thousands of
patients are diagnosed with diseases that can be treated by a hematopoietic or blood stem
cell transplant, such as a BMT procedure. This procedure replaces diseased or
treatment-damaged bone marrow with healthy marrow. The hematopoietic stem cells used come
from one of three types of bone marrow donation: (1) from a human leukocyte antigen (HLA)
tissue type matched relative or unrelated donor (an allogeneic transplant); (2) from
patients who have previously donated their own marrow (autologous transplant); or (3) from
a patients genetically identical twin (syngeneic transplant). Approximately 150,000
people require a BMT annually, while only 45,000 to 60,000 receive them. Of these, an
estimated 100,000 patients each year face difficulties obtaining a BMT due to either a
lack of a suitable donor or failed transplants due to complications, such as
Graft-versus-Host disease (GVHD), a potentially fatal condition in which donor cells can
attack the recipients tissues.

Umbilical Cord Blood
(UCB) Transplants

UCB is retrieved from the umbilical
cord and placenta after the birth of a baby. While normally the cord and placenta are
discarded after birth, the cord blood can be saved, frozen, and stored. UCB contains
hematopoietic stem cells, which are a component of bone marrow and are capable of maturing
into red blood cells, white blood cells, or platelets. Therefore, when transplanted into a
cancer patient whose own bone marrow has been depleted after chemotherapy or radiation
treatments, these UCB stem cells can provide the basis for a new, healthy, blood-forming
immune system.

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The use of UCB as a source of cells
may make hematopoietic stem cell transplants more readily available in the general
population. Unlike the stem cells found in bone marrow, UCB immune cells are younger, more
tolerant, and less likely to be rejected by the immune system. This could be due to the
muted immune system of certain cells contained in UCB, as these cells are not yet educated
to attack the recipient. Unfortunately, UCB is currently incapable of solving the unmet
demand for implantable hematopoietic stem cells, as UCB alone yields a low volume of
hematopoietic stem cells. UCB is also associated with a delayed time to engraftment,
possibly leading to complications from the procedure. Our technology, outlined below, is
targeted to address both of these current UCB technology deficiencies.

We plan to produce and sell stem cell
products for use in bone marrow transplants. There are presently between 40,000 to 50,000
bone marrow transplants performed annuallyin the United States and Europe.
Furthermore, most of these 40,000 to 50,000 bone marrow transplants are allogeneic
transplants, requiring patients to locate donors with compatible hematopoietic stem cells.
Therefore, if we succeed in developing stem cells that will be compatible with more
patients, the number of potential bone marrow transplants in the United States and Europe
would significantly increase.

Presently, standard bone marrow
transplant procedures cost approximately $100,000 per patient. If we are successful in
developing our technology and products so that donor searches and repeat procedures are
reduced, the annual expenditures for bone marrow transplant procedures may significantly
decrease.

Stroke

Stroke causes 9% of all deaths around
the world. The proportion of deaths caused by stroke is 1012% in western countries,
and 12% of these deaths are in people less than 65 years of age. However, because of the
burgeoning elderly population in western societies, the estimation is that by 2030
stroke-related disability in western societies will be ranked as the fourth most important
cause of disability-adjusted life-years.

Even though there has been a constant
reduction in stroke mortality in developed countries during the past 50 years (a relative
reduction of about 1% per year until the late 1960s followed by a steeper fall of as much
as 5% per year), there is less certainty about trends in developing countries. The most
plausible explanation for the reduction in mortality in western countries is improved
control of stroke risk factors (especially high blood pressure and cigarette smoking)
combined with a parallel improvement in living standards.

Risk factors for stroke can be
broadly classified as modifiable or fixed. Some modifiable risk factors (such as
hypertension, diabetes, and smoking) are common and affect health in several ways,
providing opportunities to modify risk in large numbers of people. Other risk factors,
such as atrial fibrillation and transient ischemic attacks (TIAs), are less prevalent and
more specific than the common risk factors for stroke. Risk factors that have been
identified explain only about 60% of the attributable risk, whereas more than 90% of
ischemic heart disease is explained by identifiable risk factors.Investigation is
needed to identify the risk factors that account for the 40% gap, some of which might be
genetic.

The distinction between symptomatic
cerebral ischemic events that last 24 hours or less (TIAs) and events of longer duration
(stroke) is entirely arbitrary. Permanent tissue damage can be seen with MRI in at least
25% of patients with TIAs and some have argued that a new definition of TIAs incorporating
such imaging findings is needed. Authorities believe that the diagnosis of symptomatic
cerebral ischemic events remains essentially clinical and should trigger an appropriate
emergency response in the community, from primary care physicians through to those in
emergency departments. Response should be based on the clinical features of an individual
case (for instance, the ABCD2 score based on age [A], blood pressure [B], clinical
features [C], and duration of symptoms [D], and the role of imaging is to eliminate other
causes and help to stratify the risk of early recurrence.

Worldwide, stroke consumes about 2%
to 4% of total health-care costs, and in industrialized countries medical treatment for
stroke accounts for more than 4% of direct health-care costs. (American Heart
Association. Heart and Stroke Facts Statistics. Dallas: American Heart
Association, 1997,and HM, Thrift AG, Mihalopoulos C, et al. Cost
of stroke in Australia from a societal perspective: results from the North East Melbourne
Stroke Incidence Study (NEMESIS). Stroke 2001; 32: 2409-2416).

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Inflammatory Bowel
Disease (IBD)

Ulcerative colitis and Crohns
disease, known collectively as inflammatory bowel disease (IBD), sufferers experience a
range of gastrointestinal symptoms, including diarrhea, rectal bleeding and abdominal pain
resulting in weight loss as well as other extraintestinal manifestations such as skin and
eye disorders. Children with IBD suffer delayed growth and sexual maturation. Ulcerative
colitis is restricted to the colon and primarily affects the mucosa while Crohns
disease can affect all regions of the gastrointestinal tract. Crohns disease extends
across the full thickness of the intestinal wall causing either strictures resulting in
obstruction or fistulas in which adjacent tissue become interconnected. Because IBD is
chronic and typically has an onset before 30 years of age, patients generally require
lifelong treatment.

IBD is a disease of complex etiology
and its cause has long been incompletely understood. One concept that has emerged is that
uncontrolled inflammation results from an inappropriate response of the intestinal mucosal
immune system to otherwise innocuous luminal antigens in a genetically susceptible host.
This is supported by the recent identification of a Crohns Disease susceptibility
gene in chromosome 16 that codes for the NOD2/CARD 15 protein, a cytoplasmic protein
involved in the recognition of bacterial components. Thus, it is currently believed that
loss of tolerance against the indigenous enteric flora is the central event in IBD
pathogenesis. Various complementary factors probably contribute to the loss of tolerance
to commensal bacteria in IBD. They include defects in regulatory T-cell function and
excessive stimulation of mucosal dendritic cells. IBD currently affects 0.5-1% of the
Western worlds population. This translates to over one million people in America
(525,000 Ulcerative Colitis, 490,000 Crohns Disease) and four million people
worldwide (Stenson WF. Inflammatory bowel disease. In: Yamada T, ed. Textbook of
gastroenterology. 2d ed. Vol 2. Philadelphia: Lippincott, 1995:1748-1805).

Multiple Sclerosis (MS)

Multiple sclerosis (MS) is a chronic
inflammatory disease characterized by demyelinating lesions in the brain, spinal cord, and
optic nerves. The term multiple sclerosis refers to two characteristics of the
disease: the numerous affected areas of the brain and spinal cord producing multiple
neurological symptoms that accrue over time and the characteristic plaques or sclerosed
areas that are the hallmark of the disease.

MS is the one of the leading causes
of neurological disability in young adults, second only to traumatic accidents. Certain
factors are highly correlated with the risk of developing MS. The disease is usually
diagnosed in patients between ages 20 and 45 years and only 5% of people diagnosed with MS
are younger than 10 or older than 50. More women are afflicted than men, at a ratio of
2:1. However, men are usually diagnosed at a later age and are more likely to develop the
progressive form of the disease. In addition, people who live farther away from the
equator are more at risk. Ethnic differences in prevalence of the disease also exist with
MS more frequently affecting whites of Scandinavian ancestry than other ethnic groups.
Genetics has a role with MS occurring in relatives of patients more often than in the
general population.

The exact causes of MS are not known.
Most experts agree that MS is probably caused from an altered immune system, an
environmental exposure (i.e., infectious agent), or both. Evidence showing that the immune
system has a major role in the pathogenesis of MS is overwhelming.Based on
this theory, MS results from an autoimmune attack against self-myelin or
self-oligodendrocyte antigens by macrophages, killer T cells, lymphokines, and/or
antibodies when they cross into the brain.

Other research suggests that
environmental exposures may promote MS, possibly due to one or more viruses.These viruses include measles, mumps, rubella, varicella, and Epstein-Barr and may
be involved in the pathogenesis of MS in several ways: (1) Transient or persistent
infection outside the central nervous system (CNS) may activate autoreactive T cells. (2)
Alternatively, transient CNS infection may initiate a cascade of events that fosters
autoimmunity. (3) Recurrent CNS infections may precipitate repeated inflammation and
demyelination, or (4) persistent CNS viral infection may incite inflammatory reactions
detrimental to oligodendrocytes or directly injure them. However, to date, no infectious
agent has been identified as a causal agent in MS.

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It is estimated that between 250,000
and 350,000 persons in the United States have MS, and nearly 200 new cases of MS are
diagnosed each week (Ryan M, Piascik P. Providing pharmaceutical care to the multiple
sclerosis patient. J Am Pharm Assoc. 2002;42:753-766).

# Our Technology and
Products

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

The PluriX imitates the natural
microstructure of bone marrow and does not require supplemental growth factors or other
exogenous materials. We believe that the resultant PLX (PLacental eXpanded) cells
efficacy may be related to the secretion of cytokines or other potent immune modulators.
Furthermore, PLX cells are immune privileged and have immunomodulatory properties, thus
protecting the recipient from immunological reactions that often accompany
transplantations.

Our Unique Cell Source
and PluriX Bioreactor System

Pluristem retrieves adherent stromal
cells from the placenta (obtained after birth) and places these cells in its PluriX
Bioreactor System. Our proprietary PluriX Bioreactor is used to promote the growth
and reproduction of the cells. The cells are then separated from the three-dimensional
culture.

Our
PluriX Bioreactor System uses a three-dimensional system of stromal cell cultures
and substrates to create an artificial physiological environment where placental stem
cells can naturally grow and reproduce outside of the human body without any use of
exogenous biologics or pharmacologicals. Using a natural growth mechanism eliminates the
risk of genetic instability. Unlike conventional two dimensional culturing methods, our
three-dimensional microenvironment closely resembles the structure and function of the
bodys bone marrow environment. Our system aims to trick stem cells into
growing and reproducing in the same way they would in living organs. Because the size and
scale of the PluriX Bioreactor is larger than that of human bone marrow, stem cell
growth can be greatly expanded.

PLX-PAD

We are developing PLX-PAD cells as an
allogeneic therapeutic product to treat critical limb ischemia (CLI) which results from
peripheral artery disease (PAD). Like all of our other stem cells, , PLX-PAD cells are to
be stored ready to use and shipped to hospitals and clinics for use as an
intra-muscular treatment for the affected limb of a patient suffering from CLI. Pluristem
has completed an initial proof of concept pilot study and two efficacy studies in mice
regarding hind limb ischemia. We are planning to initiate Phase I/II clinical trials with
PLX-PAD both in the Europe and the US in late 2008, subject to regulatory approval, for
the indication of CLI. In addition, safety and biodistribution studies in NOD/SCID mice
are currently underway. These studies have indicated a statistically significant increase
in new vessel formation (angiogenesis) and blood flow in an affected limb treated with
PLX-PAD cells.

PLX-BMT

We are developing PLX-BMT cells as an
allogeneic therapeutic product to supplement the UCB hematopoietic stem cells with
supportive cells (adherent stromal cells ), with the goal of improving the effectiveness
of engraftments and shortening patient recovery times. Following production, PLX-BMT cells
are to be stored ready to use and shipped to hospitals or clinics for use as
an adjuvant therapy in a UCB transplant. Once matched cord blood is found (which is
believed to be available in approximately 95% of patients), PLX-BMT cells would be ready
for use immediately upon arrival at the hospital, where they would be injected into the
patient a few hours prior to the UCB injection to improve the engraftment process.
Additionally, multiple PLX-BMT injections may be able to boost engraftment of
the hematopoietic stem cells found in UCB. Recently published study results show that
sufficient engraftment is possible with the limited number of hematopoietic stem cells
available in a single UCB source.

We have performed preclinical trials
on non-obese, diabetic, severe combined immunodeficient mice (NOD SCID mice). Preclinical
results to date document that adding PLX- BMT to UCB stem cells during the engraftment of
BMT human cells in NOD SCID mice showed up to a 500% increase in engraftment after
irradiation and chemotherapy treatment.

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PLX-STROKE

We are developing PLX-STROKE cells as
an allogeneic therapeutic product to treat the functional abnormalities resulting from
ischemic stroke.

Pluristem, through collaborators at
the Fraunhofer Institute for Cell Therapy and Biology, Leipzig, Germany, has completed a
proof of principle study in mice to support the eventual initiation of clinical trials
with PLX-STROKE cells for the indication of functionally improving the neurological
impairments of stroke. Our studies have indicated a functional improvement in those study
animals receiving PLX-STROKE cells.

PLX-IBD

We are developing PLX-IBD cells as an
allogeneic therapeutic product to treat inflammatory bowel disease (IBD).

Pluristem has completed a proof of
principle study where IBD was induced in mice using the intra-rectal administration of
trinitrobenzene sulphonic acid (TNBS). The study was done to support the eventual
initiation of clinical trials with PLX-IBD for the treatment of IBD. Our studies have
indicated that those study animals receiving PLX-IBD had a statistically significant
improvement in the intestinal inflammatory reaction as measured histologically versus
those study animals receiving a placebo.

PLX-MS

We are developing PLX-MS cells as an
allogeneic therapeutic product to treat multiple sclerosis (MS).

Pluristem has completed a proof of
principle study in mice where experimental autoimmune encephalitis (EAE) was induced via
immunization with the MOG35-55 protein. EAE is an autoimmune inflammatory disease of the
CNS that is mediated by T-cells and macrophages and represents the paradigmatic model for
multiple sclerosis (MS). The study was done to support the eventual initiation of clinical
trials with PLX-MS for the treatment of MS. Our studies have indicated that in those study
animals receiving PLX-MS utilizing the functional EAE score, PLX-MS prevented the
appearance of clinical symptoms and other signs associated with MS. The treated animals
exhibited a statistically significant improvement in the EAE inflammatory reaction as
measured histologically versus those study animals receiving a placebo.

Intellectual Property

Our success will depend in part on
our ability to protect our technology and products with patents. Our technology is
patented in Australia, Russia, New Zealand and South Africa and we have patents pending in
the U.S., Canada, Japan, Mexico and elsewhere. These patents will begin to expire in 2020.

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

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

We fully own our intellectual property
and we have no obligations to pay royalties to any third party.

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

Research and Development

We have spent on research and
development $4,393,000 and $2,549,000 on fiscal year 2008 and 2007, respectively.

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

Ongoing Research and
Development Plan.

On July 9,2007 we announced that we
were entering into Collaborative Research Agreement with the Center for Regenerative
Therapies at Charite University Hospital of Berlin (BCRT). Pluristem and BCRT are
collaborating on a variety of indications utilizing adherent stromal cells derived from
the placenta that have been expanded in the Companys proprietary bioreactor. The
initial focus of the collaboration is on neurological and autoimmune disorder indications
such as Multiple Sclerosis. The agreement also covers organ transplantation and
cardiovascular indications such as inflammatory cardiomyopathy. According to the agreement
we will be the exclusive owner of the technology and any products produced as a result of
the collaboration.

Our manufacturing facilities are
placed in Haifa, Israel. The manufacturing facility has been approved as a Good
Manufacturing Practices (GMP) standard site for the purpose of manufacturing PLX cells.
The R&D and manufacturing facilities include 7,000 square feet in total.

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

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

Employees

We presently have 21 full-time
employees and 1 part-time employee in research and development and 5 full-time employees
and 2 part time employees in management. We presently also have 1 full-time employee in
the United States for our business development activity.

Competition

Although companies involved in stem
cell research are generally highly specialized and focused on different aspects within
this field, there are several companies that Pluristem believes may be considered
competitors. Osiris Therapeutics, Inc. uses bone marrow stem cells to create allogeneic
products; and Gamida Cell Ltd. (a private company based in Jerusalem, Israel) competes
with Pluristem in developing an alternative to BMT by using UCB. In the mesenchymal stem
cell field, Aastrom Biosciences, Inc. develops cell therapy products from bone marrow stem
cells; and CellGenix Technologie Transfer GmbH and Stem Cell Technologies, Inc. develop
products and media to support cell therapy by utilizing cells from UCB, bone marrow and
peripheral blood. Descriptions of these companies are provided below.

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Government Regulation and
Supervision

Once fully developed, we intend to
market our stem cells to research laboratories and clinics primarily in the United States
and in Europe. Accordingly, we believe that the research and development of our technology
and the production and marketing of our stem cells are subject to the laws and regulations
of governmental authorities in the United States and all other countries where our
technology will be used and our stem cells will be marketed. Specifically, in the United
States, the FDA, among other agencies, regulates new product approvals to establish safety
and efficacy of these products. Governments in other countries have similar requirements
for testing and marketing.

# The Regulatory Process

In the United States and in Europe,
regulatory approval of new medical devices and biological products involves a lengthy
process from the development of a new product through pre-clinical and clinical testing.
This process takes a number of years and requires the expenditure of significant
resources. There can be no assurance that our technology will ultimately receive
regulatory approval.

We produce our PLX cells in a
GMP-compliant production area for therapeutic applications. GMP is a standard
set for laboratories by the World Health Organization and other health regulatory
authorities. Therefore, to a certain degree, the manner in which the FDA will regulate our
PLX cells is uncertain.

# Product Approval in the
United States

On February 8, 2007 we were informed
that the FDAs Center for Biological Evaluation and Research (CBER) had accepted the
Companys proposed Pre-Investigation New Drug (PreIND) for its PLX-BMT product to be
used in pre-clinical studies of the treatment of hematological malignancies. We are
currently in the process of completing the IND package to be submitted to the FDA. The
acceptance of the IND document by the FDA is required before initiation of Phase I
clinical trials.

On May 6, 2008, we announced that
CBER had approved the synopsis to conduct a Phase I clinical trial in the United States
utilizing PLX-PAD for the treatment of limb ischemia associated with peripheral artery
disease (PAD). We are currently in the process of completing the IND package for the
PLX-PAD to be submitted to the FDA.

# Item 1A. Risk Factors.

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

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

Our Company has a limited operating
history in our current business of developing and commercializing stem cell production
technology and must be considered in the development stage. We have not generated any
revenues since our inception and we will, in all likelihood, continue to incur operating
expenses without significant revenues until we successfully develop our stem cell
production technology and commercialize our cell therapy products. Our primary source of
funds has been the sale of our common stock. We cannot give assurances that we will be
able to generate any significant revenues or income. These circumstances make us dependent
on additional financial support until profitability is achieved. There is no assurance
that we will ever be profitable or that we will be able to continue as a going concern as
is noted in the notes to our consolidated financial statements for the year ended June 30,
2008.

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

Our independent registered public
accounting firm, Kost, Forer, Gabbay & Kassierer a Member of Ernst & Young Global,
state in their audit report attached to our audited consolidated financial statements for
the fiscal years that ended June 30, 2008 and 2007 that, since we are an exploration stage
company, we have no established source of revenue, and are dependent on our ability to
raise capital from shareholders and other sources to sustain operations, there is a
substantial doubt that we will be able to continue as a going concern. There can be no
assurance that acceptable financing to fund our ongoing operations can be obtained on
suitable terms, if at all. If we are unable to obtain the financing necessary to support
our operations, we may be unable to continue as a going concern. In that event, we may be
forced to cease operations and our stockholders could lose their entire investment in our
company.

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

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

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

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

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

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

| |  | continued
scientific progress in the Company's research and development programs;
| | - | ---------------------------------------------------------------------------------

| |  | costs
and timing of conducting clinical trials and seeking regulatory approvals and patent
         prosecutions;
| | - | -----------------------------------------------------------------------------------------------------------------

| |  | competing
technological and market developments;
| | - | ------------------------------------------------

| |  | our
ability to establish additional collaborative relationships; and
| | - | --------------------------------------------------------------------

| |  | the
effect of commercialization activities and facility expansions if and as required.
| | - | --------------------------------------------------------------------------------------

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

We cannot guarantee
continuation of government programs and tax benefits.

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

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

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

We are exposed to fluctuations in currency exchange rates.

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

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

Since a considerable portion of our
expenses such as employees salaries are linked to an extent to the rate of inflation
in Israel, the dollar cost of our operations is influenced by the extent to which any
increase in the rate of inflation in Israel is or is not offset by the devaluation of the
NIS in relation to the dollar. As a result, we are exposed to the risk that the NIS, after
adjustment for inflation in Israel, will appreciate in relation to the dollar. In that
event, the dollar cost of our operations in Israel will increase and our dollar-measured
results of operations will be adversely affected. During 2005, 2006 and 2007,
inflation-adjusted NIS appreciated against the dollar, which raised the dollar cost of our
Israeli operations. We cannot predict whether the NIS will appreciate against the dollar
or vice versa in the future. Any increase in the rate of inflation in Israel, unless the
increase is offset on a timely basis by a devaluation of the NIS in relation to the
dollar, will increase labor and other costs, which will increase the dollar cost of our
operations in Israel and harm our results of operations.

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

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

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

We have no experience in
conducting and managing human trials. If we fail in the conducting of such trials, our
business will be materially harmed.

We have no experience in conducting
and managing the clinical trials which will be necessary to obtain regulatory approvals
for our therapeutic product candidates. The failure of successfully conducting clinical
trials could materially harm our business.

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

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

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

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

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

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

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

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

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

| |  | the
clinical safety and effectiveness of our cell therapydrug candidates and their
perceived advantage over alternative treatment methods;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | adverse
events involving our biologic drug candidates or the products or product candidates of
others that are stem cell based;
| | - | -------------------------------------------------------------------------------------------------------------------------------

| |  | the
cost of our products and the reimbursement policies of government and third-party payors.
| | - | ---------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

The market for our products is very
competitive, is subject to rapid technological changes and varies for different individual
products. We believe that there are potentially many approaches being pursued in by other
companies, including some by private companies about which information is not public, that
could result in competition to our products.

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

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

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

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

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

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

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

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

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

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

We may be subject to intellectual
property litigation such as patent infringement claims, which could adversely affect our
business.

Our success will also depend in part
on our ability to develop our technology and commercially viable products without
infringing the proprietary rights of others. Although we have not been subject to any
filed infringement claims, other patents could exist or could be filed which would
prohibit or limit our ability to develop our potential cell therapy products in the
future. In the event of an intellectual property dispute, we may be forced to litigate.
Intellectual property litigation would divert managements attention from developing
our technology and marketing our potential cell therapy products and would force us to
incur substantial costs regardless of whether we are successful. An adverse outcome could
subject us to significant liabilities to third parties, and force us to curtail or cease
the development and commercialization of our cell therapy products.

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

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

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

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

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

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

Although our internal control over
financial reporting was considered effective as of June 30, 2008, there is no assurance
that our internal control over financial reporting will continue to be effective in the
future, which could result in our financial statements being unreliable, government
investigation or loss of investor confidence in our financial reports.

Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, we are required to furnish an annual report by our management
assessing the effectiveness of our internal control over financial reporting. This
assessment must include disclosure of any material weaknesses in our internal control over
financial reporting identified by management. Managements report as of the end of
fiscal year 2008 concluded that our internal control over financial reporting was
effective. There is however, no assurance that we will be able to maintain such effective
internal control over financial reporting in the future. Ineffective internal controls
over financial reporting can result in errors or other problems in our financial
statements. In addition, our internal control over financial reporting has not yet been
audited by our independent registered public accounting firm. In the future, if are unable
to assert that our internal controls are effective, our investors could still lose
confidence in the accuracy and completeness of our financial reports, which in turn could
cause our stock price to decline. Failure to maintain effective internal control over
financial reporting could also result in investigation or sanctions by regulatory
authorities.

We are subject to the requirement
that of Section 404 of the Sarbanes-Oxley Act. If we are unable to comply with the
requirement in a timely manner the market price of our stock could decline.

The Sarbanes-Oxley Act requires,
among other things, that we maintain effective internal controls for financial reporting
and disclosure controls and procedures. In particular, commencing in 2010, we must perform
system and process evaluation and testing of our internal controls over financial
reporting to allow management and our independent registered public accounting firm to
report on the effectiveness of our internal controls over financial reporting, as required
by Section 404 of the Sarbanes-Oxley Act. Our compliance with Section 404 will
require that we incur substantial expense and expend significant management efforts. If we
are not able to comply with the requirements of Section 404 in a timely manner, or if
we or our independent registered public accounting firm identifies deficiencies in our
internal controls over financial reporting that are deemed to be material weaknesses, the
market price of our stock could decline and we could be subject to sanctions or
investigations by the Securities and Exchange Commission (SEC) or other regulatory
authorities.

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

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

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

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

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

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

On
August 5 , 2008, we entered into securities purchase agreements pursuant to which we sold
securities at a price higher than the pre-split price of $.0125 and below the post-split
price of $2.50. We have decided to proceed with this offering 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, which is more than the offering price of
this offering.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The majority of purchasers in the private placement have sold the stock purchased in the
placement, and thus the number of purchasers whose consent is purportedly required has
been substantially reduced. The number of shares outstanding as to which this provision
currently applies according the information supplied by our transfer agent is 1,900,838
shares.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Even if the agreement were considered enforceable and the share price number were to be
adjusted for our reverse stock split, we believe that there would be no damage from this
offering to the holders of our shares whose consent is purportedly required
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
the event that a court were to hold that the issuance of shares below $2.50 per share
would violate the Prior Financing Agreement, it is unclear what remedy the court might
impose. If the court were to impose a remedy that would be the equivalent of an
anti-dilution provision (which is not contained in the Prior Financing Agreement), any
issuance of shares would be dilutive to our shareholders, including those who purchase
shares in the current offering

# Item 1B. Unresolved
Staff Comments.

Not Applicable.

- 19 -

---

---

# Item 2. Properties.

Our principal offices are located at MATAM
Advanced Technology Park, Building No. 20, Haifa, Israel 31905. Our telephone number is
011-972-74-710-7171. We lease our office space. Our monthly rental as of June 2008 is
67,000 NIS (approximately $20,000). For the fiscal year ended June 30, 2008, we paid
$193,192 for rent. As part of our upgrade of the existing manufacturing facility to
support GMP production capacity, in July 2007 we enlarged the rented area by an additional
6,900 square feet, which doubled in size the Companys facilities. We believe this
provides us with adequate space for the continued development of the Company.

# Item 3. Legal
Proceedings.

None.

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

Our annual meeting of stockholders
was held on June 26, 2008. Of the 6,936,566 shares entitled to vote, stockholders
representing 2,360,064 shares were present in person or by proxy.

Zami Aberman, Israel Ben-Yoram, Isaac
Braun, Mark Germain, Hava Meretzki, Nachum Rosman and Doron Shorrer have been elected to
continue and serve as directors of the Company until the next annual meeting of the
stockholders or until their successors are elected and qualified or their earlier
resignation or removal.

The votes received were as follows:

|          | Zami Aberman | Israel
Ben-Yoram | Isaac Braun | Mark Germain | Hava
Meretzki | Nachum
Rosman | Doron
Shorrer
|--------- | ------------ | ---------------- | ----------- | ------------ | ------------- | ------------- | -------------
|
|
|
|
|For       |              |                  |             | 2,336,647    |               |               | 2,276,946    
|Against   |              |                  |             | 18,438       |               |               | 16,283       
|Abstain   |              |                  |             | 4,974        |               |               | 65,060       
|Not voted |              |                  |             | -            |               |               | 1,775        

Also approved by the stockholders was
an amendment to the Companys Articles of Incorporation authorizing 10,000,000 shares
of Preferred Stock, par value $0.00001, with such series, rights, preferences, privileges
and restrictions as may be designated from time to time by the Companys Board of
Directors. Holders of 2,058,221 shares voted in favor, holders of 6,089 shares abstained,
and holders of 293,979 shares voted against. Holders of 1,775 shares did not vote.

- 20 -

---

---

# PART II

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

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

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

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

|OTC Bulletin Board
|------------------
|
|
|
|
|September 30, 2006
|December 31, 2006 
|March 31, 2007    
|June 30, 2007     
|September 30, 2007

|NASDAQ           
|-----------------
|
|
|
|
|December 31, 2007
|March 31, 2008   
|June 30, 2008    

On September 24, 2008, the per share
closing price of our common stock, as reported by Yahoo! Finance, was $0.93. As of
September 24, 2008, there were 116 holders of record of our common stock. As of such date,
8,369,870 common shares were issued and outstanding.

American Stock Transfer and Trust
Company, LLC is the registrar and transfer agent for our common shares. Their address is
59 Maiden Lane, New York, U.S.A. 10038, telephone: (212) 936-5100, (800) 903-3727.

Dividend Policy

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

Recent Sales of
Unregistered Securities

On June 30, 2008 we issued 2,000
shares of our common stock to a consultant in consideration for investor relations
services. On July 17, 2008 we issued 40,000 shares of our common stock to a consultant in
consideration for investor relations services.

# Item 6. Selected
financial data.

Not Applicable.

- 21 -

---

---

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

Overview:

We are engaged in the business of the
development of stem cell production technology and the development and commercialization
of cell therapy products. We were incorporated in the State of Nevada under the name
A.I. Software, Inc. on May 11, 2001. On June 10, 2003, we acquired from the
Weizmann Institute of Science and the Technion-Israel Institute of Technology 100% of the
issued and outstanding shares of a research and development company based in Israel called
Pluristem, Ltd. Pluristem, Ltd. was incorporated under the law of Israel on January 22,
2003 and has the facilities and personnel to conduct research and development in the field
of stem cell research. As a result, Pluristem, Ltd. became our wholly owned subsidiary as
of June 10, 2003.

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

On November 26, 2007, we effected a
one for two hundred reverse stock split. Accordingly, all references to number of shares,
common stock and per share data have been adjusted to reflect the stock split on a
retroactive basis.

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

Effective on June 4, 2008, the
authorized number of shares of our common stock was increased from 7,000,000 shares to
30,000,000 shares. Effective on July 1, 2008, we amended our Articles of Incorporation to
authorize 10,000,000 shares of Preferred Stock, par value $0.00001, with such series,
rights, preferences, privileges and restrictions as may be designated from time to time by
the Board of Directors.

RESULTS OF OPERATIONS  YEAR
ENDED JUNE 30, 2008 COMPARED TO YEAR ENDED JUNE 30, 2007.

We have not generated any revenues,
and we have negative cash flow from operations of $13,468,000 and have accumulated a
deficit of $26,016,000 since our inception in May 2001. This negative cash flow is mostly
attributable to research and development and general and administrative expenses. We
anticipate that our operating expenses will increase as we intend to conduct expanded
development of our products through animal pre-clinical trials and experiments and
clinical trials. We estimate our cash expenses in the next twelve months will be
approximately $6,000,000, generally falling in two major categories: research and
development costs and general and administrative expenses.

# Research and Development

Research and development costs net
for the year ended June 30, 2008 increased by 72% to $4,393,000 from $2,549,000 for the
year ended June 30, 2007. The increase is due to the revaluation of the Israeli shekel
against the US dollar, which increased our operational expenses paid in NIS and due to the
increase in the number of employees and research activity such as conducting final
pre-clinical studies under GLP (Good Laboratory Practice) conditions, as part of our
progress towards clinical trials. For the next twelve months, we estimate that our cash
research and development costs will be approximately $4,000,000 We intend to spend our
research and development funds on completion and filing an IND package with the FDA,
entering into Phase I/II clinical trial for the PAD indication in the United States and
Germany (subject to regulatory approval), upgrading the 3-D bioreactor operations,
developing the expansion of our placenta adherent stem cell product, and developing
capabilities for new clinical indications of PLX cells.

# General and
Administrative

General and administrative expenses
for the year ended June 30, 2008 increased by 62% to $6,036,000 from $3,726,000 for the
year ended June 30, 2007. The increase in general and administrative expenses is primarily
attributable to the increase in stock-based compensation to employees and consultants
which increased from $1,934,000 to $3,160,000 and due to the revaluation of the Israeli
shekel against the US dollar, which increased our operational expenses paid in Israel, and
due to an increase of legal and investor relations expenses. For the next twelve months,
we estimate that our cash general and administrative expenses will be approximately
$2,000,000. These expenses will include management services, public relations and investor
relations and additional amounts on office and miscellaneous charges, which consist
primarily of charges incurred for purchase of office supplies and other administrative
expenses. These expenses will also include professional fees, which consist primarily of
accounting and auditing fees for the year-end audit and legal fees for securities advice,
directors liability insurance and cost of fundraising.

- 22 -

---

---

# Net Loss

Net loss for the year ended June 30,
2008 was $10,498,000 as compared to net loss of $8,429,000 for the year ended June 30,
2007. Net loss per share for the year ended June 30, 2008 was $1.63, as compared to $5.84
for the year ended June 30, 2007. The net loss increased mainly due to the increase in
stock-based compensation to employees and consultants in the amount of $1,459,000, and an
increase in our operating expenses as a result of moving forward with our research and
development plan, the increase was set off by know-how write-off in the amount of
$1,963,000 which was recorded in March 2007. The net loss per share decreased as a result
of the increase in our weighted average number of shares due to the issuance of additional
shares in a private placement, as discussed below.

# Liquidity and Capital
Resources

As of June 30, 2008, total current
assets were $2,107,000 and total current liabilities were $1,072,000. On June 30, 2008, we
had a working capital surplus of $1,035,000 and an accumulated deficit of $26,016,000. We
finance our operations and plan to continue doing so with stock issuances and with the
participation of the Office of the Chief Scientist in Israel (OCS).

Cash and cash equivalents as of June
30, 2008 amounted to $323,000. This is a decrease of $1,330,000 from the $1,653,000
reported as of June 30, 2007. In addition to the cash and cash equivalents, we had
marketable securities in the amount of $1,185,000 as of June 30, 2008 (marketable
securities on June 30, 2007 were in the amount of $3,758,000). Cash balances decreased in
the year ended June 30, 2008 for the reasons presented below:

Operating activities used cash of
$4,537,000 in the year ended June 30, 2008. Cash used by operating activities in the year
ended June 30, 2008 primarily consisted of payments of salaries to our employees, and
payments of fees to our consultants, subcontractors and professional services providers.

Investing activities provided cash of
$1,285,000 in the year ended June 30, 2008. This resulted primarily from proceeds from
sale of marketable securities in the amount of $2,201,000 offset by costs associated with
upgrading our facilities to Good Manufacturing Practice, or GMP, standard facilities in
the amount of $840,000.

Financing activities generated cash
in the amount of $1,922,000 during the year ended June 30, 2008 resulting primarily from
receiving cash from investors related to the May 14, 2007 private placement.

On May 14, 2007, we closed a private
placement (Private Placement) of our securities at a price of $2.50 per unit.
Each unit consisted of one common share and one common share purchase warrant, with one
such warrant entitling the holder to purchase one share of our common stock at a price of
$5 per share for a period of five years. The total proceeds related to the Private
Placement accumulated as of June 30, 2008 were $10,086,450 , and 4,034,585 shares and
4,034,585 warrants were issued. On August 5, 2008, we entered into securities purchase
agreements with two investors pursuant to which the investors agreed to purchase 1,391,304
shares of our common stock and warrants to purchase 695,652 shares of Common Stock in
consideration of $1,600,000. Rodman & Renshaw, LLC acted as placement agent, on a best
efforts basis, for the offering and received a placement fee equal to 6% of the gross
purchase price of the 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. Subject to FINRA Rule 2710, the placement
agent warrants may be exercised after six months through and including August 5, 2013.
 The offering was made pursuant to our effective shelf registration statement on Form
S-3 (File No. 333-151761).

- 23 -

---

---

On September 22, 2008, we sold
900,000 shares of our Common Stock and Warrants to purchase 675,000 shares of Common Stock
to an investor pursuant to terms of a securities purchase agreement. The price per share
of Common Stock is $1.15, and the exercise price of the Warrants is $1.90. The Warrants
will be exercisable for a period of five years. The offering was made pursuant to our
effective shelf registration statement on Form S-3 (File No. 333-151761).

We received $969,000 from grants from
the OCS during the year ended June 30, 2008. We plan to continue our application for
grants with OCS regarding the grant received from the Israeli government. We will use
these grants in order to support our research and development plan.

# Outlook

Over the next twelve months, we
intend to pursue our primary objective of developing our technology and upgrading our
production capabilities bringing them to commercial level. We intend to pursue scale-up of
our bioreactors and to continuously improve production capabilities. We plan to complete
our IND package to be submitted to the FDA; the acceptance of the IND document by the FDA
is required before initiation of Phase I clinical trials. We will focus our efforts in
entering into Phase I/II clinical trial for the PAD indication in the United States and
Germany. We will start the manufacture of clinical grade PLX cells in our in-house GMP
facilities.

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

In our managements opinion, we
would need to achieve the following milestones in the next twelve months in order for us
to begin generating revenues as planned within three years or more:

| |  | Filing
the IND package with the FDA
| | - | -----------------------------------

| |  | Scaling
up of our 3-D PluriXTM Bioreactor operations bringing them to commercial
capabilities
| | - | ---------------------------------------------------------------------------------------------

| |  | Start
the first Phase I clinical trial with the PLX-PAD after the FDA approval, or the IND.
| | - | -------------------------------------------------------------------------------------------

We believe that we have sufficient funds
to operate for until at least for additional two fiscal quarters Management believes that
we will need to raise additional funds before we have any cash flow from operations. We
believe that it will take several years for us to complete the approval process for our
products in the United States or any other jurisdiction. In addition, future decisions
regarding any acquisitions that we may make or any expanded product development, as to
which there can be no assurance of success, will require additional capital, which must be
raised through the issuance of additional securities and/or through the incurrence of
debt. There can be no assurance, however, that acceptable financing to fund our ongoing
operations can be obtained on suitable terms, if at all. If we are unable to obtain the
financing necessary to support our operations, we may be unable to continue as a going
concern. In that event, we may be forced to cease operations and our stockholders could
lose their entire investment in our company.

# Going Concern

Our annual financial statements have
been prepared on the going concern basis, which assumes the realization of assets and
liquidation of liabilities in the normal course of operations. The financial statements
have been prepared on the assumption that we will continue as a going concern. However,
certain conditions exist which raise doubt about our ability to continue as a going
concern. We have suffered recurring losses from operations and have accumulated losses of
approximately $26,016,000 since inception through the year ended June 30, 2008.

# Application of Critical
Accounting Policies

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

- 24 -

---

---

# Options

On July 1, 2006, we adopted the
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)) which requires the measurement and recognition of
compensation expenses based on estimated fair values for all share-based payment awards
made to employees and directors. SFAS 123(R) supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123(R). The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

SFAS 123(R) requires companies to
estimate the fair value of equity-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately expected to
vest is recognized as an expense over the requisite service periods in the companys
consolidated income statement. Prior to the adoption of SFAS 123(R), we accounted for
equity-based awards to employees and directors using the intrinsic value method in
accordance with APB 25 as allowed under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123).

We adopted SFAS 123(R) using the
modified prospective transition method, which required the application of the accounting
standard starting from July 1, 2006, the first day of our 2006 fiscal year. We
recognize compensation expenses for the value of awards, which have graded vesting based
on the accelerated. method over the requisite service period of each of the awards. Prior
to July 1, 2006, we applied the intrinsic value method of accounting for stock options as
prescribed by APB 25, whereby compensation expense is equal to the excess, if any, of the
quoted market price of the stock over the exercise price at the grant date of the award.

We estimate the fair value of stock
options granted using the Black-Scholes-Merton option-pricing model. The option-pricing
model requires a number of assumptions, of which the most significant are expected stock
price volatility and the expected option term.

We applied SFAS No. 123 and Emerging
Issues Task Force No. 96-18 Accounting for Equity Instruments that are Issued to
other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services (EIFT 96-18), with respect to options and warrants issued to
non-employees. The fair value of these options was estimated using the
Black-Scholes-Merton option-pricing model.

# Off Balance Sheet
Arrangements

Our company has no off balance sheet
arrangements.

# Item7A Quantitative and
Qualitative Disclosures About Market Risk.

# Not Applicable.

- 25 -

---

---

# Item 8. Financial
Statements and Supplementary Data.

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

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

Report of Independent
Registered Public Accounting Firm, dated September 24, 2008

Consolidated Balance Sheets

Consolidated Statements
of Operations

Consolidated Statements of
Changes in Stockholders Equity (Deficiency)

Consolidated Statements
of Cash Flows

Notes to the Consolidated
Financial Statements

- 26 -

---

---

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

# (Previous Name 
PLURISTEM LIFE SYSTEMS INC.)

# CONSOLIDATED FINANCIAL
STATEMENTS

# As of June 30, 2008



---

---



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

# (Previous Name 
PLURISTEM LIFE SYSTEMS INC.)

# CONSOLIDATED FINANCIAL
STATEMENTS

# As of June 30, 2008

# U.S. DOLLARS IN
THOUSANDS

# INDEX

|                                                           | Page           
|---------------------------------------------------------- | ---------------
|
|
|
|
|Report of Independent Registered Public Accounting Firm    | F - 2          
|Consolidated Balance Sheets                                | F - 3 - F - 4  
|Consolidated Statements of Operations                      | F - 5          
|Statements of changes in Stockholders' Equity (Deficiency) | F - 6 - F - 13 
|Consolidated Statements of Cash Flows                      | F - 14 - F - 16
|Notes to Consolidated Financial Statements                 | F - 17 - F - 47



---

---



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

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To The Stockholders Of
PLURISTEM THERAPEUTICS
INC.(A Development Stage Company)

We have audited the accompanying
consolidated balance sheets of Pluristem Therapeutics Inc. (a development stage company)
and its subsidiary (the Company) as of June 30, 2008 and the related
consolidated statements of operations, changes in stockholders equity (deficiency)
and cash flows for each of the three years in the period ended June 30, 2008 and for the
period from May 11, 2001 (inception date) through June 30, 2008. These consolidate
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant
estimates made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above, present fairly, in all material respects, the
consolidated financial position of the Company as of June 30, 2008, and the consolidated
results of operations and cash flows for each of the three years in the period ended June
30, 2008 and for the period from May 11, 2001 (inception date) through June 30, 2008, in
conformity with U.S. generally accepted accounting principles.

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

|                   |                                                             
|------------------ | ------------------------------------------------------------
|
|
|
|
|Haifa, Israel      | /s/ Kost Forer Gabbay & KasiererKost Forer Gabbay & Kasierer
|September 24, 2008 | A member of Ernst & Young Global                            

F - 2

---

---



|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY
|----------------------------------------------
|(A Development Stage
Company)                 
|(Previous Name 
PLURISTEM LIFE SYSTEMS INC.) 
|                                              
|CONSOLIDATED BALANCE
SHEETS                   
|                                              
|U.S. Dollars in thousands                     

|                                 |  | June 30,
|-------------------------------- |  | --------
|
|
|
|
|ASSETS                           |  |         
|                                 |  |         
|CURRENT ASSETS:                  |  |         
|                                 |  |         
|Cash and cash equivalents        |  |         
|Marketable securities            |  |         
|Prepaid expenses                 |  |         
|Accounts receivable from the OCS |  |         
|Other accounts receivables       |  |         
|                                 |  |         
|Total current assets             |  |         
|                                 |  |         
|                                 |  |         
|LONG-TERM ASSETS:                |  |         
|                                 |  |         
|Long-term restricted deposits    |  |         
|Severance pay fund               |  |         
|Property and equipment, net      |  |         
|                                 |  |         
|Total long-term assets           |  |         
|                                 |  |         
|Total assets                     |  |         
|                                 |  |         
|                                 |  |         
|                                 |  |         

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

F - 3

---

---



|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY             
|-----------------------------------------------------------
|(A Development Stage
Company)                              
|(Previous Name 
PLURISTEM LIFE SYSTEMS INC.)              
|                                                           
|CONSOLIDATED BALANCE
SHEETS                                
|                                                           
|U.S. Dollars in thousands (except share and per share data)

|                                                        |  | June 30,
|------------------------------------------------------- |  | --------
|
|
|
|
|LIABILITIES AND STOCKHOLDERS EQUITY                    |  |         
|                                                        |  |         
|CURRENT LIABILITIES                                     |  |         
|                                                        |  |         
|Trade payables                                          |  |         
|Accrued expenses                                        |  |         
|Other accounts payable                                  |  |         
|                                                        |  |         
|Total current liabilities                               |  |         
|                                                        |  |         
|                                                        |  |         
|LONG-TERM LIABILITIES                                   |  |         
|                                                        |  |         
|Long-term obligation                                    |  |         
|Accrued severance pay                                   |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         
|COMMITMENTS AND CONTINGENCIES                           |  |         
|                                                        |  |         
|STOCKHOLDERS' EQUITY                                    |  |         
|                                                        |  |         
|Share capital (**):                                     |  |         
|Common stock $0.00001 par value:                        |  |         
|Authorized: 30,000,000 shares and 7,000,000 shares      |  |         
|as of June 30, 2008 and 2007, respectively.             |  |         
|Issued and outstanding: 6,941,715 shares as of          |  |         
|June 30, 2008.                                          |  |         
|Issued: 4,984,110 shares, outstanding: 4,954,110 shares |  |         
|as of June 30, 2007.                                    |  |         
|Additional paid-in capital                              |  |         
|Other comprehensive loss                                |  |         
|Receipts on account of common stock                     |  |         
|Accumulated deficit during the development stage        |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         
|                                                        |  |         

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 4

---

---



|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY             
|-----------------------------------------------------------
|(A Development Stage
Company)                              
|(Previous Name 
PLURISTEM LIFE SYSTEMS INC.)              
|                                                           
|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)
through
June 30,
|--------------------------------------------- |  | ------------------- | -----------------------------------------------------
|
|
|
|
|Research and development expenses             |  |                     |                                                      
|                                              |  |                     |                                                      
|Less participation by the Office of the Chief |  |                     |                                                      
|Scientist                                     |  |                     |                                                      
|                                              |  |                     |                                                      
|Research and development expenses, net        |  |                     |                                                      
|                                              |  |                     |                                                      
|General and administrative expenses           |  |                     |                                                      
|                                              |  |                     |                                                      
|Know how write-off                            |  |                     |                                                      
|                                              |  |                     |                                                      
|                                              |  |                     |                                                      
|Gross loss                                    |  |                     |                                                      
|                                              |  |                     |                                                      
|Financial expenses (income), net              |  |                     |                                                      
|                                              |  |                     |                                                      
|                                              |  |                    
|Net loss for the period                       |  |                     |                                                      
|                                              |  |                     |                                                      
|                                              |  |                     |                                                      
|Loss per share (*):                           |  |                     |                                                      
|Basic and diluted net loss per share          |  |                     |                                                      
|                                              |  |                     |                                                      
|                                              |  |                     |                                                      
|Weighted average number of shares used  in    |  |                     |                                                      
|computing basic and diluted net loss          |  |                     |                                                      
|per share :                                   |  |                     |                                                      
|                                              |  |                     |                                                      

|(*) | Share
data is reported after the effect of the 1 for 200 reverse split that           occurred
on November 26, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------

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

F - 5

---

---



|PLURISTEM THERAPEUTICS
INC. AND ITS SUBSIDIARY            
|----------------------------------------------------------
|(A Development Stage
Company)                             
|(Previous Name 
PLURISTEM LIFE SYSTEMS INC.)             
|                                                          
|STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
|                                                          
|U.S. Dollars in thousands (except shares data)            

|                                                  | Common Stock (**) | Additional
paid-in
Capital | Receipts
on account
of common
stock | Deficit
Accumulated
during the
Development
Stage | Total
Stockholders'
Equity
(Deficiency)
|------------------------------------------------- | ----------------- | -------------------------- | ----------------------------------- | ------------------------------------------------ | ---------------------------------------
|
|
|
|
|Issuance of common stock on July 9, 2001          |                   |                            |                                     | 175,500                                          |                                        
|                                                  |                   |                            |                                     |                                                  |                                        
|                                                  |                   |                           
|Balance as of June 30, 2001                       |                   |                            |                                     | 175,500                                          |                                        
|Net loss                                          |                   |                            |                                     | -                                                |                                        
|                                                  |                   |                            |                                     |                                                  |                                        
|                                                  |                   |                           
|Balance as of June 30, 2002                       |                   |                            |                                     | 175,500                                          |                                        
|                                                  |                   |                           
|Issuance of common stock on October 14, 2002,     |                   |                           
|Net of issuance expenses of $17                   |                   |                            |                                     | 70,665                                           |                                        
|Forgiveness of debt                               |                   |                            |                                     | -                                                |                                        
|Stock cancelled on March 19, 2003                 |                   |                            |                                     | (136,500                                         | )                                      
|Receipts on account of stock and warrants, net of |                   |                           
|finders and legal fees of $56                     |                   |                            |                                     | -                                                |                                        
|Net loss                                          |                   |                            |                                     | -                                                |                                        
|                                                  |                   |                            |                                     |                                                  |                                        
|                                                  |                   |                           
|Balance as of June 30, 2003                       |                   |                            |                                     | 109,665                                          |                                        
|                                                  |                   |                            |                                     |                                                  |                                        

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 6

---

---



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

|                                                          | Common Stock (**) | Additional
paid-in
Capital | Receipts
on account
of common
stock | Deficit
accumulated
During the
development
stage | Total
Stockholders
Equity
(Deficiency)
|--------------------------------------------------------- | ----------------- | -------------------------- | ----------------------------------- | ------------------------------------------------ | ---------------------------------------
|
|
|
|
|
|Balance as of July 1, 2003                                |                   |                            |                                     | 109,665                                          |                                        
|                                                          |                   |                           
|Issuance of common stock on July 16, 2003,                |                   |                           
|net of issuance expenses of $70                           |                   |                            |                                     | 3,628                                            |                                        
|                                                          |                   |                           
|Issuance of common stock on January 20, 2004              |                   |                            |                                     | 15,000                                           |                                        
|Issuance of warrants on January 20, 2004 for finder's fee |                   |                            |                                     | -                                                |                                        
|Common stock granted to consultants on February 11, 2004  |                   |                            |                                     | 5,000                                            |                                        
|Stock based compensation related to warrants granted to   |                   |                            |                                     | -                                                |                                        
|consultants on December 31, 2003                          |                   |                            |                                     | -                                                |                                        
|Exercise of warrants on                                   |                   |                           
|April 19, 2004                                            |                   |                            |                                     | 1,500                                            |                                        
|                                                          |                   |                           
|Net loss for the year                                     |                   |                            |                                     | -                                                |                                        
|                                                          |                   |                            |                                     |                                                  |                                        
|                                                          |                   |                           
|Balance as of June 30, 2004                               |                   |                            |                                     | 134,793                                          |                                        
|                                                          |                   |                            |                                     |                                                  |                                        

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 7

---

---



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

|                                                                                | Common Stock (**) | Additional
paid-in
Capital | Deficit
accumulated
During the
development
stage | Total
Stockholders
Equity
(Deficiency)
|------------------------------------------------------------------------------- | ----------------- | -------------------------- | ------------------------------------------------ | ---------------------------------------
|
|
|
|Balance as of July 1, 2004                                                      |                   |                            |                                                  | 134,793                                
|                                                                                |                   |                           
|Stock-based compensation related to warrants                                    |                   |                           
|granted to consultants on September 30, 2004                                    |                   |                            |                                                  | -                                      
|                                                                                |                   |                           
|Issuance of common stock and warrants on November 30, 2004 related to the       |                   |                           
|October 2004 Agreement net of issuance costs of $29                             |                   |                            |                                                  | 16,250                                 
|Issuance of common stock and warrants on                                        |                   |                           
|January 26, 2005 related to the October 2004 Agreement net of issuance          |                   |                           
|costs of $5                                                                     |                   |                            |                                                  | 21,500                                 
|                                                                                |                   |                           
|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                                    
|                                                                                |                   |                           
|Issuance of common stock and warrants on                                        |                   |                           
|February 16, 2005 related to the January 31, 2005 Agreement                     |                   |                            |                                                  | 25,000                                 

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 8

---

---



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

|                                                                     | Common Stock (**) | Additional
paid-in
Capital | Deficit
accumulated
During the
development
stage | Total
Stockholders
Equity
(Deficiency)
|-------------------------------------------------------------------- | ----------------- | -------------------------- | ------------------------------------------------ | ---------------------------------------
|
|
|
|
|Issuance of warrants on February 16, 2005 for finder fee related to  |                   |                            |                                                  |                                        
|the January 31, 2005 Agreement                                       |                   |                            |                                                  | -                                      
|                                                                     |                   |                           
|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                                 
|                                                                     |                   |                           
|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                                  
|                                                                     |                   |                           
|Issuance of common stock and warrants to the Chief Executive Officer |                   |                           
|on March 23, 2005                                                    |                   |                            |                                                  | 12,000                                 
|                                                                     |                   |                           
|Issuance of common stock on March 23, 2005 related to the October    |                   |                           
|2004 Agreement                                                       |                   |                            |                                                  | 1,000                                  

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 9

---

---



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

|                                                                        | Common Stock (**) | Additional
paid-in
Capital | Deficit
accumulated
During the
development
stage | Total
Stockholders
Equity
(Deficiency)
|----------------------------------------------------------------------- | ----------------- | -------------------------- | ------------------------------------------------ | ---------------------------------------
|
|
|
|
|Classification of a liability in respect of warrants to additional paid |                   |                            |                                                  |                                        
|in capital, net of issuance costs of $ 178                              |                   |                            |                                                  | -                                      
|                                                                        |                   |                           
|Net loss for the year                                                   |                   |                            |                                                  | -                                      
|                                                                        |                   |                            |                                                  |                                        
|                                                                        |                   |                           
|Balance as of June 30, 2005                                             |                   |                            |                                                  | 318,768                                
|                                                                        |                   |                           
|Exercise of warrants on November 28,                                    |                   |                           
|2005 to finders related to the January 24,                              |                   |                           
|2005 agreement                                                          |                   |                            |                                                  | 400                                    
|                                                                        |                   |                           
|Exercise of warrants on January 25 ,2006                                |                   |                           
|To finders related to the January 25, 2005                              |                   |                           
|Agreement                                                               |                   |                            |                                                  | 50                                     
|                                                                        |                   |                           
|Reclassification of warrants from equity                                |                   |                           
|To liabilities due to application of EITF                               |                   |                           
|00-19                                                                   |                   |                            |                                                  | -                                      
|                                                                        |                   |                           
|Net loss for the year                                                   |                   |                            |                                                  | -                                      
|                                                                        |                   |                            |                                                  |                                        
|                                                                        |                   |                           
|Balance as of June 30, 2006                                             |                   |                            |                                                  | 319,218                                
|                                                                        |                   |                            |                                                  |                                        

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 10

---

---



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

|                                 | Common Stock (**) | Additional
paid-in
Capital | Receipts
on account
of common
stock | Accumulated
other
comprehensive
loss | Deficit
Accumulated
During the
Development
stage | Total
Stockholders
Equity
|-------------------------------- | ----------------- | -------------------------- | ----------------------------------- | ------------------------------------ | ------------------------------------------------ | --------------------------
|
|
|
|
|Balance as of July 1, 2006       |                   |                            |                                     | 319,218                              |                                                  | $                         
|                                 |                   |                           
|Conversion of convertible        |                   |                           
|debenture, net of  issuance      |                   |                           
|costs of $440                    |                   |                            |                                     | 1,019,815                            |                                                  |                           
|Classification of a liability in |                   |                           
|respect of  warrants             |                   |                            |                                     | -                                    |                                                  |                           
|Classification of deferred       |                   |                           
|issuance expenses                |                   |                            |                                     | -                                    |                                                  |                           
|                                 |                   |                           
|Classification of a liability in |                   |                           
|respect of options granted       |                   |                           
|to non-employees consultants     |                   |                            |                                     | -                                    |                                                  |                           
|                                 |                   |                           
|Compensation related to          |                   |                           
|options granted to               |                   |                           
|employees                        |                   |                            |                                     | -                                    |                                                  |                           
|                                 |                   |                           
|Compensation related to          |                   |                           
|options granted to non-          |                   |                           
|employees consultants            |                   |                            |                                     | -                                    |                                                  |                           
|Exercise of warrants             |                   |                           
|related to the April 3,          |                   |                           
|2006 agreement net of issuance   |                   |                           
|costs of $114                    |                   |                            |                                     | 75,692                               |                                                  |                           

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 11

---

---



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

|                                  | Common Stock (**) | Additional
paid-in
Capital | Receipts
on account
of common
stock | Accumulated
other
comprehensive
loss | Deficit
Accumulated
During the
Development
stage | Total
Stockholders
Equity | Total
comprehensive
loss
|--------------------------------- | ----------------- | -------------------------- | ----------------------------------- | ------------------------------------ | ------------------------------------------------ | -------------------------- | ------------------------
|
|
|
|
|Cashless exercise of  warrants    |                   |                            |                                     |                                      |                                                  |                            |                         
|related to the  April 3, 2006     |                   |                           
|agreement                         |                   |                            |                                     | 46,674                               |                                                  |                            | (*                      
|Issuance of common stock on May   |                   |                           
|and  June 2007 related to the May |                   |                           
|14, 2007 agreement, net of        |                   |                           
|issuance costs of $64             |                   |                            |                                     | 3,126,177                            |                                                  |                            | (*                      
|Receipts on account of shares     |                   |                            |                                     | -                                    |                                                  |                            | -                       
|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                         |                   |                            |                                     | -                                    |                                                  |                            | -                       
|Unrealizd loss on available       |                   |                           
|for sale securities               |                   |                            |                                     | -                                    |                                                  |                            | -                       
|                                  |                   |                           
|Net loss for the year             |                   |                            |                                     | -                                    |                                                  |                            | -                       
|                                  |                   |                            |                                     |                                      |                                                  |                            |                         
|Balance as of June 30, 2007       |                   |                            |                                     | 4,954,110                            |                                                  | $                          | (*                      
|                                  |                   |                            |                                     |                                      |                                                  |                            |                         
|Total comprehensive loss          |                   |                            |                                     |                                      |                                                  |                            |                         
|                                  |                   |                            |                                     |                                      |                                                  |                            |                         

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 12

---

---



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

|                                 | Common Stock (**) | Additional
paid-in
Capital | Receipts
on account
of common
stock | Accumulated
other
comprehensive
loss | Deficit
Accumulated
During the
Development
stage | Total
Stockholders
Equity | Total
comprehensive
loss
|-------------------------------- | ----------------- | -------------------------- | ----------------------------------- | ------------------------------------ | ------------------------------------------------ | -------------------------- | ------------------------
|
|
|
|
|Balance as of July 1, 2007       |                   |                            |                                     | 4,954,110                            |                                                  | $                          | (*                      
|                                 |                   |                           
|Issuance of common stock         |                   |                           
|related to investors relation    |                   |                           
|agreements                       |                   |                            |                                     | 69,500                               |                                                  |                            | (*                      
|                                 |                   |                           
|Issuance of common stock in July |                   |                           
|2007 - June 2008 related to the  |                   |                           
|May 14, 2007 Agreement           |                   |                            |                                     | 908,408                              |                                                  |                            | (*                      
|Cashless exercise of  warrants   |                   |                           
|related to the  May 14, 2007     |                   |                           
|Agreement                        |                   |                            |                                     | 1,009,697                            |                                                  |                            | (*                      
|                                 |                   |                           
|Compensation related to          |                   |                           
|options granted to               |                   |                           
|employees                        |                   |                            |                                     | -                                    |                                                  |                            | -                       
|                                 |                   |                           
|Compensation related to          |                   |                           
|options granted to               |                   |                           
|non-employees consultants        |                   |                            |                                     | -                                    |                                                  |                            | -                       
|                                 |                   |                           
|Realized loss on available       |                   |                           
|for sale securities              |                   |                            |                                     | -                                    |                                                  |                            | -                       
|                                 |                   |                           
|Net loss for the year            |                   |                            |                                     | -                                    |                                                  |                            | -                       
|                                 |                   |                            |                                     |                                      |                                                  |                            |                         
|                                 |                   |                           
|Balance as of June 30, 2008      |                   |                            |                                     | 6,941,715                            |                                                  | $                          | (*                      
|                                 |                   |                            |                                     |                                      |                                                  |                            |                         
|                                 |                   |                           
|Total comprehensive loss         |                   |                            |                                     |                                      |                                                  |                            |                         
|                                 |                   |                            |                                     |                                      |                                                  |                            |                         

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

|(**) | All
share data are reported after the effect of the 1 for 200 reverse split that
          occurred on November 26, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------

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

F - 13

---

---



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

|                                                      | Year ended
June 30, | Period from
May 11, 2001
(inception)
through
June 30
|----------------------------------------------------- | ------------------- | ----------------------------------------------------
|
|
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                     |                                                     
|                                                      |                     |                                                     
|Net loss                                              |                     |                                                     
|                                                      |                     |                                                     
|Adjustments to reconcile net loss to net cash used in |                     |                                                     
|operating activities:                                 |                     |                                                     
|                                                      |                     |                                                     
|Depreciation                                          |                     |                                                     
|Capital loss                                          |                     |                                                     
|Impairment of property and equipment                  |                     |                                                     
|Know-how write-off                                    |                     |                                                     
|Amortization of deferred issuance costs               |                     |                                                     
|Stock-based compensation to employees                 |                     |                                                     
|Stock-based compensation to non-employees consultants |                     |                                                     
|Stock compensation to service providers               |                     |                                                     
|Know-how licensors - imputed interest                 |                     |                                                     
|Salary grant in shares and warrants                   |                     |                                                     
|Decrease (increase) in other accounts receivable      |                     |                                                     
|Decrease (increase) in prepaid expenses               |                     |                                                     
|Increase (decrease) in trade payables                 |                     |                                                     
|Increase (decrease) in other accounts payable and     |                     |                                                     
|accrued expenses                                      |                     |                                                     
|Increase in accrued interest due to related parties   |                     |                                                     
|Linkage differences and interest on long-term         |                     |                                                     
|restricted lease deposit                              |                     |                                                     
|Change in fair value of liability in respect of       |                     |                                                     
|warrants                                              |                     |                                                     
|Fair value of warrants granted to investors           |                     |                                                     
|Amortization of discount and changes in accrued       |                     |                                                     
|interest on convertible debentures                    |                     |                                                     
|Amortization of discount and changes in accrued       |                     |                                                     
|interest from marketable securities                   |                     |                                                     
|Loss from sale of investments of available-for-sale   |                     |                                                     
|marketable securities                                 |                     |                                                     
|Impairment and realized loss on available-for-sale    |                     |                                                     
|marketable securities                                 |                     |                                                     
|Accrued severance pay, net                            |                     |                                                     
|                                                      |                     |                                                     
|Net cash used in operating activities                 |                     |                                                     
|                                                      |                     |                                                     

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

F - 14

---

---



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

|                                                        | Year ended
June 30, | Period from
May 11, 2001
(inception)
through
June 30
|------------------------------------------------------- | ------------------- | ----------------------------------------------------
|
|
|
|
|CASH FLOWS FROM INVESTING ACTIVITIES:                   |                     |                                                     
|                                                        |                     |                                                     
|Acquisition of Pluristem Ltd. (1)                       |                     |                                                     
|Purchase of property and equipment                      |                     |                                                     
|Proceeds from sale of property and equipment            |                     |                                                     
|Investment in long-term deposits                        |                     |                                                     
|Repayment of long-term restricted lease deposit         |                     |                                                     
|Purchase of available for sale marketable securities    |                     |                                                     
|Proceeds from sale of available for sale marketable     |                     |                                                     
|securities                                              |                     |                                                     
|Purchase of know-how                                    |                     |                                                     
|                                                        |                     |                                                     
|Net cash provided by (used in) investing activities     |                     |                                                     
|                                                        |                     |                                                     
|                                                        |                     |                                                     
|CASH FLOWS FROM FINANCING ACTIVITIES:                   |                     |                                                     
|                                                        |                     |                                                     
|Issuance of common stock and warrants, net of issuance  |                     |                                                     
|costs                                                   |                     |                                                     
|Receipts on account of shares                           |                     |                                                     
|Exercise of warrants                                    |                     |                                                     
|Issuance of convertible debenture                       |                     |                                                     
|Issuance expenses related to convertible debentures     |                     |                                                     
|Repayment of know-how licensors                         |                     |                                                     
|Repayment of notes and loan payable to related parties  |                     |                                                     
|Proceeds from notes and loan payable to related parties |                     |                                                     
|Receipt of long-term loan                               |                     |                                                     
|Repayment of long-term loan                             |                     |                                                     
|                                                        |                     |                                                     
|Net cash provided by financing activities               |                     |                                                     
|                                                        |                     |                                                     
|                                                        |                     |                                                     
|Increase (decrease) in cash and cash equivalents        |                     |                                                     
|Cash and cash equivalents at the beginning of the       |                     |                                                     
|period                                                  |                     |                                                     
|                                                        |                     |                                                     
|Cash and cash equivalents at the end of the period      |                     |                                                     
|                                                        |                     |                                                     
|                                                        |                     |                                                     
|(a) Supplemental disclosure of cash flow activities:    |                     |                                                     
|Cash paid during the period for:                        |                     |                                                     
|Taxes paid due to non-deductible expenses               |                     |                                                     
|                                                        |                     |                                                     
|Interest paid                                           |                     |                                                     
|                                                        |                     |                                                     

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

F - 15

---

---



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

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

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

F - 16

---

---



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

NOTE 1:  GENERAL

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

| | All
of the Company's operations, including its long-lives assets are located in Israel.
| | ---------------------------------------------------------------------------------------

|B. | The
Company is devoting  substantially  all of its efforts  towards  conducting  research
 and  development  of Adherent  stromal  cells        production  technology  and the
 commercialization  of cell  therapy  products.  Accordingly,  the  Company is
 considered  to be in the        development  stage,  as defined in statement of
Financial  Accounting  Standards No. 7 "Accounting  and reporting by  Development  stage
       Enterprises".  In the course of such activities,  the Company and its subsidiary
have sustained  operating losses and expect such losses        to continue in the
 foreseeable  future.  The Company and its  subsidiary  have not generated any revenues
or product sales and have not        achieved  profitable  operations or positive cash
flows from operations.  The Company's deficit accumulated during the development stage
       aggregated  to $26,016  through June 30, 2008 and incurred net loss of $10,498 and
negative cash flow from  operating  activities in the        amount of $ 4,537 for the
year ended June 30,  2008.  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 private  placements  and R&D grants
and in the longer term,  from revenues        from product sales.  There are no
assurances,  however,  that the Company will be successful in obtaining an adequate level
of financing        needed for the long-term development and commercialization of its
planned products.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|C. | As
of December 10, 2007,  the Company's  shares of common stock were traded on the NASDAQ
 Capital  Market under the symbol PSTI.  The        shares were previously  traded on the
OTC Bulletin Board under the trading symbol  "PLRS.OB".  On May 7, 2007, the Company's
shares also        began trading on Europe's Frankfurt Stock Exchange, under the symbol
PJT.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---

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

NOTE 1:  GENERAL (CONT.)

|D. | In
November  2007,  the Company's  Board of Directors  approved a one (1) for two hundred
(200) reverse split of the Company's  common        stock,  which became  effective on
November 26, 2007.  Upon the  effectiveness  of the reverse stock split two hundred
 shares of common        stocks at $0.00001 par value were  converted  and  reclassified
 as one share of common stock at $0.00001  par value.  Accordingly,  all
       references  to number of ahares of common  stock and per share data in the
 accompanying  financial  statements  have been  adjusted  to        reflect the stock
split on a retroactive  basis.  Fractional  shares  created as a result of the stock
split were rounded up to the next        whole share.  As a result of the rounding up
effect, the Company issued additional 568 shares of common stock for no consideration.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 2:  SIGNIFICANT ACCOUNTING POLICIES

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

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

| | The
 preparation of financial  statements in conformity  with  generally  accepted
 accounting  principles  requires  management to make        estimates and assumptions
that affect the amounts  reported in the financial  statements and  accompanying  notes.
 Actual results could        differ from those estimates.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

F - 18

---

---

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

NOTE 2:  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

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

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

| | FASB
Staff Position ("FSP") No. 115-1, "The Meaning of Other-Than-Temporary  Impairment and
Its Application to Certain Investment" ("FSP        115-1") provides guidance for
determining when an investment is considered  impaired,  whether impairment is other-than
 temporary,  and        measurement of an impairment  loss. An investment is considered
 impaired if the fair value of the investment is less than its cost. If,        after
 consideration of all available evidence to evaluate the realizable value of its
investment,  impairment is determined to be other        than- temporary, then an
impairment loss should be recognized equal to the difference between the investment's
cost and its fair value.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

F - 19

---

---

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

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

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

| | The
Companys long-lived assets and identifiable intangibles are reviewed for impairment
in accordance with Statement of Financial Accounting Standard No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144)
whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to the future undiscounted cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. During the year ended June 30, 2008, an
impairment loss of $47 was identified and during the years ended June 30, 2006 and 2007
no impairment losses were identified.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
July 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123(R)) which requires
the measurement and recognition of compensation expense based on estimated fair values
for all share-based payment awards made to employees and directors. SFAS 123(R)
supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), for periods beginning in fiscal 2006. In
March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107
(SAB 107) relating to SFAS 123(R). The Company has applied the provisions of
SAB 107 in its adoption of SFAS 123(R).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
123(R) requires companies to estimate the fair value of equity-based payment awards on
the date of grant using an option-pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as an expense over the requisite
service periods in the Companys consolidated income statement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard starting from July 1, 2006, the
first day of the Companys fiscal year 2006. Under that transition method,
compensation cost recognized in the year period ended June 30, 2008 and 2007, includes:
(a) compensation cost for all share-based payments granted prior to, but not yet vested
as of July 1, 2006, based on the grant date fair value estimated in accordance with the
original provisions of Statement 123, and (b) compensation cost for all share-based
payments granted subsequent to July 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of Statement 123(R). Results for prior periods have not
been restated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 20

---

---

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

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

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

| | The
Company 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 option term was
determined as defined in SAB 107. The Company has historically not paid dividends and has
no foreseeable plans to issue dividends. The risk-free interest rate is based on the
yield from U.S. Treasury zero-coupon bonds with an equivalent term.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the Companys stock options granted to employees and directors for the
years ended June 30, 2008, 2007 and 2006 was estimated using the following weighted
average assumptions:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                          | Year ended June 30,
| | ------------------------ | -------------------
|
|
|
|
| | Risk free interest rate  | 3.8 - 4.4%         
| | Dividend yields          | 0%                 
| | Volatility               | 127 - 130%         
| | Expected term (in years) | 6                  

| | The
Company applies SFAS No. 123 and Emerging Issues Task Force No. 96-18 Accounting
for Equity Instruments that are Issued to other than Employees for Acquiring, or in
conjunction with selling, goods or services (EIFT 96-18), with respect
to options and warrants issued to non-employees.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

| | Basic
net loss per share is computed based on the weighted average number of shares of common
stock outstanding during each year. Diluted net loss per share is computed based on the
weighted average number of shares of Common stock outstanding during each year, plus
dilutive potential shares of common stock and warrants considered outstanding during the
year, in accordance with Statement of Financial Accounting Standard No. 128, Earnings
Per Share (SFAS No. 128). All outstanding stock options have been
excluded from the calculation of the diluted loss per common share because all such
securities are anti-dilutive for each of the periods presented. In accordance with SEC
Staff Accounting Topic 4.C and SFAS No. 128 outstanding shares, basic and diluted
net loss per share, weighted-average number of common stock used in computing basic and
diluted net loss per share, included in these financial statements have been
retroactively adjusted to reflect the reverse stock split.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---

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

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

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

| | The
Company and its subsidiary accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes(SFAS
No. 109). This Statement prescribes the use of the liability method, whereby
deferred tax assets and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Company and its subsidiary provide a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated realizable value.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2006, the Financial Accounting Standards Board (FASB) issued FASB
interpretation (FIN) No. 48, Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement 109 (FIN 48). FIN 48
establishes a single model to address accounting for uncertain tax positions. FIN 48
clarified the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on recognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The
adoption of the provisions of FIN 48 did not have a material impact on the Companys
consolidated financial position and results of operation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | The
majority of the Companys cash and cash equivalents are invested in dollar
instruments of major banks in Israel and in the United States. Management believes that
the financial institutions that hold the Companys investments are financially sound
and accordingly, minimal credit risk exists with respect to these investments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys marketable securities include investments in highly rated debentures of
U.S. Corporations Bonds and preferred stock. Management believes that it minimize the
credit risk that exit with respect to these marketable securities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiary have no significant off-balance sheet concentration of
financial instruments subject to credit risk such as foreign exchange contracts, option
contracts or other hedging arrangements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---

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

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

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

| | The
subsidiarys liability for severance pay is calculated pursuant to Israeli severance
pay law based on the most recent salary of the employees multiplied by the number of
years of employment, as of the balance sheet date. Employees are entitled to one months
salary for each year of employment or a portion thereof. The Companys liability for
all of its employees is fully provided by monthly deposits with insurance policies and by
an accrual. The value of these policies is recorded as an asset in the Companys
balance sheet. The deposited funds include profits 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
expenses for the year ended June 30, 2008, 2007 and 2006 amounted to approximately $88,
$40, and 46, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------

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

| | The
Company in estimating its fair value disclosures for financial instruments used the
following methods and assumptions:
| | --------------------------------------------------------------------------------------------------------------------------

| | 1. | The
carrying amount of cash and cash equivalents, trade receivables and trade
               payables approximates their fair values due to the short-term maturities
of                these instruments.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The
fair value of marketable securities with quoted market prices is based on
               quoted market prices.
| | -- | ------------------------------------------------------------------------------------------------------------------

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

| | The
Company reports comprehensive income in accordance with SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
stockholders equity during the period except those resulting from investments by,
or distributions to, stockholders. The Company determined that their items of other
comprehensive income relate to unrealized gains and losses on available for sale
securities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133), requires companies to recognize
all derivative instruments as either assets or liabilities in the statement of financial
position at fair value.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
derivative instruments not designated as hedging instruments, the gain or loss resulting
from changes in fair value is recognized as a financial expense in current earnings
during the period of change. As of June 30, 2008 and 2007, the Company had forward
contracts to sell $150 and purchase NIS 533, and to sell $200 and purchase NIS 822,
respectively. The fair value of the forward contracts and the options as of June 30, 2008
and 2007 were recorded as an asset of $10 and as a liability of $16, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---

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

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

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

| | 1. | SFAS
No. 157:
| | -- | -------------

| | In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
This statement provides a single definition of fair value, a framework for measuring fair
value, and expanded disclosures concerning fair value. Previously, different definitions
of fair value were contained in various accounting pronouncements creating
inconsistencies in measurement and disclosures. SFAS No. 157 applies under those
previously issued pronouncements that prescribe fair value as the relevant measure of
value, except Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)) and related interpretations. The statement does
not apply to accounting standard that require or permit measurement similar to fair value
but are not intended to represent fair value. This pronouncement is effective for fiscal
years beginning after November 15, 2007. The Company does not believe that the adoption
of SFAS 157 will have a material impact on its consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 12, 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of
FASB Statement No. 157 (the FSP).  The FSP amends SFAS No. 157 to
delay the effective date of SFAS No. 157 for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (that is, at least annually).  For
items within its scope, the FSP defers the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | SFAS
No. 159:
| | -- | -------------

| | In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SAFS No. 159). This statement provides companies
with an option to report selected financial assets and liabilities at fair value.
Generally accepted accounting principles have required different measurement attributes
for different assets and liabilities that can create artificial volatility in earnings.
SAFS No. 159s objective is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. This Statement is effective as of the beginning of an entitys
first fiscal year beginning after November 15, 2007. The Company is currently evaluating
the potential impact that the adoption of SFAS 159 could have on its consolidated
financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---

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

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

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

| | 3. | SFAS
No. 161:
| | -- | -------------

| | In
March 2008, the FASB issued SFAS No. 161 Disclosure about Derivative Instruments
and Hedging Activities (SFAS 161). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities. The guidance will become
effective for the fiscal year beginning after November 15, 2008. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial statements
for that fiscal year, including any financial statements for an interim period within
that fiscal year. This statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. The Company is in the process of
evaluating the impact that SFAS 161 will have on its financial statements upon adoption.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Emerging
Issues Task Force document No. 07-1:
| | -- | ---------------------------------------------

| | In
November 2007, the EITF issued EITF Issue No. 07-1, Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property.
Companies may enter into arrangements with other companies to jointly develop,
manufacture, distribute, and market a product. Often the activities associated with these
arrangements are conducted by the collaborators without the creation of a separate legal
entity (that is, the arrangement is operated as a virtual joint venture). The
arrangements generally provide that the collaborators will share, based on contractually
defined calculations, the profits or losses from the associated activities. Periodically,
the collaborators share financial information related to product revenues generated (if
any) and costs incurred that may trigger a sharing payment for the combined profits or
losses. The consensus requires collaborators in such an arrangement to present the result
of activities for which they act as the principal on a gross basis and report any
payments received from (made to) other collaborators based on other applicable GAAP or,
in the absence of other applicable GAAP, based on analogy to authoritative accounting
literature or a reasonable, rational, and consistently applied accounting policy
election. EITF Issue No. 07-1 is effective for collaborative arrangements in place
at the beginning of the annual period beginning after December 15, 2008. The Company
is currently evaluating the impact that this pronouncement may have on its consolidated
financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | EITF
07-3:
| | -- | ----------

| | On
June 27, 2007 Emerging Issues Task Force (EITF) 07-3 Accounting for
Nonrefundable Advance Payments for Good or Services Received for Use in Future Research
and Development Activities (EITF 07-3) was issued. EITF 07-3 provides that
nonrefundable advance payments made for goods or services to be used in future research
and development activities should be deferred and capitalized until such time as the
related goods or services are delivered or are performed, at which point the amounts
would be recognized as an expense. This standard is effective for new contracts entered
into after July 1, 2008. The Company is currently evaluating the impact of adopting EITF
07-3.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

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

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

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

| | 6. | SAB
110:
| | -- | --------

| | On
December 21, 2007 the SEC staff issued Staff Accounting Bulletin No. 110 (SAB 110),
which, effective January 1, 2008, amends and replaces SAB 107, Share-Based Payment. SAB
110 expresses the views of the SEC staff regarding the use of a simplified method
in developing an estimate of expected term of plain vanilla share options in
accordance with FASB Statement No. 123(R), Share-Based Payment. Under the simplified method,
the expected term is calculated as the midpoint between the vesting date and the end of
the contractual term of the option. The use of the simplified method, which
was first described in Staff Accounting Bulletin No. 107, was scheduled to expire on
December 31, 2007. SAB 110 extends the use of the simplified method for plain
vanilla awards in certain situations. The SEC staff does not expect the simplified method
to be used when sufficient information regarding exercise behavior, such as historical
exercise data or exercise information from external sources, becomes available.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 3:  CASH AND CASH
EQUIVALENTS

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

# NOTE 4:  MARKETABLE SECURITIES

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

| |                 |  | June 30, 2008
| | --------------- |  | -------------
|
|
|
|
| | Corporate Bonds |  |              
| | Preferred stock |  |              
| |                 |  |              
| |                 |  |              
| |                 |  |              

F - 26

---

---

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

# NOTE 4:  MARKETABLE
SECURITIES (CONT.)

| |                 |  | June 30, 2007
| | --------------- |  | -------------
|
|
|
|
| | Corporate Bonds |  |              
| |                 |  |              
| | Preferred stock |  |              
| |                 |  |              
| |                 |  |              
| |                 |  |              

In June 2007, the Company invested in
U.S. bonds and preferred stock with maturities of up to eight years.

In 2008, the marketable
securities decline in value in the amount of $372 was evaluated by the
Companys management as other than temporary, and was recognized as loss in the
statement of operations. The recorded fair value is regarded as a new cost basis.
Subsequent to the balance sheet date, the Company realized all of its holdings in
marketable securities and recorded an additional loss in an amount of $75.

# NOTE 5:  PROPERTY AND
EQUIPMENT, NET

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

Depreciation expenses amounted to $129, $56 and $42 for the years ended June 30, 2008, 2007 and 2006, respectively.

F - 27

---

---

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

# NOTE 6:  OTHER ACCOUNTS
PAYABLE

| |                                            | June 30,
| | ------------------------------------------ | --------
|
|
|
|
| | Accrued payroll                            |         
| | Payroll institutions                       |         
| | Accrued vacation                           |         
| | Liability in respect of hedge transactions |         
| | Current maturities of long-term obligation |         
| |                                            |         
| |                                            |         
| |                                            |         

# NOTE 7:  COMMITMENTS AND
CONTINGENCIES

|A. | The
subsidiary leases facilities under operating lease agreements. The average
               monthly payment according to the original agreement was 32 thousands NIS
               (approximately $7.5). According to a supplement to the original lease
agreement,                signed on June 12, 2007, the subsidiary enlarged the leased
area by additional                6,900 square foot; the leasing period for the leased
area is 62 months as of                July 1, 2007. The monthly payment is 64 thousands
NIS starting of September 1,                2007 and is linked to the Israeli Consumer
Price Index (CPI). In                addition, the lessor refunded the
subsidiary the renovation costs up to an                amount of 650 thousands NIS
(approximately $162). The subsidiary may shorten the                leasing period for a
period of 36 months, if an advanced notice is given in                writing and an
amount of 325 thousands NIS is paid. The subsidiary may extend                the leasing
period in 60 months, if an advanced notice is given.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
order to secure these agreements, the subsidiary pledged a deposit with the bank in the
amount of $96. In addition, the subsidiary has opened a bank guarantee in favor of the
lessor in the amount of $99.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lease
expenses amounted $193, $90 and $84 for the years ended June 30, 2008, 2007 and 2006,
respectively.
| | ---------------------------------------------------------------------------------------------------------

| | As
of June 30, 2008 future rental commitments under the existing lease agreement and
supplement are as follows:
| | ---------------------------------------------------------------------------------------------------------------

| |                          | 
| | ------------------------ | 
|
|
|
|
| | Year ended June 30, 2009 | 
| | Year ended June 30, 2010 | 
| | Year ended June 30, 2011 | 
| | Year ended June 30, 2012 | 
| | Year ended June 30, 2013 | 
| |                          | 
| | Total                    | 
| |                          | 

F - 28

---

---

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

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

|B. | The
subsidiary leases 8 cars under operating lease agreement, which expire in
               years 2010 and 2011 (the leasing period for additional 2 cars ended during
year                2008). The average monthly payment is approximately $7 and is linked
to the CPI.                In order to secure these agreements, the subsidiary pledged a
deposit in the                amount of $20.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lease
expenses amounted to $61, $32 and $32 for the years ended June 30, 2008, 2007 and 2006,
respectively.
| | -----------------------------------------------------------------------------------------------------------

| | As
of June 30, 2008 future rental commitments under the existing lease agreements are
as follows:
| | -------------------------------------------------------------------------------------------------

| |                          | 
| | ------------------------ | 
|
|
|
|
| | Year ended June 30, 2009 | 
| | Year ended June 30, 2010 | 
| | Year ended June 30, 2011 | 
| |                          | 
| | Total                    | 
| |                          | 

|C. | A
deposit in the amount of $85 was pledged by the subsidiary to secure the
               hedging transactions and a credit line.
|-- | ---------------------------------------------------------------------------------------------------------------------------------

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

| | Through
June 30, 2008 and 2007, total grants obtained aggregate $1,212 and $243, respectively.
| | ----------------------------------------------------------------------------------------------

# NOTE 8:  SHARE
CAPITAL AND STOCK OPTIONS

|A. | The
Companys authorized common stock consists of 30,000,000 shares with a
               par value of $0.00001 per share. Pursuant to a Board of directors
               approval, on June 4, 2008, the Company increased the number of shares of
the                authorized common stock from 7,000,000 shares to 30,000,000 shares.
All shares                have equal voting rights and are entitled to one vote per share
in all matters                to be voted upon by stockholders. The shares have no
pre-emptive, subscription,                conversion or redemption rights and may be
issued only as fully paid and                non-assessable shares. Holders of the common
stock are entitled to equal ratable                rights to dividends and distributions
with respect to the common stock, as may                be declared by the Board of
Directors out of funds legally available.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---

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

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

|B. | On
July 9, 2001, the Company issued 175,500 shares of common stock in
               consideration for $2.5, which was received on July 27, 2001. On October
14,                2002, the Company issued 70,665 shares of common stock at a price of
               approximately $1.4 per common share in consideration for $100 before
issuance                costs of $17.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|C. | On
March 19, 2003, two directors each returned 68,250 shares of common stock
               with a par value of $2 per share, for cancellation, for no consideration.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|D. | In
July 2003, the Company issued an aggregate of 3,628 units comprised of 3,628
               common stock and 7,255 warrants to a group of investors, for total
consideration                of $1,236 (net of issuance costs of $70), under a private
placement. The                consideration was paid partly in the year ended June 30,
2003 ($933) and the                balance was paid in the year ended June 30, 2004.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
this placement each unit was comprised of one common stock and two warrants, the first
warrant is exercisable for one common stock at a price of $450 per stock, and may be
exercised within one year. The second warrant is exercisable for one common stock at a
price of $540 per stock, and may be exercised within five years. As of June 30, 2005,
3,628 warrants were 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 common stock and 15,000
warrants. Each warrant                is exercisable into one common stock at a price of
$150 per stock, and may be                exercised until January 31, 2007. On March 18,
2004, a registration statement on                Form SB-2 has been declared effective
and the above-mentioned common stock have                been registered for trading. If
the effectiveness of the Registration Statement                is suspended subsequent to
the effective date of registration (March 18, 2004),                for more than certain
permitted periods, as described in the private equity                placement agreement,
the Company shall pay penalties to the investors in respect                of the
liquidated damages.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to EITF 00-19, Accounting for derivative financial instruments indexed to, and
potentially settled in, a Companys own stock, the Company classified the
warrants as liabilities according to their fair value as remeasured at each reporting
period until exercised or expired. Changes in the fair value of the warrants were
reported in the statements of operations as financial income or expense. The Company
allocated the gross amount received of $1,500 to the par value of the shares issued
($0.03) and to the liability in respect of the warrants issued ($1,499.97). The amount
allocated to the liability was less than the fair value of the warrants at grant date. On
January 31, 2007 all the warrants were 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 3 years. On April
19, 2004, the finders exercised the warrants.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

---

---

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

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

|F. | In
October 2004 the Company commenced a private placement offering (the
               October 2004 Agreement) pursuant to which it issued 42,500 units.
Each                unit is comprised of one common stock and one warrant. The warrant is
               exercisable for one common stock at an exercise price of $60 per stock,
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 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 fee.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 fee.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 fee.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 were paid to the Company in May 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|G. | On
January 24, 2005 the Company commenced 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 common stock and one
warrant. The warrant                is exercisable for one common stock at a price of $60
per stock. On November 30,                2006, all the warrants were expired
unexercised. Under this agreement the                Company issued to finders 9,225
shares and 2,375 warrants with exercise price of                $500 per stock
exercisable until November 2007. On November 30, 2007, 1,925                unexercised
warrants were expired.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|H. | On
January 31, 2005, the Company consummated a private equity placement offering
               (the January 31, 2005 Agreement) with a group of investors
(the                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 common stock and one warrant. Each warrant
is                exercisable into one common stock at a price of $60 per stock. If the
               Registration Statement covering the Registrable Securities was not filed
as                contemplated by 70 days and if the Registration Statement covering the
               Registrable Securities was not effective until August 31, 2005, the
Company                would have paid the Investor 2% of the purchase price for each 30
day period                beyond the applicable date until the filing or the registration
is completed.                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 stock, subject to
certain adjustments, exercisable                until November 30, 2006.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 31

---

---

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

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

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

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

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

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

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

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

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

F - 32

---

---

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

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

|M. | Convertible
Debenture
|-- | ---------------------

| | 1. | 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. The Company paid a finders fee of 10% in
cash and           issued 47,394 warrants exercisable for three years, half of which are
          exercisable at $15 and half of which are exercisable at $15.4. 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1a. | The
Debentures, which mature on April 3, 2008, are convertible to common shares           at
the lower of 75% of the volume weighted average trading price for the 20 days
          prior to issuance of a notice of conversion by a holder of a Debentures or, if
          while the Debentures remain outstanding the Company enters into one or more
          financing transactions involving the issuance of common stock or securities
          convertible or exercisable for common stock, the lowest transaction price for
          those new transactions. Interest accrues on the Debentures at the rate of 7%
per           annum, is payable semi-annually on June 30 and December 31 of each year and
on           conversion and at the maturity date. Interest is payable, at the option of
the           Company, either (1) in cash, or (2) in shares of Common Stock at the then
          applicable conversion price. If the Company fails to deliver stock certificates
          upon the conversion of the Debentures at the specified time and in the
specified           manner, the Company will be required to make substantial payments to
the holders           of the Debentures.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1b. | The
Warrants, issued as of April 3, 2006, become first exercisable on the           earliest
of (i) the 65th day after issuance or (ii) the effective date of the
          Registration Statement. Holders of the Warrants are entitled to exercise their
          warrants on a cashless basis following the first anniversary of issuance if the
          Registration Statement is not in effect at the time of exercise. In accordance
          with EITF 00-19 Accounting for Derivative Financial Instruments Indexed
          to, and potentially settled in a Companys Own Stock (EITF 00-19),
          the Company allocated the consideration paid for the convertible debenture and
          the warrants as follows:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
warrants were recorded as a liability based on their fair value in the amount of $951 at
grant date. The Company estimated the fair value of the warrants using a Black and
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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---

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

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

|M. | Convertible
Debenture (cont.):
|-- | ------------------------------

| | 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 the effective rate interest
method over the debentures contractual period (24 months).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the warrants issued as finders fee and the finders fee in cash
amounted to $535 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 and Scholes option pricing model, with the following assumptions: volatility of
83%, risk free interest rate of 4.8%, dividend yield of 0%, and an expected life of 36
months.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | As
of November 9, 2006 all of the convertible debentures, which were issued on April 3,
2006, were converted into 969,815 shares. As a result an amount of $ 1,787 was
reclassified into common stock and additional paid-in capital as follow: from conversion
of the feature embedded in convertible debenture ($1,951), convertible debenture ($202),
accrued interest ($74) net of issuance expenses in the amount of $440. In addition, the
warrants and options to consultants in the amount of $476 and deferred issuance expenses
in the amount of $379 were reclassified as equity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to an investor relation agreements dated April 28, 2006 and August 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 Convertible Debenture 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---

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

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

|N. | On
May 14, 2007, the Company consummated a private equity placement with a group
               of investors (the investors) for an equity investment (May
               2007 Agreement). The investors shall invest a minimum of $7,000 and
up to                a maximum of $13,500 for shares of the Companys common stock,
$.00001 par                value at a per share price of $2.5, and warrants to purchase
shares at an                exercise price of $5 exercisable until five years after the
closing date of the                agreement.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2007, under May 2007 Agreement, the Company issued 3,126,177 shares of the Companys
common stock and 3,126,177 warrants to purchase the Companys common stock in
consideration for $7,751 (net of cash issuance costs of $64). During July and August
2007, under May 2007 Agreement, the Company issued additional 273,828 shares of the
Companys common stock and 273,828 warrants to purchase the Companys common
stock in consideration for $685. The consideration was paid partly prior to the issuance
of the shares in the year ended June 30, 2007 ($368) and was recorded as receipts on
account of shares and the balance was paid during July and August 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
part of May 2007 agreement, the Company signed an escrow agreement according to which,
the Company granted an option to an investor to invest, under the same conditions defined
in May 2007 agreement up to $5,000 which will be paid in monthly instalments over 10
months starting six months subsequent to the closing date. According to the agreement, in
the event that the investor fails to make any of the payments within five days of the
payment due date, the option to invest the remaining amount will be cancelled. As a
result of this agreement, the Company issued 634,580 shares of the Companys common
stock and 634,580 warrants to purchase the Companys common stock in consideration
for $1,561 (net of cash issuance costs of $25). As of March 31, 2008 the option was
cancelled. The total proceeds related to the May 2007 Agreement accumulated as of June
30, 2008 were $9,997 (net of cash issuance costs of $89), and 4,034,585 shares and
4,034,585 warrants were issued.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to the agreement the Company issued 268,420 warrants to finders as finders fee. The
warrants are exercisable for five years from the date of grant at an exercise price of
$2.5.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
the subscription agreement for the May 2007 equity financing, 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. The May 2007 Agreement provides that any sale below that number must be
preceded by consent from each purchaser in the placement. Since that date, the Company
had effected a one-for-200 reverse stock split.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company decided to proceed and enter into additional security purchase agreements
notwithstanding this provision for the following reasons (see Note 12):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 35

---

---

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

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

|N. | (Cont.):
|-- | --------

| |  | The
majority of purchasers in the private placement have sold the stock purchased in the
placement, and thus the number of purchasers whose consent is purportedly required has
been substantially reduced. The number of shares outstanding as to which this provision
currently applies according the information supplied by transfer agent is 1.9 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the event that a court was to hold that the issuance of shares below $2.50 per share
would violate the May 2007 Agreement, it is unclear what will be the result of such
decision.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|O. | The
Company issued 28,398 warrants to the investors related to the May 2007
               Agreement as compensation to investors who delivered the invested amount
prior                to the closing date of the placement. The warrants are exercisable
for five                years at an exercise price of $2.5. 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 5
years.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|P. | During
July and September 2007, the Company issued 10,000 shares of common stock
               to service providers pursuant to an investor relations agreements, whereby
the                services will be provided to the Company for a period of 6 month in
               consideration for a monthly retainer payments and for the issuance of
10,000                shares of common stock of the Company. Total compensation, measured
as the grant                date fair market value of the stock, amounted to $149.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | According
to EITF 00-18 Accounting Recognition for Certain Transactions Involving Equity
Instruments Granted to Other Than Employees the Company should recognize expense as
services are received. Consequently, total compensation amounted to $149 was recorded as
an operating expense in the statement of operations for the year ended June 30, 2008.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Q. | In
February 2008, the Company issued 7,500 shares of common stock to a service
               provider as compensation for carrying out investor relations
activity.                Total compensation, measured as the grant date fair market value
of the stock,                amounted to $18 and was recorded as an operating expense in
the statement of                operations for the year ended June 30, 2008.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|R. | In
February 2008, the Company entered into an investor relations
               agreements pursuant to which, the service will be provided to the Company
in                consideration for a monthly retainer payment and for a monthly issuance
of 500                shares of common stock of the Company. As of June 30, 2008, the
Company recorded                the fair value of the stock at each grant date in the
amount of $6 as operating                expenses in the statement of operation.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|S. | In
April 2008, the Company issued 50,000 shares of common stock to a service
               provider as compensation for carrying out investor relations
activity for                a period of three months starting April 4, 2008. Total
compensation, measured as                the grant date fair market value of the stock,
amounted to $102 and was recorded                as an operating expense in the statement
of operations for the year ended June                30, 2008.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 36

---

---

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

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

|T. | Options
to employees and consultants:
|-- | -------------------------------------

| | On
August 29, 2007, the Company approved to reserve an additional 500,000 of its common
stock for the 2005 option plan.
| | -----------------------------------------------------------------------------------------------------------------------

| | Each
option granted under the Plans is exercisable through the expiration date of the Plan
unless stated otherwise. The exercise price of the options granted under the plan may not
be less than the nominal value of the stock into which such options are exercised. The
options vest primarily over two years with a six month grace period (i.e. vesting equally
monthly during the remaining 18 months) unless other vesting schedules are specified. Any
options that are cancelled or forfeited before expiration become available for future
grants.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of June 30, 2008, there were 45,931 options and 10,388 options still available for future
grant under the 2005 option plan and 2003 option plan, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 26, 2007, the Company effected a two hundred for one reverse split (see note
1(D)). The exercise price and the number of options have been proportionaly adjusted to
reflect the reverse stock split.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Options
to employees:
| | ---------------------

| | On
August 29, 2007 the Company granted 55,000 options exercisable at a price of $8.2 per
share to the Companys employees under the 2005 Plan. The fair value of these
options at the grant date was $565.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 29, 2007, the Company granted 10,000 performance-based options to an employee. The
vesting schedule of these options will start once the Company obtains certain milestone
as defined in the agreement, and only if it will be achieved within one year from the
date of grant. The vesting period will be in accordance with the schedule specified in
2005 option plan. As of June 30, 2008 the employee was no longer employed by the Company.
Consequently, these performance-based options were forfeited and no expenses were
recorded regarding these options.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 14, 2007 a director of the Company was granted 36,250 options exercisable at a
price of $6.8 per share under the 2005 Plan. The fair value of these options at the grant
date was $220.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 26, 2007 the Company granted 407,500 options exercisable at a price of $4.38 per
share to the Companys employees and directors under the 2005 Plan. The fair value
of these options at the grant date was $1,599.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounted for its options to employees and directors under the fair value method
in accordance of SFAS 123(R). The fair value for these options was estimated using
Black-Scholes option-pricing model with the following weighted-average assumptions:
risk-free interest rates of 3.84%-5%, expected dividend yield of 0%, expected volatility
of 104%-147%, and a weighted-average contractual life of the options of up to 6 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 37

---

---

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

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

|T. | Options
to employees and consultants (cont.):
|-- | ---------------------------------------------

| | A
summary of the Companys share option activity for options granted to employees
under the plans is as follows:
| | ----------------------------------------------------------------------------------------------------------------

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

| | Intrinsic
value of exercisable options (the difference between the Companys closing stock
price on the last trading day in the period and the exercise price, multiplied by the
number of in-the-money options) represents the amount that would have been received by
the employees and directors option holders had all option holders exercised their options
on June 30, 2008. This amount changes based on the fair market value of the Companys
stock.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---

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

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

|T. | Options
to employees and consultants (cont.):
|-- | ---------------------------------------------

| | Options
to employees (cont.):
| | -----------------------------

| | The
Companys outstanding options to employees as of June 30, 2008, have been separated
into ranges of exercise prices as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------

| | Exercise
Price
per
Share | Options for
Common Stock | Options
Exercisable | Weighted average
remaining contractual
terms
| | ------------------------ | ------------------------ | ------------------- | --------------------------------------------
|
|
|
|
| | $3.5                     |                          |                     |                                             
| |                          |                          |                     |                                             
| | $3.72 - $3.8             |                          |                     |                                             
| |                          |                          |                     |                                             
| | $4                       |                          |                     |                                             
| |                          |                          |                     |                                             
| | $4.38 - $4.4             |                          |                     |                                             
| |                          |                          |                     |                                             
| | $6.8                     |                          |                     |                                             
| |                          |                          |                     |                                             
| | $8.2                     |                          |                     |                                             
| |                          |                          |                     |                                             
| | $20                      |                          |                     |                                             
| |                          |                          |                     |                                             
| | $24                      |                          |                     |                                             
| |                          |                          |                     |                                             
| |                          |                          |                     |                                             
| |                          |                          |                     |                                             
| |                          |                          |                     |                                             

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

| |                                     | Year ended June 30 | Period frominception throughJune 30,2008
| | ----------------------------------- | ------------------ | ----------------------------------------
|
|
|
|
| | Research and development expenses   |                    |                                         
| |                                     |                    |                                         
| | General and administrative expenses |                    |                                         
| |                                     |                    |                                         
| |                                     |                    |                                         
| |                                     |                    |                                         
| |                                     |                    |                                         

F - 39

---

---

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

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

|T. | Options
to employees and consultants (cont.):
|-- | ---------------------------------------------

| | Options
to consultants:
| | -----------------------

| | On
January 28, 2007, the Company entered into a consulting agreement. According to the
agreement the Company granted the consultant 25,000 fully vested warrants to purchase
25,000 shares of the Companys common stock at an exercise price of $2.5 per share
effective upon signing the contract, and 25,000 warrants, fully vested, to purchase
25,000 shares of the Companys common stock at an exercise price of $2.5 per share,
on the renewal of the contract on August 1, 2007. All warrants are exercisable for 3
years. The warrants were not granted under the option Plans.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the warrants, which were granted on August 1, 2007 at the grant date, was
$175. The Company accounted for its options to consultants under the fair value method in
accordance of SFAS 123 and EITF 96-18. The fair value for these options was estimated
using Black-Scholes option-pricing model with the following weighted-average assumptions:
risk-free interest rates of 4.53%, expected dividend yield of 0%, expected volatility of
130%, and a weighted-average contractual life of the options of 3 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 26, 2007 the Company granted 15,000 options exercisable at a price of $4.38 per
share to the Companys consultant under the 2005 Plan. The fair value of these
options at the grant date was $63. The Company accounted for its options to consultants
under the fair value method in accordance of SFAS 123 and EITF 96-18. The fair value for
these options was estimated using Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rates of 4.3%, expected dividend yield
of 0%, expected volatility of 127%, and a weighted-average contractual life of the
options of 10 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 11, 2008 the Company granted under the 2005 Plan 20,000 options to the Companys
consultants at an exercise price of $2.97 per share. The fair value of these options at
the grant date was $58. The fair value was estimated using Black-Scholes option-pricing
model with the following weighted-average assumptions: risk-free interest rates of 3.77%,
expected dividend yield of 0%, expected volatility of 131%, and a weighted-average
contractual life of the options of 10 years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company applied the guidance of EITF 00-18 Accounting Recognition for Certain
Transactions involving Equity Instruments Granted to Other Than Employees and
recognized expenses and offset credit to equity as service were received. As a result,
amount of approximately $18 was recorded as operating expenses in the statement of
operations for the year ended June 30, 2008.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

---

---

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

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

|T. | Options
to employees and consultants (cont.):
|-- | ---------------------------------------------

| | Options
to consultants (cont.):
| | -------------------------------

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

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

| | The
Companys outstanding options to consultants as of June 30, 2008, have been
separated into ranges of exercise prices as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------

| | Exercise
Price
per
Share | Options for
Common Stock | Options
Exercisable | Weighted average
remaining contractual
terms
| | ------------------------ | ------------------------ | ------------------- | --------------------------------------------
|
|
|
|
| | $ 2.5                    |                          |                     |                                             
| |                          |                          |                     |                                             
| | $ 2.97                   |                          |                     |                                             
| |                          |                          |                     |                                             
| | $ 3.5                    |                          |                     |                                             
| |                          |                          |                     |                                             
| | $ 3.8                    |                          |                     |                                             
| |                          |                          |                     |                                             
| | $ 4.38 - $4.4            |                          |                     |                                             
| |                          |                          |                     |                                             
| | $ 20                     |                          |                     |                                             
| |                          |                          |                     |                                             
| |                          |                          |                     |                                             
| |                          |                          |                     |                                             
| |                          |                          |                     |                                             

F - 41

---

---

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

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

|T. | Options
to employees and consultants (cont.):
|-- | ---------------------------------------------

| | Options
to consultants (cont.):
| | -------------------------------

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

| |                                     | Year ended June 30, | PeriodfrominceptionthroughJune 30,2008
| | ----------------------------------- | ------------------- | --------------------------------------
|
|
|
|
| | Research and development expenses   |                     |                                       
| |                                     |                     |                                       
| | General and administrative expenses |                     |                                       
| |                                     |                     |                                       
| |                                     |                     |                                       
| |                                     |                     |                                       

F - 42

---

---

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

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

| |                             | Year ended June 30, | Period from May11, 2001(Inception)through June 30,2008
| | --------------------------- | ------------------- | ------------------------------------------------------
|
|
|
|
| | Foreign currency            |                     |                                                       
| | translation differences     |                     |                                                       
| | Interest on short-term      |                     |                                                       
| | bank credit and bank's      |                     |                                                       
| | expenses                    |                     |                                                       
| | Interest on long-term loan  |                     |                                                       
| | Interest accrued on         |                     |                                                       
| | know-how licenses           |                     |                                                       
| | Interest income on deposits |                     |                                                       
| | Deferred issuance expenses  |                     |                                                       
| | amortization                |                     |                                                       
| | Discount amortization       |                     |                                                       
| | Interest expenses of        |                     |                                                       
| | debenture                   |                     |                                                       
| | Change in fair value of     |                     |                                                       
| | warrants                    |                     |                                                       
| | Loss (income) related to    |                     |                                                       
| | marketable securities       |                     |                                                       
| | Interest expenses related   |                     |                                                       
| | to warrants issued to       |                     |                                                       
| | investors                   |                     |                                                       
| | Expenses of derivatives     |                     |                                                       
| |                             |                     |                                                       
| |                             |                     |                                                       
| |                             |                     |                                                       

F - 43

---

---

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

# NOTE 10:  TAXES ON INCOME

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

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

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

| | Results
of the Companys subsidiary for tax purposes are measured and reflected in real
terms in accordance with the changes in the CPI. As explained in Note 2, the financial
statements are presented in U.S. dollars. The difference between the rate of change in
Israeli CPI and the rate of change in the NIS/U.S. dollar exchange rate causes a
difference between taxable income or loss and the income or loss before taxes reflected
in the financial statements. In accordance with paragraph 9(f) of SFAS No. 109, the
Company has not provided deferred income taxes on this difference between the reporting
currency and the tax bases of assets and liabilities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

| | 1. | The
subsidiary 
| | -- | ----------------

| | Until
December 31, 2003, the regular tax rate applicable to income of the subsidiary was 36%.
In June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision),
2004 was passed by the Knesset (Israeli parliament) and on July 25, 2005,
another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005,
according to which the corporate tax rate is to be progressively reduced to the following
tax rates: 2006  31%, 2007  29%, 2008  27%, 2009  26%, 2010 and
thereafter  25%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

F - 44

---

---

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

# NOTE 10: - TAXES ON INCOME
(CONT.)

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

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

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

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

| | As
of June 30, 2008, the Company had U.S. federal net operating loss carryforward for
income tax purposes in the amount of approximately $8,862. Net operating loss
carryforward arising in taxable years beginning after August 6, 1997 can be carried
forward and offset against taxable income for 20 years and expiring between 2022 and 2028.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Utilization
of U.S. net operating losses may be subject to substantial annual limitations due to the
change in ownership provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of net
operating losses before utilization.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys subsidiary in Israel has accumulated losses for tax purposes as of June 30,
2008, in the amount of approximately $5,507, which may be carried forward and offset
against taxable income and capital gain in the future for an indefinite period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
income taxes:
| | ----------------------

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

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

F - 45

---

---

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

# NOTE 10:  TAXES ON INCOME
(CONT.)

| | As
of June 30, 2008, the Company and its subsidiary have provided valuation allowances
in respect of deferred tax assets resulting from tax loss carryforward and other
temporary differences, since they have a history of operating losses and current
uncertainty concerning its ability to realize these deferred tax assets in the future.
Management currently believes that it is more likely than not that the deferred tax
regarding the loss carryforward and other temporary differences will not be realized in
the foreseeable future.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
2006, 2007 and 2008, the main reconciling item of the statutory tax rate of the Company
and its subsidiary (31% to 35%  in 2006, 29% to 35% in 2007 and 29% to 35% in 2008)
to the effective tax rate (0%) is tax loss carryforwards and other deferred tax assets
for which a full valuation allowance was provided.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 11:  TRANSACTIONS
AND BALANCES WITH RELATED PARTIES

|1. | Balances
with related parties:
|-- | ------------------------------

|                                                 | June 30, 2006
|------------------------------------------------ | -------------
|
|
|
|
|Know-how licensors (included current maturities) |              
|Accrued expenses                                 |              

|2. | Transactions
with related parties:
|-- | ----------------------------------

|                | Year ended June
30, 2006
|--------------- | ------------------------
|
|
|
|
|Salary expenses |                         

These balances and transactions refer
to CTO of the Company, as a result of the shares issuance during year 2007, he is not
considered a related party as of June 30, 2007 and 2008.

F - 46

---

---

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

# NOTE 12:  SUBSEQUENT
EVENTS

|A. | On
August 5, 2008, the Company entered into Securities Purchase Agreements with
               two investors pursuant to which the investors agreed to purchase 1,391,304
               shares of the Companys Common Stock and warrants to purchase 695,652
               shares of Common Stock in consideration for $1,600. Each warrant is
exercisable                into one common stock. The warrants will be exercisable after
six months from                the closing date for a period of five years at an exercise
price of $1.90.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
placement agent will receive 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 placement agent warrants may be exercised after
six months from the closing date through a period of five years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|B. | On
September 22, 2008, the Company sold 900,000 shares of its Common Stock and
               Warrants to purchase 675,000 shares of Common Stock for a total
consideration of                $1,035 to an investor pursuant to terms of a securities
purchase agreement. The                price per share of Common Stock is $1.15, and the
exercise price of the Warrants                is $1.90. The Warrants will be exercisable
for a period of five years. The                Company will pay a transaction fee to
finders equal to 6% of the actual Purchase                Price and five-year warrants at
an exercise price of $1.50 per share to purchase                41,400 of the Companys
shares of Common Stock.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
amendment was approved by an affirmative vote of the holders of a majority of the votes
present in person or represented by proxy in the Annual Meeting of the Stockholders of
the Company dated June 26, 2008.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|D | On
August 28, 2008, the Companys Board of Directors approved to reserve an additional
90,000 of common stock for the 2005 option plan, and to grant 97,500 options exercisable
at a price of $1.04 per share to the Companys employees under the 2005 Plan.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 47

---

---

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

None.

# Item 9A(T). Controls and
Procedures

Evaluation of Disclosure
Controls and Procedures

The Company conducted an evaluation
under the supervision of the Chief Executive Officer and Chief Financial Officer (its
principal executive officer and principal financial officer, respectively), regarding the
effectiveness of the Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2008. Based on the
aforementioned evaluation, management has concluded that the Companys disclosure
controls and procedures were effective as of June 30, 2008.

Managements Report
on Internal Control over Financial Reporting

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

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

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

Management assessed the effectiveness
of the our Companys internal control over financial reporting at June 30, 2008. In
making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
ControlIntegrated Framework. Based on that assessment under those criteria,
management has determined that, at June 30, 2008, the our Companys internal control
over financial reporting was effective.

This annual report does not include
an attestation report of our Companys registered public accounting firm regarding
internal control over financial reporting. Managements report was not subject to
attestation by our Companys registered public accounting firm pursuant to temporary
rules of the SEC that permit our Company to provide only managements report in this
annual report.

Changes in Internal
Control Over Financial Reporting

There have been no changes in our
Companys internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of
fiscal year 2008 that have materially affected, or are reasonably likely to materially
affect, our Companys internal control over financial reporting.

- 27 -

---

---

# Item 9B. Other
Information

None.

# PART III

# Item 10. Directors,
Executive Officers and Corporate Governance.

As at June 30, 2008, our directors
and executive officers, their ages, positions held, and duration of such, are as follows:

|Name                | Position Held With Company         | Age | Date First Elected or
Appointed
|------------------- | ---------------------------------- | --- | -------------------------------
|
|
|
|
|Zami Aberman        | Chief Executive Officer,           |     | September 26, 2005             
|                    | President and Director             | 55  | November 21, 2005              
|Yaky Yanay          | Chief Financial Officer, Secretary | 37  | November 1, 2006               
|Dr. Shai Meretizki* | Chief Technology Officer           | 39  | October 17, 2004               
|Nachum Rosman       | Director                           | 62  | October 9, 2007                
|Doron Shorrer       | Director                           | 55  | October 2, 2003                
|Hava Meretzki       | Director                           | 40  | October 2, 2003                
|Isaac Braun         | Director                           | 55  | July 6, 2005                   
|Israel Ben-Yoram    | Director                           | 45  | January 26, 2005               
|Mark Germain        | Director                           | 58  | May 17, 2007                   

* On October 31, 2008, Dr.
Meretzkis consulting agreement will terminate and Dr. Meretzki will no longer be an
executive officer of our company.

Business Experience

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

# Zami Aberman

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

- 28 -

---

---

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

# Yaky Yanay

Mr.
          Yanay was appointed as our Chief Financial Officer and Secretary on November 1,
          2006.

Prior to joining Pluristem in 2002,
Mr. Yanay was the chief financial officer of Elbit Vision System Ltd. (EVSNF.OB), a
company engaged in automatic optical inspection. Mr. Yanay holds a bachelors degree
with honors in business administration and accounting from the college of management
studies in Rishon Le Zion, Israel and is a certified public accountant in Israel.

# Dr. Shai Meretzki

Dr.
          Shai Meretzki was the founder has been the Chief Technology Officer of our
          wholly-owned subsidiary, Pluristem, Ltd. since October 2, 2003. He received his
          Ph.D. in biotechnology at the Technion in Israel in 2002. Dr. Meretzki has
          conducted extensive research on the subject of stem cell expansion. From 1995 to
          1996, Dr. Meretzki was employed at the Department of Chemical Engineering at the
          Technion-Israel Institute of Technology. From 1997 to 2001, he was an instructor
          teaching medical students cell biology and hematology at the Rappaport Faculty
          of Medicine in Haifa, Israel. From 2001 to 2002, Dr. Meretzki was in charge of
          biological and chemical research and development for Polyheal, Ltd. in Nesher,
          Israel. From October 17, 2004, until September 26, 2005, Dr. Meretzki served as
          our CEO. On October 31, 2008, Dr. Meretzkis consulting agreement will
          terminate and Dr. Meretzki will no longer be an executive officer of our company

# Nachum Rosman

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

Mr.
          Rosman holds a B.Sc. in management engineering and a M.Sc. in operations
          research from the Technion in Israel. Mr. Rosman also participated in a Ph.D.
          program in investments and financing at the Tel Aviv University in Israel.

# Doron Shorrer

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

Mr.
          Shorrer holds a B.A. in economics and accounting and an M.A. in business
          administration (with a specialization in finance and banking) from the Hebrew
          University of Jerusalem and is a certified public accountant (ISR).

- 29 -

---

---

# Hava Meretzki

Ms.
          Meretzki became a director of our Company in October 2003. Ms. Meretzki is an
          attorney and is a partner in the law firm of Ben-Noun Meretzki in Haifa, Israel.
          Ms. Meretzki specializes in civil, trade and labor law and is presently
          Vice-Chairman for the National Council of the Israel Bar Association.

Ms.
          Meretzki received a Bachelors Degree in Law from the Hebrew University in 1991,
          and in 1992 was admitted to the Israel Bar Association.

# Isaac Braun

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

# Israel Ben-Yoram

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

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

# Mark Germain

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

Family Relationships

Shai Meretzki, the founder and Chief
Technology Officer of our wholly owned subsidiary, Pluristem, Ltd. and Hava Meretzki, one
of our directors, are husband and wife.

Audit Committee and Audit
Committee Financial Expert

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

- 30 -

---

---

|n | Appointing,
compensating and retaining our registered independent accounting firm;
|- | ----------------------------------------------------------------------------------

|n | Overseeing
the work performed by any independent accounting firm;
|- | -----------------------------------------------------------------

|n | 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
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|n | Recommending,
establishing and monitoring procedures designed to improve the quality and reliability of
the disclosure of our financial condition and results of operations.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Audit Committee held four
meetings during Fiscal 2008.

Other Committees of the
Board

Compensation Committee

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

|n | Reviewing,
negotiating and approving, or recommending for approval by our Board of the salaries and
incentive compensation of our executive officers;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|n | Administering
our equity based plans and making recommendations to our Board with respect to our
incentivecompensation plans and equitybased plans; and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|n | Periodically
reviewing and making recommendations to our Board with respect to director compensation.
|- | -----------------------------------------------------------------------------------------------------

The Compensation Committee is
evaluating the appropriate practice it should adopt in connection with processes and
procedures for the consideration and determination of executive and director compensation.

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

Involvement in Certain
Legal Proceedings

Code of Ethics

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

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

- 31 -

---

---

Section 16(a) Beneficial
Ownership Reporting Compliance

Section 16(a) of the Securities
Exchange Act requires our executive officers and directors, and persons who own more than
10% of our common stock, to file reports regarding ownership of, and transactions in, our
securities with the SEC and to provide us with copies of those filings. Based solely on
our review of the copies of such forms received by us, or written representations from
certain reporting persons, we believe that during fiscal year ended June 30, 2008, all
filing requirements applicable to its officers, directors and ten percent beneficial
owners were complied with, with the exception of the following:

Mr.
          Yoram Ben-Israel failed to timely file a Form 4 reporting purchase of 2,500
          shares of common stock on June 24, 2008. Mr. Ben-Israel filed a Form 4 reporting
          this purchase on July 3, 2008.

Mr.
          Nahum Rosman failed to timely file a Form 4 reporting the grant dated November
          11, 2007 of an option to purchase 36,250 shares of our common stock. Mr. Rosman
          filed a Form 4 reporting this grant on April 1, 2008.

Item 11.            Executive Compensation.

The following table shows the
particulars of compensation paid to the following persons, where applicable, for the year
ended June 30, 2008:

| | (a) | our
principal executive officer;
| | --- | --------------------------------

| | (b) | each
of our two most highly compensated executive officers who were serving as
          executive officers at the year ended June 30, 2008; and,
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | up
to two additional individuals for whom disclosure would have been provided
          under (b) but for the fact that the individual was not serving as our executive
          officer at the end of the most recently completed financial year, who we will collectively refer to as
the named executive officers:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUMMARY COMPENSATION TABLE

|Name
and Principal
Position  | Year | Salary
($) (1) | Option
Awards
($)(2) | Non-Equity
Incentive
Plan
Compensa-tion
($) | All
Other
Compensa-tion
($) | Total
($)
|---------------------------- | ---- | -------------- | -------------------- | ------------------------------------------- | --------------------------- | ---------
|
|
|
|
|Zami Aberman                 |      |                |                      |                                             |                             |          
|Chief Executive Officer      |      |                |                      | 2008                                        |                             |          
|Yaky Yanay  Chief            |      |               
|Financial Officer (4)        |      |                |                      | 2008                                        |                             |          
|Shai Meretzki                |      |               
|Chief Technology             |      |               
|Officer, Pluristem, Ltd. (6) |      |                |                      | 2008                                        |                             |          

(1)    
          The salaries payments which were in NIS were translated into US$ at the then
          current exchange rate for each payment.

- 32 -

---

---

(2)    
          The dollar value recognized for the stock option awards was determined in
          accordance with SFAS123(R). Assumptions used in the calculations for these
          amounts are included in Note 2(i) to the consolidated financial statements of
          the Company for fiscal 2008 included in this Annual Report on Form 10-K.

(3)    
          Includes $15,463 paid to Mr. Aberman as compensation for services as a director.

(4)    
          On May 14, 2007, Mr. Yanay participated in an equity investment in the company,
          and received 20,000 shares and 20,000 warrants, vested immediately, exercisable
          at $5 per share for five years. Such securities are not reflected in the table
          above.

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

(6)    
          On May 14, 2007, Mr. Meretzki participated in an equity investment in the
          company, and received 100,000 shares and 100,000 warrants, vested immediately,
          exercisable at $5 per share for five years. Such securities are not reflected in
          the table above.

(7)    
          Consists of amounts paid pursuant to agreements relating to completed
          financings.

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

|(a) | A
consulting agreement, or the Consulting Agreement, dated September 26, 2005
          with Zami Aberman, under which Mr. Aberman received a consulting fee of $13,000
          per month in NIS, at the then exchange rate. On September 18, 2006, the Board
          amended the Consulting Agreement by increasing the monthly consulting fee to an
          amount of NIS that equals $15,000 effective as of September 2006. The dollar
          rate will be not less then 4.35 dollar per NIS. We further agreed to pay Mr.
          Aberman up to two percent of any financings we conducted.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 11, 2007, the Board approved an amendment to the Consulting Agreement as follows:
Mr. Abermans engagement with will not be for less than 3 years, he will be entitled
to a bonus on only non- diluting financing deals in an amount approved by the Board
provided that the aggregate bonus for all executive officers and directors shall not be
higher than 5% of such financing.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 29, 2007, the Board approved that Mr. Abermans monthly consulting fee shall
be $20,000, starting in August 2007, and that upon receipt of a clinical trial approval,
the monthly consulting fee will be increased to $25,000. In addition, Mr. Aberman is
entitled once a year to receive an additional amount that equals the monthly consulting
fee. All amounts above are paid plus Value Added Tax.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | An
agreement with Yaky Yanay dated November 1, 2006, under which Mr. Yanay is           paid
35,500 NIS per month. In addition, Mr. Yanay is entitled once a year to           receive
an additional amount that equals his monthly salary. Mr. Yanay is           provided with
a cellular phone and a company car pursuant to the terms of his           agreement. We
have agreed to pay Mr. Yanay up to 1.4% of any financings we           conduct. On March
11, 2007, the Board resolved that Mr. Yanay will be entitled           to a bonus on only
non-diluting financing deals in an amount approved by the           Board provided that
the aggregate bonus for all executive officers and directors           shall not be
higher than 5% of such financing.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | A
consulting agreement dated November 24, 2005 with Meretzki Consulting Ltd., a
          company wholly-owned by Dr. Shai Meretzki, under which Meretzki Consulting Ltd.
          is paid a monthly retainer of 66,000 NIS plus Value Added Tax. Dr. Shai
Meretzki           is provided with a cellular phone pursuant to the terms of the
consulting           agreement.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 33 -

---

---

We have no plans or arrangements in
respect of remuneration received or that may be received by our executive officers to
compensate such officers in the event of termination of employment (as a result of
resignation, retirement, change of control) or a change of responsibilities following a
change of control, except for the following: (i) Dr. Shai Meretzki, whose termination
provisions provide for 6 months payment on termination, which at current salary
would total approximately $120,000; (ii) options issued to Mr. Aberman fully vest upon a
change of control, and in the event of termination of the Consulting Agreement, he will be
entitled to 50% acceleration of all of his unvested options and to receive an adjustment
fee that equals the monthly consulting fees multiplied by 3 plus the number of years the
Consulting Agreement is in force from the second year, but in any event no more than nine
years in the aggregate; and (iii) Mr. Yanay may be entitled, under Israeli law and
practice, to severance payment that equals a months salary for each twelve-month
period of employment with the company.

Pension, Retirement or
Similar Benefit Plans

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

# Outstanding Equity
Awards at the End of Fiscal 2008

The following table presents the
outstanding equity awards held as of June 30, 2008 by our Named Executive Officers:

|               | Number of Securities Underlying Unexercised
|-------------- | -------------------------------------------
|
|
|
|
|Zami Aberman   |                                            
|               |                                            
|               |                                            
|               |                                            
|Yaky Yanay*    |                                            
|               |                                            
|               |                                            
|Shai Meretzki* |                                            
|               |                                            
|               |                                            
|               |                                            

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

The options under each award vest
over two years from date of grant, as follows: 25% vest six months after the date of
grant, and the remaining options vest monthly, in equal installments over 18 months.

Aggregated
Option/Exercises in Last Fiscal Year and 2008 Fiscal Year End Option/Values

During the fiscal year ended June 30,
2008, no stock options were exercised by our named executive officers.

Long-Term Incentive
Plans-Awards in Last Fiscal Year

We have no long-term incentive plans,
other than the Stock Option Plans.

- 34 -

---

---

Compensation of Directors

The following table provides
information regarding compensation earned by, awarded or paid to each person for serving
as a director who is not a Named Executive Officer during Fiscal 2008:

|Name             | Fees Earned or Paidin Cash ($) | Option Awards ($) (1) | Total ($)
|---------------- | ------------------------------ | --------------------- | ---------
|
|
|
|
|Mark Germain     |                                |                       |          
|Nachum Rosman    |                                |                       |          
|Doron Shorrer    |                                |                       |          
|Hava Meretzki    |                                |                       |          
|Isaac Braun      |                                |                       |          
|Israel Ben-Yoram |                                |                       |          

|(1) | The
dollar value recognized for the stock option awards was determined in
                    accordance with SFAS123(R). Assumptions used in the calculations for
these                     amounts are included in Note 2(i) to the consolidated financial
statements of                     the Company for Fiscal 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We reimburse our directors for
expenses incurred in connection with attending board meetings and provide the following
compensation for directors: annual compensation of $8,400; meeting participation fees of
$750 per in-person meeting; and for meeting participation by telephone, $350 per meeting.
On February 7, 2007, the Board raised the annual director fee to $10,000. On May 17, 2007,
the Board decided that the dollar rate would be not less then 4.25 dollar per NIS. During
fiscal 2008 we paid a total of $77,326 to directors as compensation. This amount does not
include: (i) compensation to Mr. Aberman in his capacity as a director which is reflected
in the Summary Compensation Table for Fiscal 2008 above, and (ii) a consulting fee of
$10,000 per month Mr. Germain is entitled to since March 11, 2007. In addition to the
above, Mr. Germain will be entitled to a bonus on only non-diluting financing deal in an
amount approved by the Board provided that the aggregate bonus for all Companys
executive officers and directors shall not be higher than 5% of such financing.

As of June 30, 2008, the directors
held 606,397 options of which 357,138 were exercisable. On March 5, 2007 the Board
approved the acceleration of the vesting of directors stock options in the following
circumstances: (1) termination of a directors position by the stockholders will
result in the acceleration of 100% of any unvested options and (2) termination of a
directors position by resignation will result in the acceleration of 50% of any
unvested options.

Other than as described in the
preceding two paragraphs, we have no present formal plan for compensating our directors
for their service in their capacity as directors. Directors are entitled to reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of our Board. The Board may award special remuneration to any
director undertaking any special services on our behalf other than services ordinarily
required of a director. Other than indicated in this statement, no director received
and/or accrued any compensation for his or her services as a director, including committee
participation and/or special assignments during fiscal 2008.

- 35 -

---

---

# Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related StockholdersMatters.

The following table sets forth
certain information, to the best knowledge and belief of the Company, as of September 24,
2008 (unless provided herein otherwise), with respect to holdings of our common stock by
(1) each person known by us to be the beneficial owner of more than 5% of the total number
of shares of our common stock outstanding as of such date; (2) each of our directors; (3)
each of the Named Executive Officers; and (4) all of our directors and our current
executive officers as a group.

|Name and Address of Beneficial Owner                                   | Beneficial Number ofShares(1) | Percentage
|---------------------------------------------------------------------- | ----------------------------- | ----------
|
|
|
|
|Directors and Named Executive Officers                                 |                               |           
|                                                                       |                               |           
|Zami Aberman                                                           |                               |           
|Chief Executive Officer, Chairman of the Board, President and Director |                               |           
|                                                                       |                               |           
|Shai Meretzki                                                          |                               |           
|Chief Technology Officer of Pluristem, Ltd.                            |                               |           
|                                                                       |                               |           
|Hava Meretzki                                                          |                               |           
|Director                                                               |                               |           
|                                                                       |                               |           
|Doron Shorrer                                                          |                               |           
|Director                                                               |                               |           
|                                                                       |                               |           
|Israel Ben-Yoram                                                       |                               |           
|Director                                                               |                               |           
|                                                                       |                               |           
|Isaac Braun                                                            |                               |           
|Director                                                               |                               |           
|                                                                       |                               |           
|Nachum Rosman                                                          |                               |           
|Director                                                               |                               |           
|                                                                       |                               |           
|Mark Germain                                                           |                               |           
|Director                                                               |                               |           
|                                                                       |                               |           
|Yaky Yanay                                                             |                               |           
|Chief Financial Officer and Secretary                                  |                               |           
|                                                                       |                               |           
|Directors and Executive Officers as a group (9 persons)                |                               |           

- 36 -

---

---

|Name and Address of Beneficial Owner                  | Beneficial Number ofShares(1) | Percentage
|----------------------------------------------------- | ----------------------------- | ----------
|
|                                                      |                               |           
|                                                      |                               |           
|5% Shareholders                                       |                               |           
|                                                      |                               |           
|Barry C. Honig                                        |                               |           
|595 South Federal Highway, Suite 600,                 |                               |           
|Boca Raton, FL 33432                                  |                               |           
|                                                      |                               |           
|Wood River Trust                                      |                               |           
|1007 Orange St., Suite 1410                           |                               |           
|Nemours Building                                      |                               |           
|Wilmington, Delaware, 19801                           |                               |           
|                                                      |                               |           
|Meitav Investment House                               |                               |           
|4 Berkowitz Street, Museum Tower                      |                               |           
|Tel Aviv 61180 Israel                                 |                               |           
|                                                      |                               |           
|Cranshire Capital, L.P.                               |                               |           
|3100 Dundee Road., Suite 703 Northbrook, IL 60062     |                               |           
|                                                      |                               |           
|Enable Growth Partners LP                             |                               |           
|One Ferry Building, Suite 255 San Francisco, CA 94111 |                               |           
|                                                      |                               |           
|Bangor Holdings Ltd.Wickham`s Cay, Road Town,         |                               |           
|Tortols British Virgin Islands                        |                               |           

* Is indicated for amounts less than
1%

(1)
          Based on 9,269,870 shares of common stock issued and outstanding as of September
          24, 2008. Except as otherwise indicated, we believe that the beneficial owners
          of the common stock listed above, based on information furnished by such owners,
          have sole investment and voting power with respect to such shares, subject to
          community property laws where applicable. Beneficial ownership is determined in
          accordance with the rules of the SEC and generally includes voting or investment
          power with respect to securities. Shares of common stock subject to options,
          warrants or right to purchase or through the conversion of a security currently
          exercisable or convertible, or exercisable or convertible within 60 days, are
          reflected in the table above and are deemed outstanding for purposes of
          computing the percentage ownership of the person holding such option or
          warrants, but are not deemed outstanding for purposes of computing the
          percentage ownership of any other person.

(2)
          Consists of options to acquire 313,755 shares.

(3)
          Includes 24,010 shares that are registered under the name of A.R.Y. Holdings
          Ltd., which is owned and controlled by Dr. Shai Meretzki. Also includes options
          to acquire 54,662 shares of common stock and 100,000 warrants.

(4)
          Consists of options to acquire 48,444 shares.

(5)
          Consists of options to acquire 65,016 shares.

(6)
          Consists of options to acquire 47,528 shares.

(7)
          Consists of options to acquire 47,175 shares.

(8)
          Consists of options to acquire 18,129 shares.

(9)
          Consists of options to acquire 231,255 shares.

(10)
          Consists of also options to acquire 82,304 shares and 20,000 warrants.

(11)
          The number includes options to acquire 908,268shares and 120,000 warrants.

(12)
          This information is as of July 9, 2007 and is based solely on a Schedule 13G
          filed with the SEC on July 19, 2007.

(13)
          This information is as of December 31, 2007 and is based solely on a Schedule
          13G/A filed with the SEC on February 14, 2008.

- 37 -

---

---

(14)
          This information is as of June 13, 2007 and is based solely on a Schedule 13G/A
          filed with the SEC on August 6, 2007. Michael C. Doyle is the Trustee of Wood
          River Trust. Mr. Doyle and Wood River Trust share the voting and dispositive
          power over all the shares reported in the Schedule 13G/A.

(15)  This information is as of May 17, 2007 and is based solely on a Schedule
          13G filed with the SEC on December 17, 2007 by a filing group including Meitav
          Investment House Ltd. Based on the information provided in such Schedule 13G,
          the relevant members of the group, and their respective shared voting power are:
          Meitav Investment House Ltd., 682,333 shares, Meitav Gemel Ltd., 351,033 shares,
          Meitav Underwriting Ltd., 145,307 shares, Meitav Investment Management Ltd.,
          185,993 shares, Zvi Stepak, 682,333 shares and Shlomo Simanovsky 682,333 shares.
          Meitav Gemel and Meitav Investment are wholly owned subsidiaries of Meitav
          Investment House. Meitav Underwriting is a majority owned subsidiary of Meitav
          Investment House. Messrs. Zvi Stepak and Shlomo Simanovsky are the sole
          shareholders, through intermediary entities, of Meitav Investment House. The
          address of all the members of the group is c/o Meitav Investment House 4
          Berkowitz Street, Museum Tower Tel Aviv, 61180 Israel.

(16)
          This information is as of August 7, 2008 and is based solely on a Schedule 13G
          filed with the SEC on August 14, 2008.

(17)
          Consists of 675,000 warrants.

Equity Compensation Plan
Information

On November 25, 2003, our Board of
Directors adopted our 2003 Stock Option Plan. Under the 2003 Stock Option Plan, options
may be granted to our officers, directors, employees and consultants or the officers,
directors, employees and consultants of our subsidiary. Pursuant to the Plan, we reserved
for issuance 20,500 shares of our common stock. As of June 30, 2008, there were 10,388
shares of our common stock still available for future grant under the plan.

On November 21, 2005, our Board of
Directors adopted our 2005 Stock Option Plan. Under the 2005 Stock Option Plan, options
may be granted to our officers, directors, employees and consultants or the officers,
directors, employees and consultants of our subsidiary. Pursuant to the Plan, we reserved
for issuance 75,000 shares of our common stock. On January 24, 2007 our Board of Directors
amended the 2005 Stock Option Plan to reserve for issuance 1,400,000 shares of our common
stock. On August 29, 2007, we reserved an additional 500,000 of common stock for the 2005
option plan. As of June 30, 2008, there were 45,931 shares of common stock still available
for future grant under the plan.

On August 28, 2008, our Board of
Directors approved an increase of the Option pool by an additional 90,000 Shares, so that
the total options under the 2005 Option Plan is set at 1,990,000.

The following table summarizes
certain information regarding our equity compensation plans as of June 30, 2008:

|Plan Category                 | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exerciseprice of outstandingoptions, warrants andrights | Number of securitiesremaining available forfuture issuance underequity compensation plans
|----------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------
|
|
|
|
|2003 Stock Option Plan        |                                                                                             |                                                                          |                                                                                          
|(equity compensation plan not |                                                                                             |                                                                         
|approved by security holders) |                                                                                             |                                                                          |                                                                                          
|2005 Stock Option Plan        |                                                                                             |                                                                         
|(equity compensation plan not |                                                                                             |                                                                         
|approved by security holders) |                                                                                             |                                                                          |                                                                                          
|Equity compensation plan      |                                                                                             |                                                                         
|approved by security holders  |                                                                                             |                                                                          |                                                                                          
|Total                         |                                                                                             |                                                                          |                                                                                          

- 38 -

---

---

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

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

Dr.
          Shai Meretzki was a signatory of the License Agreement with the Weizmann
          Institute of Science and the Technion-Israel Institute of Technology because he
          was an inventor of the technology listed in the License Agreement. He is also a
          signatory of the assignment agreements that we entered into on May 22, 2007. Dr.
          Meretzki received $367,969 pursuant to the assignment agreements in exchange for
          the assignment to us of all of his rights to the stem cell technology. Dr.
          Meretzki is our former Chief Executive Officer and an affiliate of our company
          through his indirect acquisition of shares of our common stock. He is also the
          founder and Chief Technology Officer of our subsidiary, Pluristem, Ltd. The
          amount of consideration received by Dr. Meretzki was determined as a result of
          arms length negotiation and represents the value that management believes
          would have resulted from negotiations with a non-affiliate for the same
          assignment of rights.

# Item 14. Principal
Accounting Fees and Services

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

|                   | Twelve months ended on
June 30, 2008 | Twelve months ended on
June 30, 2007
|------------------ | ------------------------------------ | ------------------------------------
|
|
|
|
|Audit Fees         |                                      |                                     
|                   |                                      |                                     
|Audit-Related Fees |                                      |                                     
|                   |                                      |                                     
|Tax Fees           |                                      |                                     
|                   |                                      |                                     
|All Other Fees     |                                      |                                     
|                   |                                      |                                     
|                   |                                      |                                     
|Total Fees         |                                      |                                     
|                   |                                      |                                     

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

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

All Other Fees. These fees
were comprised of fees relating to review of our registration statement on Form SB-2 and
fees relating to the preparation and filing of an application with the Israeli Office of
Chief Scientist and ongoing advice in executing the approved application.

- 39 -

---

---

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

|1. | approved
by our audit committee; or
|-- | -----------------------------------

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

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

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

- 40 -

---

---

# PART IV

# Item 15. Exhibits.

|3.1* |  | Composite
Copy of the Company's Articles of Incorporation as amended on June 4, 2008 and on July 1,
2008.
|---- |  | ---------------------------------------------------------------------------------------------------------

|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 |  | 2003
Stock Option Plan (incorporated by reference to Exhibit 4.1 of our registration statement
on Form S-8 filed on December 29, 2003).+
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | An
amended 2005 Stock Option Plan (incorporated by reference to Exhibit 99.1 of our current
         report on Form 8-K filed on May 24, 2007).+
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 |  | Form
of Common Stock Purchase Warrant (incorporated by reference from Exhibit 4.1 of our
         current report on Form 8-K filed on August 6, 2008).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Common
Stock Purchase Warrant dated September 22, 2008 with Bangor Holdings Ltd.
         (incorporated by reference from Exhibit 4.1 of our current report on Form 8-K
         filed on September 23, 2008.)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Exclusive,
World Wide Patent and Technology License and Assignment Agreement (incorporated by
reference to Exhibit 10.1 of our Current Report on Form 8-K filed May 6, 2003).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Consulting
Agreement dated September 26, 2005 with Rose High Tech Ltd. (incorporated by reference to
Exhibit 10.25 of our quarterly report on Form 10-QSB filed February 9, 2006).+
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Consulting
Agreement dated November 24, 2005 with Meretzki Consulting Ltd. (incorporated by
reference to Exhibit 10.24 of our quarterly report on Form 10-QSB filed February 9,
2006).+
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Form
of Stock Option Agreement (incorporated by reference to Exhibit 10.1 of our current
report on Form 8-K filed on January 19, 2006).+
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | Assignment
Agreement dated May 15, 2007 with each of Technion Research and          Development
Foundation Ltd., Shai Meretzki, Dr. Shoshana Merchav (incorporated by          reference
to Exhibit 10.1 of our current report on Form 8-K filed on May 24, 2007).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | Assignment
Agreement dated May 15, 2007 with Yeda Research and Development Ltd. in
         (incorporated by reference to Exhibit 10.2 of our current report on Form 8-K
filed          on May 24, 2007).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | Subscription
Agreement dated May 17, 2007 in respect of a private placement          (incorporated by
reference to Exhibit 10.3 of our current report on Form 8-K filed          on May 24,
2007).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Placement
Agency Agreement dated July 31, 2008 with Rodman & Renshaw (incorporated          by
reference to Exhibit 1.1 of our current report on Form 8-K filed on August 6,
         2008)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Securities
Purchase Agreement dated August 5, 2008 with the investors named          therein
(incorporated by reference from Exhibit 10.1 of our current report on Form          8-K
filed on August 6, 2008).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 41 -

---

---

|10.10 |  | Securities
Purchase Agreement with Bangor Holdings Ltd. (incorporated by reference          from
Exhibit 10.1 of our current report on Form 8-K filed on September 23, 2008.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14.1 |  | Code
of Business Conduct and Ethics and Compliance Program adopted by the Board of Directors
(incorporated by reference to Exhibit 14.1 of our annual report on Form 10-KSB filed on
September 23, 2005).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21.1* |  | List
of Subsidiaries of the Company.
|----- |  | ------------------------------------

|23.1* |  | Consent
of Kost Forer Gabbay & Kasierer, A member of Ernst & Young Global.
|----- |  | --------------------------------------------------------------------------

|31.1* |  | Certification
pursuant to Rule 13a-14(a)/15d-14(a) of Zami Aberman.
|----- |  | -------------------------------------------------------------------

|31.2* |  | Certification
pursuant to Rule 13a-14(a)/15d-14(a) of 2002 of Yaky Yanay.
|----- |  | -------------------------------------------------------------------------

|32.1** |  | Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|------ |  | ----------------------------------------------------------------------------------------------------------------------

|32.2** |  | Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|------ |  | ----------------------------------------------------------------------------------------------------------------------

* Filed herewith.

** Furnished herewith

+ Management contract or compensation
plan.

- 42 -

---

---

# SIGNATURES

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

Pluristem Therapeutics
Inc.

By: /s/ Zami Aberman(Zami Aberman, Chief Executive Officer,
Principal Executive Officer)
Date: September 24, 2008
By: /s/ Yaky YanayYaky Yanay, Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: September 24, 2008

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

By: /s/ Zami AbermanZami Aberman, Chief Executive Officer
(Principal Executive Officer)
Co. Chairman of the Board and Director
Dated: September 24, 2008
By: /s/ Yaky YanayYaky Yanay, Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: September 24, 2008
By: /s/ Doron ShorrerDoron Shorrer, Director
Dated: September 24, 2008
By: /s/ Hava MeretzkiHava Meretzki, Director
Dated: September 24, 2008
By: /s/ Isaac BraunIsaac Braun, Director
Dated: September 24, 2008
By: /s/ Israel Ben-YoramIsrael Ben-Yoram, Director
Dated: September 24, 2008
By: /s/ Nachum RosmanNachum Rosman, Director
Dated: September 24, 2008
By: /s/ Mark GermainMark Germain, Co-Chairman of the Board and Directors
Dated: September 24, 2008

- 43 -

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