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UNITED STATES**SECURITIES AND EXCHANGE COMMISSION**
  Washington, D.C. 20549

FORM 10-KSB

(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, 2007

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [   ] to [  
]

Commission file number 001-31392

PLURISTEM LIFE SYSTEMS, INC.(Name of small business issuer in its charter)

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

Issuer's telephone number 011-972-4-850-1080

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

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|Nil                 | Nil                                      

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

Common Shares, par value $0.00001(Title of class)

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

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

State issuer's revenues for its most recent fiscal year. Nil

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 sold, or the average bid and asked

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prices of such common equity, as of a specified date within 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

Note: If determining whether a person is an affiliate will
involve an unreasonable effort and expense, the issuer may calculate the
aggregate market value of the common equity held by non-affiliates on the basis
of reasonable assumptions, if the assumptions are stated.

738,150,207 @ $0.04(1)=
$29,526,008.28 (1)Average of bid and ask closing prices
on August 28, 2007.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's
classes of equity stock, as of the latest practicable date.

1,156,195,593 as of August28, 2007.

Transitional Small Business Disclosure Format (Check one): Yes
[   ]; No [X].

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PART I

Item 1.Description of Business.

This annual report contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors", that may cause our company's or our industry's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

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

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", and
"Pluristem" mean Pluristem Life Systems, Inc. and our wholly owned subsidiary,
unless otherwise indicated.

Corporate History

We are engaged in the business of the development of the
Mesenchymal and stem cell production technology and the commercialization of
cell therapy products. We were incorporated in the State of Nevada under the
name A.I. Software, Inc. on May 11, 2001. Beginning in July 2001, we were
engaged in software development. Our initial business plan at the time of our
incorporation was premised on the use of artificial intelligence in computer
programming technology and in many areas of the computer, Internet, robotics,
and games industries. On July 1, 2001 we entered into a software development
agreement with Empire Group, a software development firm, to develop for us the
software algorithm program for artificial intelligence software called
Randomix. We were not successful in fully implementing our initial business
plan in regards to our Randomix software. As a result, during March and April of
2003, our Board of Directors conducted an in-depth analysis of our business plan
and related future prospects for software development companies. To better
protect stockholder interests, it was decided to concurrently pursue initiatives
in the biotech industry as an extension to our business.

On May 5, 2003, we entered into a license agreement with the
Weizmann Institute of Science and the Technion-Israel Institute of Technology to
acquire an exclusive license for an innovative stem cell production technology.
This production technology is a three dimensional (3D) cellular expansion
technology, which is now termed PluriX. This technology, if fully developed,
may offer novel solutions to make procedures such as bone marrow transplants and
other methods of cell therapy more accessible to patients suffering from
leukemia, lymphoma, myeloma and a broad range of complicated diseases and
disorders. Under the license agreement we paid $400,000 cash over time. We were
also obligated to pay royalties on our future sales and product or rights
distribution transactions. Also, the Weizmann Institute had an option to assign
all of their patent rights covered by the license agreement to our Company in
exchange for an aggregate of 5% of all of the issued and outstanding share
capital of our company. This option was only exercisable within a 60-day period
commencing from the date when we notified the Weizmann Institute that the market
value of our company had exceeded $25,000,000. On February 26, 2007 and on March
26, 2007 we notified the Weizmann Institute that the market value of our company
had exceeded $25,000,000.

The option held by the Weizmann Institute was not exercised but
on May 22, 2007, we concluded assignment agreements with the owners of the stem
cell production technology and all of the parties

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involved in the license agreement with the Weizmann Institute.
The assignment agreements completed the transfer to us from the Assignors of all
intellectual property that began pursuant to the Exclusive, World Wide Patent
and Technology License and Assignment Agreement of May, 2003.

The assignment agreements are dated effective as of May 15,
2007. The parties who assigned the rights to the technology to our company in
the assignment agreements are the Technion Research and Development Foundation
Ltd., Shai Meretzki, Dr. Shoshana Merchav and Yeda Research and Development Ltd.
(the Assignors).The Assignors assigned to our company the right to certain
patent applications, patent license rights, patentable inventions, counterparts,
re-issuances, re-examinations, continuations, continuations-in-art, divisions,
extensions, whether or not filed, developed, derived or reduced to practice and
any foreign counterparts thereof. We paid $1,962,500 to the Assignors as
follows:

Technion Research and Development
      Foundation Ltd.
    $735,937Yeda Research and Development Ltd.
    $490,625Dr. Shoshana Merchav
    $367,969Shai Meretzki
    $367,969


Our License Agreement with the Weizmann Institute is now
terminated and we are released from any obligation to pay to the Assignors any
future royalties.

To enable us to conduct further research and development of the
stem cell production technology we acquired from the Weizmann Institute of
Science and the Technion-Israel Institute of Technology, on June 10, 2003, 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 consideration
for the shares of Pluristem, Ltd., we paid to the shareholder of Pluristem, Ltd.
cash in the amount of $1,000 and provided Pluristem, Ltd. with a line of credit
in the amount of $500,000. Accordingly, 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. The name change was effected with the
Nevada Secretary of State on June 25, 2003 and took effect with the OTCBB at the
opening of trading on June 30, 2003 under our new stock symbol PLRS. From May
2003 until March 2006, our business has focussed on the development of the stem
cell production technology. Originally, our plan was to develop that technology
to the point where we could sub-license it to medical scientists and
practitioners for their use in producing cell therapy products for their own use
for sale in the marketplace. On March 6, 2006, we announced that our company was
taking a new direction. Now, instead of looking to sub-lease the stem cell
production technology, we will focus on developing the technology with the goal
of producing cell therapy products 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 Transplants: engrafted cells increased 3 to 5 times using Pluristem
Ltd.s innovative adjuvant cell therapy product known as PLX-I. PLX-I, by adding
mesenchymal stromal cells during bone marrow transplant procedures that use
umbilical cord blood samples, is intended to offer a breakthrough solution to
improved engraftment of blood-producing hematopoeitic stem cells.

On February 21, 2007, we entered into a Binding Letter of Intent
  with Stem Cell Innovation INC (Stem Cell) according to which, Stem
  Cell would license from our subsidiary certain marketing rights of the PLX I
  product in Asia, excluding Japan and 3-D stem cell expansion capability in exchange
  for an upfront license fee of 23,000,000 shares and some milestone payments,
  royalties and other payments. In addition, we would issue to Stem Cell 66,000,000
  shares of common stock and a five-year non-callable warrant to buy 66,000,000
  shares at an exercise price of $0.03 per share. In exchange, Stem Cell would
  issue to us 27,000,000 shares. The Letter of Intent expired on April 10, 2007.
  Currently we are in negotiation with Stem Cell for the closing of the share
  swap and license agreement.

On May 7, 2007, our shares began trading on Europe's Frankfurt
Stock Exchange, under the symbol PJT.

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Our Current Business

We are dedicated to the commercialization of cell therapy
(technology that replaces or help to replace (regenerate) diseased or
dysfunctional cells with healthy, functioning ones) to treat severe blood,
cardiovascular, autoimmune, and other disorders. We use stem cells for its cell
therapy products, as these stem cells have the potential to treat a range of
complicated diseases, such as leukemia, lymphoma, myeloma, and other diseases.
Stem cells are unspecialized cells that can renew themselves for long periods
through cell division and have the ability to differentiate into specialized
cells (e.g. nerve cells, blood cells, lung cells, etc.). Our first product,
PLX-I, seeks to address the global shortage of matched tissue for bone marrow
transplant (BMT) patients, with the intent of eliminating the currently
deficient BMT search-and-match process. Unlike BMTs, where a perfect tissue
match between donor and patient is required to perform a transplant, we employ
umbilical cord blood (UCB) as a source of hematopoietic stem cells that are
needed for the transplant. Because these cells are younger and less likely to be
rejected by the immune system, they can be used successfully even when there is
only a half-match. This means that ~95% of patients seeking stem cell
transplants may find a compatible donor versus traditional methods, where only
approximately 30% of patients find a match. The key to using UCB lies in finding
ways to enlarge the quantity of hematopoietic stem cells to improve engraftment.

Our technology is intended to improve the engraftment process
of the hematopoietic stem cells found in UCB. Engraftment is the process by
which newly transplanted stem cells begin to produce normal quantities of mature
cells in the body. This is accomplished by using our most advanced cell therapy
product, PLX-I. PLX-I is based on expanding mesenchymal stem cells from a
placenta obtained after birth (known as Placenta expanded or PLX cells) and
cultivating these cells with the Companys proprietary PluriX Bioreactor
System. By co-transplanting both mesenchymal stem cells and hematopoietic stem
cells, Pluristem aims to improve the engraftment rate of the hematopoietic stem
cells. This System mimics the natural environment of human bone marrow and
permits stem cells to expand (grow and replicate) outside of the body devoid of
differentiationa difficulty encountered by current stem cell-expansion
technologies. A mesenchymal stem cell is a type of adult stem cell found in both
the bone marrow and placenta that can differentiate into a variety of
non-hematopoietic cells, such as bone, cartilage, muscle, and neural cells. A
hematopoietic stem cell can be isolated from peripheral blood, UCB, or bone
marrow, can self-renew, differentiate into a variety of specialized
blood-producing cells (e.g. red blood cells, white blood cells, or platelets),
move out of the bone marrow into circulating blood, and undergo apoptosis
(programmed cell death)a process by which cells that are detrimental or
unneeded self-destruct. The Companys potential therapeutic products are
intended to be used as an alternative or improvement to the cells currently
harvested and used in BMTs. Scientists have found that taking hematopoietic stem
cells from tissues at earlier development stages (such as UCB) have a greater
ability to self-replicate and are less likely to be rejected by the immune
systempossibly making them more useful for therapeutic transplantation.
Furthermore, to our knowledge, there is no such technology that can increase the
number of mesenchymal stem cells taken from a placenta without causing
differentiation.

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 mesenchymal stem cells from the
placenta.

Bone Marrow Transplants (BMTs)

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

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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.

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.

Our Technology and Products

We are developing a platform designed to improve upon the
current cell therapy technology as well as to create a more functional stem cell
production system that can treat severe blood, cardiovascular, autoimmune, and
other disorders.

Our PluriX Bioreactor System

The foundation for the Companys technology is its PluriX
  Bioreactor System, designed to be a system of stromal cell cultures and substrates
  that creates an artificial physiological environment where mesenchymal stem
  cells can grow and reproduce outside of the human body without any use of exogenous
  biologics or pharmacologicals, eliminating the risk of genetic instability.
  Unlike conventional two dimensional (2D) culturing methods, our PluriX
  Bioreactor creates a three-dimensional (3D) microenvironment that closely resembles
  the structure and function of the bodys bone marrow environment. By mimicking
  the natural environment that exists within human bones, the System tricks
  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. We
  believe that the PluriX Bioreactor System, once fully developed, may enable
  the expansion of certain stem cells, such as UCB hematopoietic stem cells, for
  which there may otherwise be insufficient quantities available for transplants
  in adults. As such, we hope to combat current stem cell shortages and improve
  access to transplants.

PLX-I

PLX-I is being developed as an allogeneic therapeutic product
to supplement the UCB hematopoietic

stem cells with supportive cells (mesenchymal stem cells), with
the goal of improving the effectiveness of engraftments and shortening patient
recovery times. We retrieve mesenchymal stem cells from the placenta (obtained
after birth) and place these cells in its PluriX Bioreactor System. The PluriX
Bioreactor expands these cells over several weeks. After expansion, the
mesenchymal stem cells are separated from the 3D culture used in the PluriX
Bioreactor. These separated cells are known as PLX-I. Following production,
PLX-I is 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 ~95% of patients), PLX-I is ready for use
immediately upon arrival at the hospital, where it is injected into the patient
a few hours prior to the UCB injection to improve the engraftment process.
Additionally, multiple PLX-I injections may be able to boost engraftment of
the hematopoietic stem cells found in UCB.

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Recently published animal 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-I 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.

Markets for Our Product and Services

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 annuallyworldwide. Approximately 18,000 of these
bone marrow transplants are performed in the United States and approximately
25,000 are performed in Europe. We have not taken steps to determine the number
of bone marrow transplants performed elsewhere. Of the 40,000 to 50,000 bone
marrow transplants performed, only 5,000 are performed on babies and children.
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. Based on the fact that only one in three patients
actually finds a compatible donor, if we succeed in developing stem cells that
will be compatible with more patients, as we are trying to do, we estimate that
the number of potential bone marrow transplants in the United States and Europe
would likely exceed 150,000 annually. Based on these statistics, we believe that
the existing methods of transplanting human bone marrow have not been perfected
and are far from reaching an ideal level of success.

Presently, standard bone marrow transplant procedure costs
approximately $100,000 per patient. 150,000 potential patients times $100,000
per patient represent $15 billion. This translates into approximately $15
billion annuallythat patients and their medical insurers around the
world may be spending. 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 decrease.

Intellectual Property

Our success will depend in part on our ability, and the ability
of our patent protection for our technology and products.

Our patented technology, entitled Method and Apparatus for
Maintenance and Production of Hematopoietic Stem Cells and/or Progenitor Cells,
is patented in Australia, Russia, New Zealand and South Africa and we have
patents pending on it in the U.S., Canada, Japan, Mexico and elsewhere. The
table below shows details of the patents and patent applications for the Method
and Apparatus for Maintenance and Production of Hematopoietic Stem Cells and/or
Progenitor Cells:

Table: Method and Apparatus for Maintenance and Production of
Hematopoietic Stem Cells and/or Progenitor Cells

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Country
    Earliest Priority
    Filing Date Application No.
    Issue Date Patent No.
    StatusUSA CIP
    4-2-1999 60/118,789
    11-4-2005 11/102,625
    
    PendingJapan NP
    4-2-1999 60/118,789
    4-2-2000 2000-597409
    
    PendingCanada NP
    4-2-1999 60/118,789
    4-2-2000 2,360,664
    
    PendingMexico NP
    4-2-1999 60/118,789
    4-2-2000 PA/a/2001/007820
    
    PendingAustralia NP
    4-2-1999 60/118,789
    4-2-2000 34807/00
    31-7-2003 759719
    GrantedSouth Africa NP
    4-2-1999 60/118,789
    4-2-2000 2001/6483
    30-10-2002 2001/6483
    GrantedEurope NP
    4-2-1999 60/118,789
    4-2-2000 00913340.6
    
    PendingIsrael NP
    4-2-1999 60/118,789
    4-2-2000 144629
    
    PendingChina NP
    4-2-1999 60/118,789
    4-2-2000 00806007.X
    
    PendingRussian FederationNP
    4-2-1999 60/118,789
    4-2-2000 2001124399
    27-3-2005 2249039
    GrantedBrazil NP
    4-2-1999 60/118,789
    4-2-2000 PI0009403-0
    
    PendingNew Zealand NP
    4-2-1999 60/118,789
    4-2-2000 513303
    7-7-2003 513303
    GrantedIndia NP
    4-2-1999 60/118,789
    4-2-2000 2001/01131
    
    PendingHong Kong NP
    4-2-1999 60/118,789
    24-10-2002 02107728.2
    
    PendingUSA DIV
    4-2-1999 60/118,789
    not filed
    
    Not FiledUSA CIP
    4-2-1999 60/118,789
    11-4-2005 11/102,654
    
    PendingUSA CIP
    4-2-1999 60/118,789
    11-4-2005 11/102,623
    
    PendingUSA CIP
    4-2-1999 60/118,789
    11-4-2005 11/102,635
    
    Pending


The table below provides details relating to patent for our
technology entitled Method Of Producing Undifferentiated Hemopoietic Stem Cells
Using A Stationary Phase Plug-Flow Bioreactor. This technology describes our
concept of creating a three-dimensional bone-like environment that supports stem
cell production without differentiation.

Table: Method Of Producing Undifferentiated Hemopoietic Stem
Cells Using A Stationary Phase Plug-Flow Bioreactor

Country
    Earliest Priority
    Filing Date Application No.
    Issue Date Patent No.
    StatusUSA NP
    4-2-1999 60/118,789
    4-2-2000 09/890,401
    28-6-2005 6,911,201
    Granted


We have also filed patent applications for our technology entitled
  Three Dimensional Scaffolds For Ex-Vivo Expansion Of Stem Cells And Their
  Transplantion. The table below provides some details related to the filings
  of those patent applications:

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Table: Three Dimensional Scaffolds For Ex-Vivo Expansion Of Stem Cells And
  Their Transplantation

Country
    Filing Date Application No.
    StatusUSA PRO
    9-6-2005 60/688,690
    Re-FiledUSA PRO
    12-6-2006 60/812,597
    Re-FiledUSA PRO
    13-6-2007 60/929,097
    Filed


The validity and breadth of claims in medical technology and
products patents involve complex legal and factual questions and, therefore, may
be highly uncertain. No assurance can be given that any patents based on pending
patent applications or any future patent applications by us, will be issued,
that the scope of any patent protection will exclude competitors or provide
competitive advantages to us, that any of the patents that have been or may be
issued to us will be held valid if subsequently challenged or that others will
not claim rights in or ownership of our patents and our other proprietary
rights. 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 maintained in
secrecy until patents are issued, we also can not be certain that others did not
first file applications for inventions covered by our, pending patent
applications, nor can we be certain that we will not infringe any patents that
may be issued to others on such applications.

We rely on the patent rights related to our core technology,
the PluriX Bioreactor system. On May 22, 2007, we completed assignment
agreements dated May 15, 2007 with each of Technion Research and Development
Foundation Ltd., Shai Meretzki, Dr. Shoshana Merchav and Yeda Research and
Development Ltd. (the Assignors), whereby the Assignors assigned to our
company the right to certain patent applications, patent license rights,
patentable inventions, counterparts, re-issuances, re-examinations,
continuations, continuations-in-art, divisions, extensions, whether or not
filed, developed, derived or reduced to practice and any foreign counterparts
thereof. The assignment completes the transfer of all intellectual property
acquired from the Assignors in the Exclusive, World Wide Patent and Technology
License and Assignment Agreement of May 2003.

We also rely on trade secrets and unpatentable know-how that we
seek to protect, in part, by confidentiality agreements. It has not been, but is
now our intended policy to require our employees, consultants, contractors,
manufacturers, outside scientific collaborators and sponsored researchers, board
of directors, technical review board and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements will provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific limited circumstances. We also will commence
to require signed confidentiality or material transfer agreements from any
company that is to receive our confidential information. In the case of
employees, consultants and contractors, the agreements will generally provide
that all inventions conceived by the individual while rendering services to us
shall be assigned to us as the exclusive property of Pluristem, Ltd. There can
be no assurance, however, that all persons who we desire to sign such agreements
will sign, or if they do, that these agreements will not be breached, that we
would have adequate remedies for any breach, or that our trade secrets or
unpatentable know-how will not otherwise become known or be independently
developed by competitors.

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

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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.

Pluristem Life Systems Inc. filed one provisional patent with
the US Patent and Trademark Office for a new procedure for expanding
hematopoeitic stem cells and early progenitor cells from cord blood from non
selected mono-nuclear cells of the cord blood.

The methodologies used in current hematopoeitic stem cells
expansion protocols apply a selection stage before the enrichment stage where
the input cell population is defined by the expression of a cell membrane marker
 CD34. This is a rare subpopulation of cells that are selected from large and
mixed populations of mono-nuclear cells.

The selection process is associated with several drawbacks.
First, it causes a substantial loss of source cells. Second and most
importantly, the selected population of cells may not represent the earliest
extractable population of hematopoeitic stem cells. Pluristems expansion
protocol is intended to overcome both hurdles by using cord blood from
non-selected mono-nuclear cells to fuel the enrichment process.

This approach allows Pluristem to independently utilize two
already patent protected processes: the selection of CD34 cells and use of
proprietary manufactured cytokines.

Pluristems advanced method for expanding target hematopoeitic
stem cells population from cord blood is a two-fold approach. First, a
state-of-the-art patented bioreactor mimicking the natural bone marrow
environment is used. Second, mono-nuclear cells rather than CD34 selected cells
are targeted as the starting source of hematopoeitic stem cells. The efficacy of
the expansion process that utilizes non-selected mono-nuclear cells of the cord
blood is superior to what is currently being achieved by using CD34 selected
cells as the starting population of cells.

In May 2006, our subsidiary, Pluristem Ltd., filed an
application for a provisional patent with the US Patent and Trademark Office for
its stem cell therapy product known as PLX-I. PLX-I is intended to offer a
breakthrough solution to improved engraftment during bone marrow transplant
procedures that use umbilical cord blood. On March 23, 2007 Pluristem Ltd.,
filed an application for PCT for the same patent.

PLX-I, which consists of propagated mesenchymal stem cells that
can be co-transplanted along with the hematopoietic stem cells, is expected to
significantly improve the engraftment rate of the hematopoietic stem cells.
Initial findings suggest that the transplantation of PLX I locally into the
injured area or into patients vanes may help to achieve better recovery of
other disorders like Limb ischemia or Parkinson.

The role of PLX-I is to improve the homing of hematopoietic
stem cells and their lodgment into the patient hematopoietic niche using
mesenchymal cells. This new technology is based on Pluristems ex vivo expanded
mesenchymal cells that are expanded within the proprietary PluriXTM high-density
3-D cultures system.

The mesenchymal cells are expanded to achieve the quality and
amount required for improving hematopoietic stem cells and progenitor cell
repopulation, and to enhance bone marrow engraftment following stem cell
transplantation.

Research and Development

Foundational Research

For the last five years, the founder and Chief Technology
Officer of our now wholly owned subsidiary, Pluristem, Ltd., Dr. Shai Meretzki,
has made the initial strides in the development of our core technology, the
PluriX Bioreactor system. Research was performed by Dr. Meretzki and his team
in the laboratory of Dr. Shosh Merchav at 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, both

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from the Weizmann Institute of Science. Professor Zipori
specializes in cultures and stromal cells and Dr. Kadouri specializes in the
planning and creation of bioreactors. Special carriers were used in our research
and development process. In addition, this foundational research was conducted
in joint cooperation with the laboratory of SCID-NOD mice at the Weizmann
Institute of Science and with Plumacher Laboratories in Rotterdam. To this end,
Plumacher Laboratories allocated a research physician to the project for over
two years (see Intellectual Property).

Ongoing Research and Development Plan

Based on Pluristems belief that its proprietary PLX cells are
unique and possess favourable immunologic characteristics, the Company expects
to investigate the use of these expanded mesenchymal stem cells in the treatment
of a variety of diseases that could target markets estimated to exceed $30
billion. These diseases include degenerative disorders such as Parkinsons
disease, diabetes, ischemic diseases such as stroke, and a variety of
malignancies. We will also continue to develop our technologies and our
production capabilities including: 3D Stroma Culture Optimization  During this
stage, we are collecting stroma cells from donor placenta tissues and growing
them within the PluriX 3-D culture. We intend to focus on optimizing the
capacity of the PluriX system to support the growth and long-term maintenance
of our high-density three dimensional stromal cells cultures.

Establishment of Master bank of PLX cells.

Regulatory Approval - We intend to prepare and file with the
Food and Drug Administration and other relevant health authorities an
Investigational New Drug or an Investigational application to initiate human
clinical trials designed to demonstrate the safety, efficacy and clinical
benefits of PLX I cells. We intend to carry out all research and development
activities with the advice of a Food and Drug Administration advisor.

Employees

We presently have 17 full time employees and 4 part-time
employees in research and development and 4 full time employees and 1 part time
employees in management through our wholly owned subsidiary, Pluristem, Ltd. We
presently also have 1 full time employee in the USA 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 to
itself. Osiris Therapeutics, Inc. (OSIR-NASDAQ) uses bone marrow stem cells to
create allogeneic products, 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.
(ASTM-NASDAQ) 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 and their
respective technology (ies) are provided below.

- Osiris Therapeutics, Inc. Osiris Therapeutics, Inc. has been
  working since 1992 to develop and commercialize cellular therapies based on
  stem cells isolated from readily available adult bone marrow. These stem cells
  could provide treatments for many disease conditions, as Osiris has developed
  a manufacturing process for the expansion of human mesenchymal stem cells.
  Upon arrival at Osiris, the mesenchymal stem cells are isolated and
  selectively removed from the bone marrow aspirate. These cells are then
  expanded approximately a hundredfold over the course of a month. Once
  expanded, the cells are harvested, packaged, and cryopreserved as an
  in-process intermediate, where a second series of tests ensure the highest
  level of quality and safety. Each packaged intermediate undergoes an
  additional round of a hundredfold expansion to produce the final product.
  Sterility and quality testing complete the process. Osiris has worked with
  qualified vendors to develop a supply chain with established material
  specifications that supports the manufacturing process. All manufacturing
  activities are performed in compliance with the FDAs Good Manufacturing
  Practices (GMP) standards. Osiris is focused on creating allogeneic products
  and is the company with the most comparable technology to Pluristem. The
  company has had success in a Phase II trial, proving the efficacy of its
  product to treat GVHD. Osiris has additional programs underway to treat immune

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- Aastrom Biosciences, Inc. Aastrom Biosciences is developing products
    for the repair or regeneration of multiple human tissues based on its proprietary
    Tissue Repair Cell (TRC) adult stem cell technology. Aastroms TRC products
    contain large numbers of bone marrow stem and progenitor cells that are expanded
    from cells originating from the patient with the companys proprietary
    Aastrom Replicell® manufacturing system. Aastrom has two product candidates
    in Phase I/II clinical trials for bone degeneration and limb ischemia. The
    Company is also developing programs for TRC based therapies to address cardiac
    and neural regeneration indications. In February 2007, Aastrom announced that
    its TRCs received an Orphan Drug designation from the FDA for use in the treatment
    of osteonecrosis of the femoral head and the treatment of dilated cardiomyopathy.
- CellGenix Technologie Transfer GmbH. CellGenix Technologie Transfer
    GmbH develops, manufactures, and markets cell and protein therapeutics for
    tumor and orthopedic patients, as well as high-quality reagents for therapeutic
    ex vivo cell processing. The Companys research focuses on stem cell
    therapy for the regeneration of tissues and organs, tumor immunotherapy, and
    drug targeting for cancer. CellGenix was founded in 1994 as a spin-off of
    the University Hospital Freiburg, and is headquartered in Freiburg, Germany.
- Gamida Cell Ltd. Gamida Cell Ltd. is working on the clinical development
    of hematopoietic stem cell therapeutics for the treatment of cancer, as well
    as future regenerative cell-based medicines for illnesses, such as heart disease
    and neurological disorders. The Company was founded in 1998 based on stem
    cell-expansion technology licensed from Hadassah University Medical Center.
    Gamida Cell employs proprietary technologies for expansion of hematopoietic
    progenitor cells, utilizing small molecules to modulate differentiation of
    cultured cells. The safety of the first developed technology was demonstrated
    in the clinic in a Phase I/II study. Gamida Cell is developing two major product
    lines stemming from different proprietary technologies for the expansion of
    stem/progenitor cells. Product lines include treatments for diseases requiring
    hematopoietic stem cell transplantation or that necessitate tissue regeneration.
    Gamida Cells flagship product, StemEx®, offers a novel solution
    for patients with various critical hematological diseases who are in need
    of a stem cell transplant (e.g. BMT). StemEx®, which received an FDA
    Orphan Drug designation in March 2005, is composed of ex vivo expanded cord
    blood stem/progenitor cells, which are transplanted with nonexpanded cells
    from the same unit. Results of Gamida Cells Phase I/II study of StemEx®
    for the treatment of leukemia and lymphoma demonstrated safety and a trend
    of efficacy.
- Stem Cell Technologies, Inc.Stem Cell Technologies, Inc. supports
    stem cell and many other areas of life science research worldwide by providing
    enabling research tools that are innovative, timely, and of high quality.
    Stem Cell Technologies specialized media and cell separation products
    are available for a wide range of research applications, and are complemented
    by a diverse array of cytokines, antibodies, and tissue culture reagents,
    as well as services including contract assays, proficiency testing, and training.

Government Regulations and Supervision

Once fully developed, we intend to market our stem cells to
research laboratories, clinics and umbilical blood banks primarily in the United
States and in Europe. Accordingly, we believe our 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 Food and Drug Administration,
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 leading from
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.

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We may 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 Food and Drug Administration will
regulate our PLX cells is uncertain.

We understand that the Food and Drug Administration is still in
the process of developing its requirements with respect to somatic cell therapy
and gene cell therapy products and has issued draft documents concerning the
regulation of cellular and tissue-based products. If the Food and Drug
Administration adopts the regulatory approach set forth in the draft document,
the Food and Drug Administration will require regulatory approval for certain
human cellular or tissue based products, including cells produced in the PluriX
Bioreactor system, through a biologic license application.

Regardless of how our technology is regulated, the Federal
Food, Drug, and Cosmetic Act and other Federal statutes and regulations govern
or influence the research, testing, manufacture, safety, labelling, storage,
record-keeping, approval, distribution, use, reporting, advertising and
promotion of our future products. Non-compliance with applicable requirements
can result in civil penalties, recall, injunction or seizure of products,
refusal of the government to approve or clear product approval applications or
to allow us to enter into government supply contracts, withdrawal of previously
approved applications and criminal prosecution.

Product Approval in the United States

On February 8, 2007 we were informed that the United States
Food and Drug Administration's (FDA) Center for Biological Evaluation and
Research (CBER) accepted the Company's proposed Pre-Investigation New Drug
(PreIND) for its PLX-I product in pre-clinical studies for 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. There can be
no assurance that our technology and potential products will ultimately receive
regulatory approval from the Food and Drug Administration. And there can be no
assurance that the Food and Drug Administration will act favourably or in a
timely manner in reviewing submitted applications, and an applicant may
encounter significant difficulties or costs in its efforts to obtain Food and
Drug Administration approvals, in turn, which could delay or preclude the
applicant from marketing any products it may develop. The Food and Drug
Administration may also require post-marketing testing and surveillance of
approved products, or place other conditions on the approvals. These
requirements could cause it to be more difficult or expensive to sell the
products, and could therefore restrict the commercial applications of such
products. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
For patented technologies, delays imposed by the governmental approval process
may materially reduce the period during which an applicant will have the
exclusive right to exploit such technologies.

RISK FACTORS

Much of the information included in this current report
includes or is based upon estimates, projections or other "forward looking
statements". Such forward-looking statements include any projections or
estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein.

Such estimates, projections or other "forward looking
statements" involve various risks and uncertainties as outlined below. We
caution the reader that important factors in some cases have affected and, in
the future, could materially affect actual results and cause actual results to
differ materially from the results expressed in any such estimates, projections
or other "forward looking statements".

Our common shares are considered speculative during the
development of our new business operations. Prospective investors should
consider carefully the risk factors set out below.

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- 14 -

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 doubt 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 were incorporated on May 11,
2001 with a business plan to develop artificial intelligence software called
Randomix. We were not successful in implementing our original business plan in
regard to our Randomix software and as a result we decided in April of 2003 to
pursue initiatives in the biotechnology industry as an extension to our
business. In June of 2003, we acquired our wholly-owned subsidiary, Pluristem,
Ltd., based in Israel to conduct further research and development of the
exclusive stem cell production technology. In May of 2007, we acquired the
rights of ownership to our stem cell production technology, which we had
previously used under license.

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 assure 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, and we had a going concern note
as described in an explanatory paragraph to our consolidated financial
statements for the year ended June 30, 2007.

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, Semple,
Marchal & Cooper, LLP, state in their audit report attached to our audited
consolidated financial statements for the fiscal years that ended January 31,
2007 and 2006 that since we are an exploration stage company, have no
established source of revenue and are dependent on our ability to raise capital
from shareholders or other sources to sustain operations, there is a substantial
doubt that we will be able to continue as a going concern.

Our likelihood of profit 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 profit will be limited severely.

Pluristem is engaged in the business of developing and
commercializing products based on a technology called the PluriX Bioreactor
system. Pluristems PluriX Bioreactor system allows researchers and physicians
to expand mesenchymal stem cells outside of the human body without
differentiation so they may be used in bone marrow transplants (BMTs) and other
methods of cell therapy. We have not realized a profit from our operations to
date and there is little likelihood that it 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 R&D as well
as substantial clinical trials.

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

Our PluriX Bioreactor system and 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 PluriX Bioreactor system and our
potential 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.

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We need to raise additional financing to support the
research and development of our Cell Therapy products and our PluriX Bioreactor
system 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.

On May 22, 2007, we announced that it has closed on a private
equity investment in the Company totaling approximately $13.5 million. The
investors received Pluristem-restricted Common Stock at a price of $0.0125 per
share and a Warrant to purchase additional shares at an exercise price of $0.025
per share. Additionally, on April 4, 2007, the Company announced that as of
Friday, March 30, 2007, it had received approximately $1 million from the
exercise of approximately 15 million Warrants at an exercise price of $0.075.
This represents exercise of more than 25% of our outstanding listed Warrants as
of March 30, 2007. Our ability to continue to develop the PluriX Bioreactor
System and commercialize our potential cell therapy products is dependent upon
our ability to raise significant additional financing when needed. If the
Company is 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 R&D 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.

The Company has limited financial resources and, to date, no
cash flow from operations. It is dependent on our ability to sell our Common
Stock, primarily on a private placement basis, for funds. There can be no
assurance that Pluristem 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 Companys Common Stock in
the future will result in dilution to existing stockholders. Furthermore, there
is no assurance that Pluristem will not incur debt in the future, that it will
have sufficient funds to repay our future indebtedness, or that it will not
default on our future debts, jeopardizing our business viability. Finally, the
Company 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 of our PluriX Bioreactor System and commercialization of our
potential cell therapy products, which could result in the loss of some or all
of ones investment in Pluristems Common Stock.

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 PluriX Bioreactor system and 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 the approval of the Food and Drug Administration 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 PluriX Bioreactor system, or of the cells produced in the PluriX
Bioreactor system, including long-term sustained cell engraftment, or if one or
more patients die or suffer severe complications in future clinical trials, the
Food and Drug Administration or other regulatory authorities could delay or
withhold regulatory approval of our technology and our potential products.

Furthermore, even if we obtain regulatory approval for our
PluriX Bioreactor system and our potential 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 Food and Drug
Administration, 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

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- 16 -

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.

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 PluriX Bioreactor system and our
potential cell therapy products. We intend that our potential products be used
as an alternative or improvement to the cells currently harvested and used in
bone marrow transplants. 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 PluriX Bioreactor system and
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 PluriX Bioreactor
system and our potential cell therapy products will be adopted at a level that
would allow us to operate profitably.

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

The 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 competitive approaches being pursued in
competition to our products, including some by private companies from which
information is difficult to obtain.

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
in the future develop, new products that compete with our products or even
render our products obsolete. Our technology is designed to expand hematopoietic
stem cells outside of the human body without differentiation so they may be used
in bone marrow transplants and other methods of cell therapy. Even if we are
able to demonstrate improved or equivalent results, researchers and
practitioners may not use our products and we will suffer a competitive
disadvantage. Finally, to the extent that others develop new products that
address the targeted application for our products, our business will suffer.

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. 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.

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

We must develop our technology and products in development in
order to become a profitable company. The patents underlying our technology and
our products in development will expire in approximately 2020. If we do not
complete the development of our technology and products in development by then,
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

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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. Significantly, we do not as yet have
patents in the United States or Europe or any other major market, although
patents have been applied for.

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 PluriX Bioreactor system and
market 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 PluriX
Bioreactor system.

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 neighbours and, since September 2000, involving the Palestinian
population, and a state of hostility, varying in degree and intensity, has led
to security and economic problems for Israel and companies based in Israel. 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. Also, since the end of September 2000, there has been
a marked increase in the level of terrorism in Israel, which has significantly
damaged both the Israeli economy and levels of foreign and local investment.

Furthermore, certain of our officers and employees may be
obligated to perform annual reserve duty in the Israel Defence 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.

We will be subject to the requirement that of Section 404 of
the Sarbanes-Oxley Act in the future. If we will be 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 2008, we must

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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 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 judgement 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 or liquidity 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 or liquidity should not
invest in our common stock.

Our stock is considered a penny stock and certain
securities rules may hamper the tradability of our shares in the market.

Shares of our common stock are subject to rules adopted by the
Securities and Exchange Commission that regulate broker-dealer practices in
connection with transactions in penny stocks. Penny stock is defined to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our common stock are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC, which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities.

Item 2.Description of Property

Our principal offices are located at MATAM Advanced Technology
Park, Building No. 20, Haifa, Israel 31905. Our telephone number is
011-972-4-850-1080. We lease our office space from MATAM Advanced Technology
Park on a month-to-month basis and our monthly rental is approximately $7,500.
For the fiscal year ending June 30, 2007 we paid 89,883 for rent. In addition,
on March 29, 2007 we announces that as part of our upgrade the existing
manufacturing facility to Support GMP production Capacity for PLX  I, we have
enlarge the rented area by additional 6,900 square foot will double in size the
Company's facilities.

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Item 3.Legal Proceedings.

We know of no material, existing or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder,
is an adverse party or has a material interest adverse to our interest.

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

There were no matters submitted to a vote of our security
holders either through solicitation of proxies or otherwise in the fourth
quarter of the fiscal year ended June 30, 2007.

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PART II

Item 5.Market for Common Equity and Related
Stockholder Matters.

On December 19, 2002, our common stock received approval for
quotation on the National Association of Securities Dealers Inc.'s
Over-the-Counter Bulletin Board under the name A.I. Software, Inc. and under
the symbol AISF. On April 8, 2003, we effected a fourteen (14) for one (1)
forward stock split. Accordingly, our symbol was changed to ASOW. On June 30,
2003, we effected a name change to Pluristem Life Systems, Inc. and our symbol
was changed to PLRS. The following table reflects the high and low bid
information for our common stock obtained from Yahoo! Finance and reflects
inter-dealer prices, without retail mark-up, markdown or commission, and may not
necessarily represent actual transactions.

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

National Association of Securities Dealers
        **OTC Bulletin Board**Quarter Ended(1)
      High(2)
      Low(2)June 30, 2007
      $0.15
      $0.09March 31, 2007
      $0.14
      $0.02December 31, 2006
      $0.03
      $0.01September 30, 2006
      $0.05
      $0.02June 30, 2006
      $0.07
      $0.04March 31, 2006
      $0.11
      $0.07December 31, 2005
      $0.20
      $0.08September 30, 2005
      $0.25
      $0.11


On August 28, 2007, the closing price for the common stock as
reported by the quotation service operated by the OTC Bulletin Board was $0.04

As of August 28, 2007, there were121 holders of record of our
common stock. As of such date,1,156,195,593 common shares were issued
and outstanding.

Our common shares are issued in registered form. The American
Stock Transfer and Trust Company is the registrar and transfer agent for our
common shares. Their address is 59 Maiden Lane, New York, NY, U.S.A. 10038,
telephone: (212) 936-5100, (1-800) 903-3727.

Dividend Policy

We have not paid any cash dividends on our common stock and
have no present intention of paying any dividends on the shares of our common
stock. 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

All information relating to sales of unregistered securities in
the fiscal year ended June 30, 2007 have been included in current reports on
Form 8-K and quarterly reports on Form 10-QSB previously filed with the
Securities and Exchange Commission.

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 4,100,000 shares of our common stock. As of June 30, 2007, there
were 1,093,251 shares of our common stock still available for future grant under
the plan.

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- 21 -

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 15,000,000 shares of our common stock. On January 24, 2007 our
Board of Directors amended the 2005 Stock Option Plan whereby we reserved for
issuance 280,000,000 shares of our common stock. As of June 30, 2007, there were
7,590,000 shares of our common stock still available for future grant under the
plan.

The following table summarizes certain information regarding
our equity compensation plan:

Plan Category
    Number of securities to be issued upon
      exercise of outstanding options, warrants and rights
    Weighted-average exercise price of
      outstanding options, warrants and rights
    Number of securities remaining available
      for future issuance under equity compensation plans2003 Stock Option Plan (equity compensation plan
      not approved by security holders)
    3,006,749
    $0.07
    1,093,2512005 Stock Option Plan (equity compensation plan
      not approved by security holders)
    272,410,000
    $0.03
    7,590,000Equity compensation plan approved by security
      holders
    Nil
    Nil
    NilTotal
    275,416,749
    $0.03
    8,683,251


Item 6.Plan of Operation.

Overview

You should read the following discussion of our financial
condition and results of operations together with the audited financial
statements and the notes to audited financial statements included elsewhere in
this filing prepared in accordance with accounting principles generally accepted
in the United States. This discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those anticipated in these forward-looking statements.

We are engaged in the business of the development of the
Mesenchymal and stem cell production technology and the commercialization of
cell therapy products. The stem cell production technology, if fully developed
and commercialized, will offer novel solutions to make procedures like bone
marrow transplants and other methods of cell therapy more accessible to patients
suffering from leukemia, lymphoma, myaloma and a broad range of complicated
diseases and disorders.

On June 10, 2003, to enable us to conduct further research and
development of the exclusive license for the stem cell production technology 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 consideration for the shares of Pluristem, Ltd., we paid
to the shareholder of Pluristem, Ltd. cash in the amount of $1,000 and provided
Pluristem, Ltd. with a line of credit in the amount of $500,000. Accordingly,
Pluristem, Ltd. became our wholly owned subsidiary as of June 10, 2003.

From May 2003 until March 2006, our business has focussed on
the development of the stem cell production technology. Originally, our plan was
to develop that technology to the point where we could sub-license it to medical
scientists and practitioners for their use in producing cell therapy products
for their own use for sale in the marketplace. On March 6, 2006, we announced
that our company was taking a new direction. Now, instead of looking to
sub-lease the stem cell production technology, we will focus on developing the
technology with the goal of producing cell therapy products for sale in the
marketplace.

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- 22 -

As agreed in our licensing agreement, we paid $400,000 cash for
our license as of April 27, 2007. The Weizmann Institute of Science and the
Technion-Israel Institute of Technology had the option to assign all of its
patent rights covered by the license agreement to our company in exchange for an
aggregate of 5% of all of the issued and outstanding share capital of our
company. This option was only exerciseable within a 60-day period commencing
from the date when we notified the Weizmann Institute that the market value of
our company had exceeded $25,000,000. On February 26, 2007 and on March 26, 2007
we notified the Weizmann Institute that the market value of our company had
exceeded $25,000,000.

The option held by the Weizmann Institute was not exercised but
on May 22, 2007, we concluded assignment agreements with the owners of the stem
cell production technology and all of the parties involved in the license
agreement with the Weizmann Institute. The assignment agreements completed the
transfer to us from the Assignors of all intellectual property that began
pursuant to the Exclusive, World Wide Patent and Technology License and
Assignment Agreement of May 2003.

The assignment agreements are dated effective as of May 15,
2007. The parties who assigned the rights to the technology to our company in
the assignment agreements are the Technion Research and Development Foundation
Ltd., Shai Meretzki, Dr. Shoshana Merchav and Yeda Research and Development Ltd.
(the Assignors). The Assignors assigned to our company the right to certain
patent applications, patent license rights, patentable inventions, counterparts,
re-issuances, re-examinations, continuations, continuations-in-art, divisions,
extensions, whether or not filed, developed, derived or reduced to practice and
any foreign counterparts thereof. The consideration we agreed to pay for the
assignment of agreements was $1,962,500, payable to the Assignors as follows:

Technion Research and Development
      Foundation Ltd.
    $735,937Yeda Research and Development Ltd.
    $490,625Dr. Shoshana Merchav
    $367,969Shai Meretzki
    $367,969


Our License Agreement with the Weizmann Institute is now
terminated and we are released from any obligation to pay to the Assignors any
future royalties.

To enable us to conduct further research and development of the
stem cell production technology we acquired from the Weizmann Institute of
Science and the Technion-Israel Institute of Technology, on June 10, 2003, 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 consideration
for the shares of Pluristem, Ltd., we paid to the shareholder of Pluristem, Ltd.
cash in the amount of $1,000 and provided Pluristem, Ltd. with a line of credit
in the amount of $500,000. Accordingly, Pluristem, Ltd. became our wholly-owned
subsidiary as of June 10, 2003.

Planned Operations

Over the next twelve months, we intend to pursue our primary
objective of developing our technology and process to the point where we can
produce stem cell therapy products through the process performed in the PluriX
Bioreactor. We intend to first develop methods for the preparation of the cord
blood seed and its freezing and thawing. We also intend to begin the
development of the stromal cells and establish a PLX-I cell bank. We also intend
to set up a quality assurance plan and compliance procedures and implement them.
We also would like to set up a documentation center. If these stages of
development go well, we may be in a position to manufacture PLX I in our
facilities.

We also intend to initiate contact with research centers and
cord blood banks to establish cooperative relations for future business
development.

We plan to continue our application for grants with the Office
of Chief Scientist in Israel regarding the grant received from the Israeli
government. We will use this grants in order to support our Research and
Development plan.

We plan to continue our efforts to complete 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.

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- 23 -

Costs

We have not generated any revenues and we have accumulated a
deficit of $15,517,980 since our inception on May 11, 2001 to the year ended
June 30, 2007. This negative cash flow is mostly attributable to our operation
expenses, including but not limited to, research and development expense and the
payment of our audit fees and legal fees. We anticipate that our operating
expenses will increase as we intend to conduct detailed development of our first
product - hematopoietic stem cells, animal pre-clinical trials and experiments
and clinical trials and work towards its completion. We estimate our expenses in
the next twelve months will be approximately $4,250,000, generally falling in
two major categories: research and development costs and general and
administrative expenses. These expenses do not include any stock based
compensation measured in accordance to Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)) FASB
123R.

Research and Development Costs

For the next twelve months, we estimate that our research and
development costs will be approximately $2,250,000. These expenses do not
include any stock based compensation measured in accordance to Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123(R)) FASB 123R. We intend to spend our research and development costs
on optimizing the 3-D bioreactor operations, developing the expanded of our
Placenta Mesenchymal stem cell product and developing the capabilities for
entering to new clinical indication using of PLX cells.

General and Administrative Expenses

For the next twelve months, we estimate that our 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.

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 should achieve the following
events or milestones in the next twelve months in order for us to begin
generating revenues as planned in three years or more:

- Optimize 3-D PluriXTMBioreactor operations  We have made
  progress using the 3-D environment of the PluriXTMto produce a
  dense population of stromal supporting cells that provide a basis for stem
  cell in vitro production without differentiation. However, to have a potential
  product that we might eventually be able to market, we must continue to try to
  develop the bioreactor system until it can produce stem cells that will
  self-renew while remaining in their original state;
- Improve the analytical methods of our technology and processes;
- Conduct studies to analyze the hematopeoietic stem cell to reconstitute the
  hematopoietic system within animal model. Trials are planned using SCID mice,
  which are mice with insufficient immune systems that can be used to simulate
  human blood and immune systems. Using this model, the human hematopoietic stem
  cell may develop and differentiate Pluristem's in vitro production process to
  be analyzed in vivo.
- To start the first Phase I clinical trial with the PLX I after the Food and
  Drug Administration approval.
- Establish relations with research centers and cord blood banks.

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- 24 -

Liquidity and Capital Resources

During the year ended June 30, 2007, we incurred a net loss of
$8,428,900, as compared to a net loss of $2,439,724 in the year ended June 30,
2006. The net loss includes stock based compensation to employees and
consultants of $3,305,874 during the year ended June 30, 2007, as compared to an
amount of $114,800 in the year ended June 30, 2006 and an expense in the amount
of $1,962,500 regarding the Assignment Agreement dated May 15, 2007. This
resulted from moving forward with our research and development plan. We obtained
funds to carry on our business from private placements we conducted in October
of 2004 and January of 2005, which raised gross proceeds of approximately
$3,250,000 through the issuance of 32,500,000 units comprising one common share
and one common share purchase warrants. On April 3, 2006 we raised gross
proceeds of approximately $3,000,000 through the issuance of senior secured
convertible debentures. On March and April 2007, we received approximately $1
million from the exercise of approximately 15 million Warrants related to the
April 3, 2006 issuance. On May 14, 2007, we closed a private placement
consisting of 1,080,000,000 units of our securities at a price of $0.0125 per
unit for gross proceeds of $13,500,000. Each unit consists of one common share
in the capital of our company 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 $0.025 per share for a period of five years. Of the $13,500,000, we
have received all but $5,075,000, of which $5,000,000 is being paid in monthly
installments over 10 months starting six months from closing. As at June 30,
2007 we had cash of $1,653,087 and marketable securities in the value of $
3,758,327.

While we expect that we have sufficient funds to operate until
early summer of 2008, we will have to raise additional funds from the market
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 choose to make or product development that is
beyond the scope of what is described in our Plan of Operations will require
additional capital, which must be raised through the issuance additional
securities and/or incurring more debt.

Research and Development

Since June 10, 2003, the date we acquired Pluristem, Ltd., we
set up and began research activities in our clean rooms and laboratory. We built
bioreactors to conduct research and development in a 3-D environment and seeded
stromal cells into the bioreactors to produce the stromal cell culture where the
stem cells will be implanted. Throughout the remainder of 2007, we will continue
with the research and development activities referenced above. Since inception
to June 30, 2007, we have spent $6,373,435 on research and development. We hope
that eventually, all of this cost will be passed on to our customers.

Purchase or Sale of Equipment

With the acquisition of Pluristem Ltd., we obtained much of the
specialized laboratory equipment that we need to conduct our research. This
equipment included incubators, freezers, computers, hot plates, generators,
microscopes, and other equipment. We are in a process of upgrading our
facilities to GMP facilities and we expect that the total expenses will spend
about $500,000 on equipment that we will need to conduct our planned research
and development and manufacturing for the next twelve months.

Going Concern

Due to our being a development stage company and not having
generated revenues, in the consolidated financial statements for the year ended
June 30, 2007, we included an explanatory paragraph regarding concerns about our
ability to continue as a going concern. Our consolidated financial statements
contain additional note disclosures describing the circumstances that lead to
this disclosure.. The continuation of our business is dependent upon us raising
additional financial support. The issuance of additional equity securities by us
could result in a significant dilution in the equity interests of our current
shareholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.

Recently Issued Accounting StandardsFASB Interpretation
No. 48:

In July 2006, the FASB issued FASB Interpretation No. 48
"Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 clarifies the accounting for income taxes

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- 25 -

by prescribing the minimum recognition threshold a tax position
is required to meet before being recognized in the financial statements. FIN 48
utilizes a two-step approach for evaluating tax positions. Recognition (step
one) occurs when an enterprise concludes that a tax position, based solely on
its technical merits, is more-likely-than-not to be sustained upon examination.
Measurement (step two) is only addressed if step one has been satisfied (i.e.,
the position is more-likely-than-not to be sustained). Under step two, the tax
benefit is measured as the largest amount of benefit, determined on a cumulative
probability basis that is more-likely-than-not to be realized upon ultimate
settlement.

FIN 48 applies to all tax positions related to income taxes
subject to the Financial Accounting Standard Board Statement No. 109,
"Accounting for income taxes" ("FAS 109"). This includes tax positions
considered to be "routine" as well as those with a high degree of
uncertainty.

FIN 48 has expanded disclosure requirements, which include a
tabular roll forward of the beginning and ending aggregate unrecognized tax
benefits as well as specific detail related to tax uncertainties for which it is
reasonably possible the amount of unrecognized tax benefit will significantly
increase or decrease within twelve months. These disclosures are required at
each annual reporting period unless a significant change occurs in an interim
period.

FIN 48 is effective for fiscal years beginning after December
15, 2006. The cumulative effect of applying FIN 48 will be reported as an
adjustment to the opening balance of retained earnings. The Company is currently
evaluating the impact of adopting FIN 48.

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 SFAS No. 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. We are currently evaluating
the impact of adopting SFAS 157.

SFAS No. 159:

In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities. 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. The Standard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. We are currently evaluating the impact of
adopting SFAS 159.

Item 7.APPLICATION OF CRITICAL ACCOUNTING
POLICIES

Our financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
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.

Options

On July 1, 2006, we 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

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- 26 -

Exchange Commission issued Staff Accounting Bulletin No. 107
("SAB 107") relating to SFAS 123(R). The Company has applied the provisions of
SAB 107 in its adoption of SFAS 123(R).

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

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

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 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.

We 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. The fair
value of these options was estimated using the Black-Scholes-Merton
option-pricing model.

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 assuming 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 $15,517,980 since inception through the year ended June
30, 2007.

Off Balance Sheet Arrangements

Our company has no off balance sheet arrangements.

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- 27 -

Item 8.Financial Statements

Our financial statements are stated in United States dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

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

|Report
      of Independent Registered Public Accounting Firm, dated August 29, 2007
      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                                                   

---



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

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2007

IN U.S. DOLLARS



---





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

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2007

IN U.S. DOLLARS







INDEX

|                                                           | Page 
|---------------------------------------------------------- | -----
|                                                           |      
|Report of Independent Registered Public Accounting Firm    | 2    
|                                                           |      
|Consolidated Balance Sheet                                 | 3-4  
|                                                           |      
|Consolidated Statements of Operations                      | 5    
|                                                           |      
|Statements of changes in Stockholders Equity (Deficiency) | 6-12 
|                                                           |      
|Consolidated Statements of Cash Flows                      | 13-14
|                                                           |      
|Notes to Consolidated Financial Statements                 | 15-42

1

---

| | ERNST & YOUNG
| | -------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
  To The Stockholders

Of PLURISTEM LIFE SYSTEMS INC.(A Development Stage Company)

We have audited the accompanying consolidated balance sheet of
  Pluristem Life Systems Inc. (a development stage company) ("the Company"), and
  its subsidiary as of June 30, 2007 and the related consolidated statements of
  operations, changes in stockholders' equity (deficiency) and cash flows for
  each of the two years in the period ended June 30, 2007 and for the period from
  May 11, 2001 (inception date) through June 30, 2007. These consolidate financial
  statements are the responsibility of the Company's management. Our responsibility
  is to express an opinion on these consolidate 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 and its subsidiary as of June 30, 2007, and the consolidated
  results of their operations and their cash flows for each of the two years in
  the period ended June 30, 2007 and for the period from May 11, 2001 (inception
  date) through June 30, 2007, in conformity with U.S. generally accepted accounting
  principles.

As discussed in Note 1c 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 1c, 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.

As discussed in note 2(i) to the consolidated financial statements,
  on July 1, 2006 the Company adopted SFAS 123(R) Share-Based Payment.

Kost Forer Gabbay & Kasierer 
  A member of Ernst & Young Global

Haifa, Israel 
  August 29, 2007

2

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY
|----------------------------------------------
|(A Development Stage Company)                 
|                                              
|                                              
|CONSOLIDATED BALANCE
      SHEET              
|In U.S. Dollars                               

|                             |  |      |  |   | June 30,  | 
|---------------------------- |  | ---- |  | - | --------- | 
|                             |  | Note |  |   | 2007      | 
|ASSETS                       |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|CURRENT ASSETS:              |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|Cash and cash equivalents    |  | 3    |  | $ | 1,653,087 | 
|Marketable securities        |  | 4    |  |   | 3,758,327 | 
|Prepaid expenses             |  |      |  |   | 59,594    | 
|Other accounts receivables   |  | 5    |  |   | 582,433   | 
|Totalcurrent assets          |  |      |  |   | 6,053,441 | 
|                             |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|LONG-TERM ASSETS:            |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|Long-term restricted deposit |  |      |  |   | 124,790   | 
|Severance pay fund           |  |      |  |   | 81,075    | 
|Property and equipment, net  |  | 6    |  |   | 467,613   | 
|Totallong-term assets        |  |      |  |   | 673,478   | 
|                             |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|                             |  |      |  |   |           | 
|Totalassets                  |  |      |  | $ | 6,726,919 | 

The accompanying notes are an integral part of the consolidated
  financial statements.
  3

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY
|----------------------------------------------
|(A Development Stage Company)                 
|                                              
|                                              
|CONSOLIDATED BALANCE
      SHEET              
|In U.S. Dollars                               

|                                                                  |  |      |  |   | **June 30,** |  
|----------------------------------------------------------------- |  | ---- |  | - | ------------ | -
|                                                                  |  | Note |  |   | 2007         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                              |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|CURRENT LIABILITIES:                                              |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|Trade payables                                                    |  |      |  | $ | 364,664      |  
|Accrued expenses                                                  |  |      |  |   | 156,980      |  
|Other accounts payable                                            |  | 7    |  |   | 211,213      |  
|Totalcurrent liabilities                                          |  |      |  |   | 732,857      |  
|                                                                  |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|LONG-TERM LIABILITIES                                             |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|Accrued severance pay                                             |  |      |  |   | 96,885       |  
|                                                                  |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|COMMITMENTS AND CONTINGENCIES                                     |  | 8    |  |   |              |  
|                                                                  |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|STOCKHOLDERS EQUITY                                              |  | 9    |  |   |              |  
|                                                                  |  |      |  |   |              |  
|Share capital:                                                    |  |      |  |   |              |  
|Common stock $0.00001 par value:                                  |  |      |  |   |              |  
|Authorized: 1,400,000,000
      shares                            |  |      |  |   |              |  
|Issued: 996,710,470 shares, Outstanding:
      990,710,470 shares |  |      |  |   | 9,906        |  
|Additional paid-in capital                                        |  |      |  |   | 21,067,604   |  
|Other comprehensive loss                                          |  |      |  |   | (30,322      | )
|Receipts on account of shares                                     |  |      |  |   | 367,969      |  
|Deficit accumulated during the development stage                  |  |      |  |   | (15,517,980  | )
|                                                                  |  |      |  |   | 5,897,177    |  
|                                                                  |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|                                                                  |  |      |  |   |              |  
|                                                                  |  |      |  | $ | 6,726,919    |  

The accompanying notes are an integral part of the consolidated
  financial statements. 
  4

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY   
|-------------------------------------------------
|(A Development Stage Company)                    
|                                                 
|                                                 
|CONSOLIDATED STATEMENTS
      OF OPERATIONS      
|In U.S. Dollars (except share and per share data)

|                                        |  |      |  |   |                |   |   |            |   |   | Period From May 11, |  
|--------------------------------------- |  | ---- |  | - | -------------- | - | - | ---------- | - | - | ------------------- | -
|                                        |  |      |  |   |                |   |   |            |   |   | 2001 (Inception)    |  
|                                        |  |      |  |   | Year Ended     |   |   | Through    |  
|                                        |  | Note |  |   | June
      30, |   |   | June 30,   |  
|                                        |  |      |  |   | 2007           |   |   | 2006       |   |   | 2007                |  
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|Research and development costs          |  | 10   |  | $ | 3,084,606      |   | $ | 1,481,482  |   | $ | 7,288,104           |  
|Less participation by the Office of the |  |      |  |   |                |   |   |            |   |   |                     |  
|Chief Scientist                         |  |      |  |   | (535,325       | ) |   | (182,703   | ) |   | (914,669            | )
|Research and development costs, net     |  |      |  |   | 2,549,281      |   |   | 1,298,779  |   |   | 6,373,435           |  
|General and administrative expenses     |  | 11   |  |   | 3,725,784      |   |   | 1,033,490  |   |   | 7,919,693           |  
|Know how write-off                      |  | 12   |  |   | 1,962,500      |   |   | -          |   |   | 2,473,777           |  
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|                                        |  |      |  |   | 8,237,565      |   |   | 2,332,269  |   |   | 16,766,905          |  
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|Financial expenses (income), net        |  | 13   |  |   | 191,335        |   |   | 107,455    |   |   | (1,248,925          | )
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|Net loss for the period                 |  |      |  | $ | 8,428,900      |   | $ | 2,439,724  |   | $ | 15,517,980          |  
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|Basic and diluted net loss per share    |  |      |  | $ | (0.029         | ) | $ | (0.04      | ) |   |                     |  
|                                        |  |      |  |   |                |   |   |            |   |   |                     |  
|Weighted average number of shares used  |  |      |  |   |                |   |   |            |   |   |                     |  
|in computing basic and diluted net loss |  |      |  |   |                |   |   |            |   |   |                     |  
|per share:                              |  |      |  |   | 288,473,345    |   |   | 63,653,483 |   |   |                     |  

The accompanying notes are an integral part of the consolidated
  financial statements. 
  5

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY                  
|----------------------------------------------------------------
|(A Development Stage Company)                                   
|                                                                
|                                                                
|STATEMENTS OF CHANGES
      IN STOCKHOLDERS EQUITY (DEFICIENCY)
|In U.S. Dollars (except shares data)                            

DeficitAccumulated
      
      
      TotalAdditional
      
      
      Receipts
      
      
      during the
      
      
      StockholdersCommon Stock
      
      
      paid-in
      
      
      On account
      
      
      Development
      
      
      EquityShares
      
      
      Amount
      
      
      Capital
      
      
      of
        shares
      
      
      Stage
      
      
      (Deficiency)Issuance of common stock on July 9, 2001
      35,000,000
      
      $
      350
      
      $
      2,150
      
      $
      -
      
      $
      -
      
      $
      2,500Balance as of June 30, 2001
      35,000,000
      
      
      350
      
      
      2,150
      
      
      -
      
      
      -
      
      
      2,500Net loss
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (77,903
      )
      
      (77,903
      )Balance as of June 30, 2002
      35,000,000
      
      
      350
      
      
      2,150
      
      
      -
      
      
      (77,903
      )
      
      (75,403
      )Issuance of common stock on October 14, 2002,Net of issuance expenses of $17,359
      14,133,000
      
      
      141
      
      
      83,450
      
      
      -
      
      
      -
      
      
      83,591Forgiveness of debt
      -
      
      
      -
      
      
      11,760
      
      
      -
      
      
      -
      
      
      11,760Stocks cancelled on March 19, 2003
      (27,300,000
      )
      
      (273
      )
      
      273
      
      
      -
      
      
      -
      
      
      -Receipts on account of stock and warrants, netof finders and legal
        fees of $56,540
      -
      
      
      -
      
      
      -
      
      
      933,464
      
      
      -
      
      
      933,464Net loss
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (462,995
      )
      
      (462,995
      )Balance as of June 30, 2003
      21,833,000
      
      $
      218
      
      $
      97,633
      
      $
      933,464
      
      $
      (540,898
      )
      $
      490,417


The accompanying notes are an integral part of the consolidated
  financial statements. 
  6

---

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

Deficitaccumulated
      
      
      TotalAdditional
      
      
      Receipts
      
      
      During the
      
      
      ShareholdersCommon Stock
      
      
      paid-in
      
      
      on account
      
      
      development
      
      
      EquityShares
      
      
      Amount
      
      
      Capital
      
      
      of
        shares
      
      
      stage
      
      
      (Deficiency)Balance as of July 1, 2003
      21,833,000
      
      $
      218
      
      $
      97,633
      
      $
      933,464
      
      $
      (540,898
      )
      $
      490,417Issuance of common stock on July 16, 2003,net of issuance expenses of $70,110
      725,483
      
      
      7
      
      
      1,235,752
      
      
      (933,464
      )
      
      -
      
      
      302,295Issuance of common stock on January 20, 2004
      3,000,000
      
      
      30
      
      
      -
      
      
      -
      
      
      -
      
      
      30Issuance of warrants on January 20, 2004 forfinders fee
      -
      
      
      -
      
      
      192,000
      
      
      -
      
      
      -
      
      
      192,000Common stock granted to consultants onFebruary 11, 2004
      1,000,000
      
      
      10
      
      
      799,990
      
      
      -
      
      
      -
      
      
      800,000Stock based compensation related to warrantsgranted to consultants
        on December 31,2003
      -
      
      
      -
      
      
      357,618
      
      
      -
      
      
      -
      
      
      357,618Exercise of warrants onApril 19, 2004
      300,000
      
      
      3
      
      
      224,997
      
      
      -
      
      
      -
      
      
      225,000Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (2,010,350
      )
      
      (2,010,350
      )Balance as of June 30, 2004
      26,858,483
      
      $
      268
      
      $
      2,907,990
      
      $
      -
      
      $
      (2,551,248
      )
      $
      357,010


The accompanying notes are an integral part of the consolidated
  financial statements. 
  7

---

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

Deficitaccumulated
      
      
      TotalAdditional
      
      
      During the
      
      
      ShareholdersCommon Stock
      
      
      paid-in
      
      
      development
      
      
      EquityShares
      
      
      Amount
      
      
      capital
      
      
      stage
      
      
      (Deficiency)Balance as of July 1, 2004
      26,858,483
      
      $
      268
      
      $
      2,907,990
      
      $
      (2,551,248
      )
      $
      357,010Stock-based compensation related to warrantsgranted to consultants on September 30, 2004
      -
      
      
      -
      
      
      161,641
      
      
      -
      
      
      161,641Issuance of common stock and warrants on November 30, 2004related to the October 2004
        Agreement net of issuance costs of$28,908
      3,250,000
      
      
      33
      
      
      296,059
      
      
      -
      
      
      296,092Issuance of common stock and warrants onJanuary 26, 2005 related to the October 2004 Agreement net
        ofissuance costs of $4,975
      4,300,000
      
      
      43
      
      
      424,982
      
      
      -
      
      
      425,025Issuance of common stock and warrants onJanuary 31, 2005 related to the January 31, 2005 Agreement
      7,000,000
      
      
      70
      
      
      -
      
      
      -
      
      
      70Issuance of common stock and options on February
        15, 2005 toformer director of the Company
      50,000
      
      
      (*)
      
      
      14,500
      
      
      -
      
      
      14,500Issuance of common stock and warrants onFebruary 16, 2005 related to the January
        31, 2005 Agreement
      5,000,000
      
      
      50
      
      
      -
      
      
      -
      
      
      50(*) Less then one dollar


The accompanying notes are an integral part of the consolidated
  financial statements. 
  8

---

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

Deficitaccumulated
      
      
      TotalAdditional
      
      
      During the
      
      
      ShareholdersCommon Stock
      
      
      paid-in
      
      
      development
      
      
      EquityShares
      
      
      Amount
      
      
      capital
      
      
      stage
      
      
      (Deficiency)Issuance of warrants on February 16, 2005
        for finder feerelated to the January 31, 2005 Agreement
      -
      
      
      -
      
      
      144,000
      
      
      -
      
      
      144,000Issuance of common stock and warrants onMarch 3, 2005 related to the January 24,
        2005Agreement net of issuance costs of $24,000
      12,000,000
      
      
      120
      
      
      1,175,880
      
      
      -
      
      
      1,176,000Issuance of common stock on March 3, 2005 for finderfee related to the January
        24, 2005 Agreement
      1,845,000
      
      
      18
      
      
      (18
      )
      
      -
      
      
      -Issuance of common stock and warrants onMarch 3, 2005 related to the October 2004 Agreementnet of issuance costs
        of $6,038
      750,000
      
      
      8
      
      
      68,954
      
      
      -
      
      
      68,962Issuance of common stock and warrants to
        the ChiefExecutive Officer on March 23, 2005
      2,400,000
      
      
      24
      
      
      695,976
      
      
      -
      
      
      696,000Issuance of common stock on March 23, 2005 related tothe October 2004 Agreement
      200,000
      
      
      2
      
      
      19,998
      
      
      -
      
      
      20,000


The accompanying notes are an integral part of the consolidated
  financial statements. 
  9

---

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

Deficitaccumulated
      
      
      TotalAdditional
      
      
      during the
      
      
      ShareholdersCommon Stock
      
      
      paid-in
      
      
      development
      
      
      EquityShares
      
      
      Amount
      
      
      capital
      
      
      stage
      
      
      (Deficiency)Classification of a liability in respect
        of warrants toadditional paid in capital, net of issuance
        costs of $178,116
      -
      
      
      -
      
      
      541,884
      
      
      -
      
      
      541,884Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      (2,098,108
      )
      
      (2,098,108
      )Balance as of June 30, 2005
      63,653,483
      
      
      636
      
      
      6,451,846
      
      
      (4,649,356
      )
      
      1,803,126Exercise of warrants on November 28,2005 to finders related to the January 24,2005 agreement
      80,000
      
      
      (*)
      
      
      -
      
      
      -
      
      
      -Exercise of warrants on January 25 ,2006To finders related to the January 25, 2005Agreement
      10,000
      
      
      (*)
      
      
      -
      
      
      -
      
      
      -Reclassification of warrants from equityTo liabilities due to application of EITF00-19 (**)
      -
      
      
      -
      
      
      (7,632
      )
      
      -
      
      
      (7,632
      )Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      (2,439,724
      )
      
      (2,439,724
      )Balance as of June 30, 2006
      63,743,483
      
      $
      636
      
      $
      6,444,214
      
      $
      (7,089,080
      )
      $
      (644,230
      )


The accompanying notes are an integral part of the consolidated
  financial statements. 
  10

---

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

DeficitAccumulated
      
      
      
      
      
      TotalAdditional
      
      
      Receipts
      
      
      Other
      
      
      During the
      
      
      Total
      
      
      ShareholdersCommon
        Stock
      
      
      paid-in
      
      
      on account
      
      
      comprehensive
      
      
      Development
      
      
      Comprehensive
      
      
      EquityShares
      
      
      Amount
      
      
      Capital
      
      
      of
        shares
      
      
      loss
      
      
      stage
      
      
      loss
      
      
      lossBalance as of July 1, 2006
      63,743,483
      
      $
      636
      
      $
      6,444,214
      
      $
      -
      
      $
      -
      
      $
      (7,089,080
      )
      $
      -
      
      $
      (644,230
      )Conversion of convertibledebenture, net of issuance
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      -costs of $440,000
      203,952,201
      
      
      2,040
      
      
      1,785,044
      
      
      -
      
      
      -
      
      
      
      
      
      -
      
      
      1,787,084Classification of a liability inrespect of warrants
      -
      
      
      -
      
      
      359,658
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      359,658Classification of deferredissuance expenses
      -
      
      
      -
      
      
      (378,708
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (378,708
      )Classification of a liability inrespect of options grantedto consultants
      -
      
      
      -
      
      
      116,371
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      116,371Compensation related tooptions granted toemployees
      -
      
      
      -
      
      
      2,386,036
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2,386,036Compensation related tooptions granted toConsultants
      -
      
      
      -
      
      
      937,579
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      937,579Exercise of warrantsrelated to the April 3,2006 agreement
      15,138,261
      
      
      151
      
      
      1,021,682
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1,021,833


The accompanying notes are an integral part of the consolidated
  financial statements. 
  11

---

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

DeficitAccumulated
      
      
      
      
      
      TotalAdditional
      
      
      Receipts
      
      
      Other
      
      
      During the
      
      
      Total
      
      
      ShareholdersCommon
        Stock
      
      
      paid-in
      
      
      on account
      
      
      comprehensive
      
      
      Development
      
      
      Comprehensive
      
      
      EquityShares
      
      
      Amount
      
      
      Capital
      
      
      of
        shares
      
      
      loss
      
      
      stage
      
      
      loss
      
      
      lossCashless exercise ofwarrants related to theApril 3, 2006 agreement
      9,334,712
      
      
      94
      
      
      (94
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Issuance of common stockon May and June 2007related to the May 14, 2007agreement, net of issuancecosts of $64,320
      625,235,040
      
      
      6,252
      
      
      7,744,859
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      7,751,111Receipts on account ofshares
      -
      
      
      -
      
      
      -
      
      
      367,969
      
      
      -
      
      
      -
      
      
      -
      
      
      367,969Cashless exercise ofwarrants related to theMay 14, 2007 issuance
      73,306,773
      
      
      733
      
      
      (733
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Issuance of warrants tothe investors related tothe May 14, 2007agreement
      -
      
      
      -
      
      
      651,696
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      651,696Unrealizd loss on availablefor sale securities
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (30,322
      )
      
      -
      
      
      (30,322
      )
      
      (30,322
      )Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (8,428,900
      )
      
      -
      
      
      (8,428,900
      )Balance as of June 30, 2007
      990,710,470
      
      $
      9,906
      
      $
      21,067,604
      
      $
      367,969
      
      $
      (30,322
      )
      $
      (15,517,980
      )
      $
      (30,322
      )
      $
      5,897,177


The accompanying notes are an integral part of the consolidated
  financial statements. 
  12

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY
|----------------------------------------------
|(A Development Stage Company)                 
|                                              
|                                              
|CONSOLIDATED STATEMENTS
      OF CASH FLOWS   
|In U.S. Dollars                               

|                                                                      |   |            |   |   |             |   |   | Period      |  
|--------------------------------------------------------------------- | - | ---------- | - | - | ----------- | - | - | ----------- | -
|                                                                      |   |            |   |   |             |   |   | from May    |  
|                                                                      |   |            |   |   |             |   |   | 11, 2001    |  
|                                                                      |   | Year ended |   |   | (inception) |  
|                                                                      |   | June 30,   |   |   | through     |  
|                                                                      |   |            |   |   |             |   |   | June 30     |  
|                                                                      |   | 2007       |   |   | 2006        |   |   | 2007        |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                 |   |            |   |   |             |   |   |             |  
|                                                                      |   |            |   |   |             |   |   |             |  
|Net loss                                                              | $ | (8,428,900 | ) | $ | (2,439,724  | ) | $ | (15,517,980 | )
|                                                                      |   |            |   |   |             |   |   |             |  
|Adjustments to reconcile net loss to net cash
      used in operating |   |            |   |   |             |   |   |             |  
|activities:                                                           |   |            |   |   |             |   |   |             |  
|Depreciation and amortization                                         |   | 56,494     |   |   | 42,536      |   |   | 243,063     |  
|Capital gain                                                          |   | 20,053     |   |   | -           |   |   | 3,680       |  
|Know-how write-off                                                    |   | 1,962,500  |   |   | -           |   |   | 2,473,777   |  
|Amortization of deferred issuance costs                               |   | 168,227    |   |   | 205,081     |   |   | 604,031     |  
|Stock-based compensation to employees                                 |   | 2,386,036  |   |   | -           |   |   | 2,386,036   |  
|Stock-based compensation to consultants                               |   | 919,838    |   |   | 114,800     |   |   | 2,380,290   |  
|Know-how licensors  imputed interest                                 |   | -          |   |   | 18,791      |   |   | 54,600      |  
|Salary grant in shares and warrants                                   |   | -          |   |   | -           |   |   | 710,500     |  
|Decrease (increase) in accounts receivable                            |   | (481,362   | ) |   | 46,710      |   |   | (573,596    | )
|Decrease (increase) in prepaid expenses                               |   | 20,470     |   |   | (1,024      | ) |   | 48,147      |  
|Increase in trade payables                                            |   | 79,561     |   |   | 100,030     |   |   | 355,257     |  
|Increase (decrease) in other accounts payable and accrued             |   |            |   |   |             |   |   |             |  
|expenses                                                              |   | 188,295    |   |   | (16,639     | ) |   | (114,036    | )
|Increase in accrued interest due to related parties                   |   | -          |   |   | -           |   |   | 3,450       |  
|Linkage differences and interest on long-term
      restricted        |   |            |   |   |             |   |   |             |  
|lease deposit                                                         |   | -          |   |   | 50          |   |   | (2,164      | )
|Change in fair value of liability in respect
      of warrants        |   | (716,214   | ) |   | (150,000    | ) |   | (2,696,064  | )
|Fair value of warrants granted to investors                           |   | 651,696    |   |   | -           |   |   | 651,696     |  
|Amortization of discount and accrued interest
      on                |   |            |   |   |             |   |   |             |  
|convertible debentures                                                |   | 110,703    |   |   | 17,217      |   |   | 127,920     |  
|Increase in accrued interest on marketable
      securities           |   | (4,903     | ) |   | -           |   |   | (4,903      | )
|Accrued severance pay, net                                            |   | (3,885     | ) |   | 12,825      |   |   | 15,810      |  
|Net cash used in operating activities                                 |   | (3,071,391 | ) |   | (2,049,347  | ) |   | (8,850,486  | )
|                                                                      |   |            |   |   |             |   |   |             |  
|                                                                      |   |            |   |   |             |   |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                 |   |            |   |   |             |   |   |             |  
|Acquisition of Pluristem Ltd. (1)                                     |   | -          |   |   | -           |   |   | 31,899      |  
|Purchase of property and equipment                                    |   | (290,183   | ) |   | (48,140     | ) |   | (532,955    | )
|Proceed from sale of property and equipment                           |   | 717        |   |   | -           |   |   | 29,192      |  
|Purchase of long-term restricted lease deposit                        |   | (96,125    | ) |   | (1,499      | ) |   | (123,670    | )
|Repayment of long-term restricted lease deposit                       |   | -          |   |   | -           |   |   | 19,851      |  
|Purchase of marketable securities                                     |   | (3,783,746 | ) |   | -           |   |   | (3,783,746  | )
|Purchase of know-how                                                  |   | (1,962,500 | ) |   | -           |   |   | (2,062,500  | )
|Net cash used in investing activities                                 |   | (6,131,837 | ) |   | (49,639     | ) |   | (6,421,929  | )

The accompanying notes are an integral part of the consolidated
  financial statements. 
  13

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY
|----------------------------------------------
|(A Development Stage Company)                 
|                                              
|                                              
|CONSOLIDATED STATEMENTS
      OF CASH FLOWS   
|In U.S. Dollars                               

|                                                                   |   |            |   |  |             |  |   | Period     |  
|------------------------------------------------------------------ | - | ---------- | - |  | ----------- |  | - | ---------- | -
|                                                                   |   |            |   |  |             |  |   | from May   |  
|                                                                   |   |            |   |  |             |  |   | 11, 2001   |  
|                                                                   |   | Year ended |   |  | (inception) | 
|                                                                   |   | June 30,   |   |  | through     | 
|                                                                   |   |            |   |  |             |  |   | June 30    |  
|                                                                   |   | 2007       |   |  | 2006        |  |   | 2007       |  
|                                                                   |   |            |   |  |             |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                              |   |            |   |  |             |  |   |            |  
|Issuance of common stock, net of issuance costs                    |   | 7,751,111  |   |  | -           |  |   | 12,437,319 |  
|Receipts on account of shares                                      |   | 367,969    |   |  | -           |  |   | 367,969    |  
|Issuance of warrants                                               |   | -          |   |  | -           |  |   | 1,246,397  |  
|Exercise of warrants                                               |   | 1,021,833  |   |  | -           |  |   | 1,021,833  |  
|Issuance of convertible debenture                                  |   | -          |   |  | 2,583,700   |  |   | 2,583,700  |  
|Issuance expenses related to convertible debentures                |   | (440,000   | ) |  | -           |  |   | (440,000   | )
|Short-term bank credit, net                                        |   | -          |   |  | -           |  |   | (26        | )
|Repayment of know-how licensors                                    |   | (218,750   | ) |  | -           |  |   | (300,000   | )
|Repayment of notes and loan payable to related parties             |   | -          |   |  | -           |  |   | (69,885    | )
|Proceeds from notes and loan payable to related
      parties      |   | -          |   |  | -           |  |   | 78,195     |  
|Net cash provided by financing activities                          |   | 8,482,163  |   |  | 2,583,700   |  |   | 16,925,502 |  
|                                                                   |   |            |   |  |             |  |   |            |  
|Increase (decrease) in cash and cash equivalents                   |   | (721,065   | ) |  | 484,714     |  |   | 1,653,087  |  
|Cash and cash equivalents at the beginning
      of the period     |   | 2,374,152  |   |  | 1,889,438   |  |   | -          |  
|Cash and cash equivalents at the end of the period                 | $ | 1,653,087  |   |  | 2,374,152   |  |   | 1,653,087  |  
|                                                                   |   |            |   |  |             |  |   |            |  
|                                                                   |   |            |   |  |             |  |   |            |  
|                                                                   |   |            |   |  |             |  |   |            |  
|Non-cash investing and financing information:                      |   |            |   |  |             |  |   |            |  
|Classification of liabilities and deferred
      issuance expenses |   |            |   |  |             |  |   |            |  
|into equity                                                        | $ | 97,321     |   |  | -           |  | $ | 97,321     |  
|Decrease in fair value of marketable securities                    | $ | 30,322     |   |  | -           |  | $ | 30,322     |  
|Conversion of convertible debenture                                | $ | 2,227,084  |   |  | -           |  | $ | 2,227,084  |  
|Issuance of common stock as a result of cash
      less exercise   |   |            |   |  |             |  |   |            |  
|of warrants                                                        | $ | 827        |   |  | -           |  | $ | 827        |  
|Prepaid expenses of compensation related to
      options to       |   |            |   |  |             |  |   |            |  
|consultants                                                        | $ | 17,741     |   |  | -           |  | $ | 17,741     |  
|                                                                   |   |            |   |  |             |  |   |            |  
|                                                                   |   |            |   |  |             |  |   |            |  
|(1) Acquisition of Pluristem Ltd.                                  |   |            |   |  |             |  |   |            |  
|                                                                   |   |            |   |  |             |  |   |            |  
|Fair value of assets acquired and                                  |   |            |   |  |             |  |   |            |  
|liabilities assumed at the acquisition date:                       |   |            |   |  |             |  |   |            |  
|                                                                   |   |            |   |  |             |  |   |            |  
|Working capital (excluding cash and cash                           |   |            |   |  |             |  |   |            |  
|equivalents)                                                       |   |            |   |  |             |  | $ | (427,176   | )
|Long-term restricted lease deposit                                 |   |            |   |  |             |  |   | 18,807     |  
|Property and equipment                                             |   |            |   |  |             |  |   | 130,000    |  
|In-process research and development write-off                      |   |            |   |  |             |  |   | 246,470    |  
|                                                                   |   |            |   |  |             |  |   |            |  
|                                                                   |   |            |   |  |             |  | $ | (31,899    | )

The accompanying notes are an integral part of the consolidated
  financial statements. 
  14

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 1:-GENERAL

|A. | Pluristem Life Systems Inc. ("the Company"), a Nevada
        corporation, was incorporated and commenced operations on May 11, 2001,
        under the name A. I. Software Inc. that was changed as of June 30, 2003
        to Pluristem Life Systems Inc. The Company has a wholly owned subsidiary,
        Pluristem Ltd. (the subsidiary) that was incorporated under
        the laws of Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|B. | On May 5, 2003 the Company entered into a license agreement
        with Weizmann Institute of Science and the Technion-Israel Institute of
        Technology to acquire an exclusive license for an innovative stem cell
        expansion technology ("the Technology"). This production technology is
        a three dimensional (3D) cellular expansion technology, which is now termed
        PluriX. This technology, if fully developed, may offer solutions
        to make procedures such as bone marrow transplants and other methods of
        cell therapy more accessible to patients suffering from a broad range
        of complicated diseases and disorders (see Note 12).                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On June 10, 2003, the Company acquired all of the issued
        and outstanding shares of Pluristem Ltd. which was engaged in the research
        and development of expansion of cord blood hematopoetic stem cells, which
        was in line with the Technology license which the Company had purchased
        in May 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|C. | The Company is devoting substantially all of its efforts
        towards conducting research and development of the Mesenchymal and stem
        cell production technology and the commercialization of cell therapy products.
        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 $15,517,980 through June 30, 2007 and
        incurred net loss of $8,428,900 and negative cash flow from operating
        activities in the amount of $3,071,391 for the year ended June 30, 2007.
        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 a combination of stock issuance and private placements and in the
        longer term, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|D. | The Companys common stocks are registered and
        publicly traded on the Over-the- Counter Bulletin Board service of the
        National Association of Securities Dealers, Inc. under the symbol PLRS.OB,
        and commencing May 7, 2007, the Companys shares are also traded
        on Europe's Frankfurt Stock Exchange, under the symbol PJT.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

15

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES

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

|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 subsidiary's management believes
        that the currency of the primary economic environment in which its operations
        are conducted is the dollar. Thus, the functional and reporting 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 wholly owned subsidiary. Intercompany transactions
        and balances have been eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|d. | Cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Cash equivalents are short-term highly liquid investments
        that are readily convertible to cash with maturities of three months or
        less at the date acquired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|e. | Marketable securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Management determines the appropriate classification
        of its investments in marketable debt securities at the time of purchase
        and re-evaluates such designations as of each balance sheet date. During
        2007, 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.                                                                                                                                                                                                                                                                                                                                                                                                                         

16

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|e. | Marketable securities (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | 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
      10Computers and peripheral equipment
      33Office furniture and equipment
      6-15


|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 years ended June 30, 2007, 2006 and for the period
        from inception through June 30, 2007 no impairment losses were identified.

17

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|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. Prior to the adoption
        of SFAS 123(R), the Company accounted for equity-based awards to employees
        and directors using the intrinsic value method in accordance with APB
        25 as allowed under Statement of Financial Accounting Standards No. 123,
        "Accounting for Stock-Based Compensation" ("SFAS 123").                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company adopted SFAS 123(R) using the modified prospective
        transition method, which requires the application of the accounting standard
        starting from 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, 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 straight line
        method over the requisite service period of each of the awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | As a result of adopting SFAS 123(R) as of July 1, 2006,
        the Company's net income for the year ended June 30, 2007, is $118,217
        lower than if it had continued to account for stock-based compensation
        under APB 25. Basic and diluted net loss per share for the year ended
        June 30, 2007, are $0.0004 lower, than if the Company had continued to
        account for share-based compensation under APB 25.                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Prior to July 1, 2006, the Company applied the intrinsic
        value method of accounting for stock options as prescribed by APB 25,
        whereby compensation expense is equal to the excess, if any, of the quoted
        market price of the stock over the exercise price at the grant date of
        the award.                                                                                                                                                                                                                                                                                                                                                                                                                                                           

18

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

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, equal to the expected
        option term. 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, 2007 and 2006
        was estimated using the following weighted average assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Year ended June 30,2007
      
      2006Risk free interest rate
      4.4 - 4.8 %
      
      4.2 - 4.85 %Dividend yields
      0%
      
      0%Volatility
      105 -128 %
      
      104 - 105 %Expected term (in years)
      6
      
      6


The following table illustrates the effect
  on net loss and net loss per share, assuming that the Company had applied the
  fair value recognition provision of SFAS No. 123 on its stock-based employee
  compensation:

| |                                                  |   |            |   |   | Period from May 11, | 
| | ------------------------------------------------ | - | ---------- | - | - | ------------------- | 
| |                                                  |   |            |   |   | 2001 (Inception)    | 
| |                                                  |   | Year ended |   |   | through             | 
| |                                                  |   | June 30    |   |   | June 30             | 
| |                                                  |   | 2006       |   |   | 2007                | 
| |                                                  |   |            |   |   |                     | 
| | Net loss  as Reported                           | $ | 2,439,724  |   | $ | 15,517.980          | 
| |                                                  |   |            |   |   |                     | 
| | Add - stock based employee compensation - fair   |   |            |   |   |                     | 
| | value based method of SFAS123                    |   | 538,003    |   |   | 1,206,516           | 
| |                                                  |   |            |   |   |                     | 
| | Pro forma net loss                               | $ | 2,977,727  |   | $ | 16,724,496          | 
| |                                                  |   |            |   |   |                     | 
| | Basic and diluted net loss per stock as reported | $ | (0.04      | ) |   |                     | 
| |                                                  |   |            |   |   |                     | 
| | Basic and diluted pro forma net loss per stock   | $ | (0.05      | ) |   |                     | 

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.

19

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|j. | Research and Development costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Research and development costs, 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. | Basic and diluted net 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.     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|m. | Concentration of credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Financial instruments that potentially subject the Company
        to concentrations of credit risk consist principally of cash and cash
        equivalents 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 stocks. Based on the above and the
        fact that the portfolio is well diversified, management believes that
        low credit risk exists with respect to these marketable securities.                                             

20

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|n. | Severance pay fund                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | 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, 2006 and 2007 amounted
        to approximately $45,957 and $39,969, respectively.                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|o. | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The carrying amounts of cash and cash equivalents, other
        accounts receivables, prepaid expenses, trade payables and other accounts
        payable, approximate their fair value due to the short-term maturity of
        such instruments.                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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.                                                                                                                                                                                                                                                                                                                                               

21

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|q. | Derivative financial instruments (cont.):                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   | 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, 2007, the Company had forward contract
        with a notional amount of approximately to sell $200,000 and purchase
        NIS 822,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   | The fair value of the forward contract and
        the options as of June 30, 2007 were recorded as a liability of $16,381.                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|r. | Reclassification                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   | Certain amounts from prior years have been
        reclassified to conform to current period presentation. The reclassification
        had no effect on previously reported net loss, shareholders equity or
        cash flows.                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|s. | Impact of recently issued accounting standards                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   | 1.                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                               

22

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|s. | Accounting for stock-based compensation (cont.) -
|-- | -------------------------------------------------

| | 1. | FASB Interpretation No. 48 (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | FIN 48 has expanded disclosure requirements, which include
        a tabular roll forward of the beginning and ending aggregate unrecognized
        tax benefits as well as specific detail related to tax uncertainties for
        which it is reasonably possible the amount of unrecognized tax benefit
        will significantly increase or decrease within twelve months. These disclosures
        are required at each annual reporting period unless a significant change
        occurs in an interim period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | FIN 48 is effective for fiscal years beginning after
        December 15, 2006. The cumulative effect of applying FIN 48 will be reported
        as an adjustment to the opening balance of retained earnings. The Company
        is currently evaluating the impact of adopting FIN 48.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 2. | 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 SFAS No. 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 is currently evaluating the impact of adopting
        SFAS 157.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 3. | SFAS No. 159:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | In February 2007, the FASB issued SFAS No. 159, The
        Fair Value Option for Financial Assets and Financial Liabilities. 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. The Standard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 impact of adopting SFAS 159.                                                                                                               

23

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 3:- CASH AND CASH EQUIVALENTS

June 30,2007In dollars
      $
      1,445,095In New Israeli Shekels (NIS)
      
      207,992$
      1,653,087


NOTE 4:-MARKETABLE SECURITIES

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

June 30, 2007Gross
      
      
      Gross
      
      
      Estimated fairTime to maturity
      
      
      Cost
      
      
      unrealized
      
      
      unrealized
      
      
      market valuegains
      
      
      lossesCorporate Bonds
      
      More than five years
      
      $
      1,884,566
      
      $
      5,269
      
      $
      -
      
      $
      1,889,835One to five years
      
      
      637,095
      
      
      642
      
      
      -
      
      
      637,737Preferred stocks
      
      
      
      
      1,262,085
      
      
      -
      
      
      31,330
      
      
      1,230,755$
      3,783,746
      
      $
      5,911
      
      $
      31,330
      
      $
      3,758,327


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

NOTE 5:-OTHER ACCOUNTS RECEIVABLES

June 30,2007Office of the Chief Scientist
      $
      305,954VAT
      
      242,238Others
      
      34,241$
      582,433


24

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 6:-PROPERTY AND EQUIPMENT, NET

June 30,2007Cost:Laboratory equipment
      $
      533,250Computers and peripheral equipment
      
      74,891Office furniture and equipment
      
      10,428618,569Accumulated depreciation:Laboratory equipment
      
      107,464Computers and peripheral equipment
      
      39,761Office furniture and equipment
      
      3,731150,956Depreciated cost
      $
      467,613


Depreciation expenses amounted to $56,494
  and $42,536 for the years ended June 30, 2007and 2006 respectively.

NOTE 7:-OTHER ACCOUNTS PAYABLE

June 30,2007Accrued payroll
      $
      63,431Payroll institutions
      
      66,902Accrued vacation
      
      64,499Liability in respect of hedge transactions
      
      16,381$
      211,213


25

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 8:-COMMITMENTS AND CONTINGENCIES

|A. | The subsidiary leases facilities under operating lease
        agreements. The average monthly payment in the Year ended June 30, 2007,
        is NIS 32,250 (approximately $7,500) and is linked to the Israeli Consumer
        Price Index ("CPI"). In order to secure these agreements, the subsidiary
        pledged a deposit with the bank in the amount of $25,000. In addition,
        the subsidiary has opened a bank guarantee in favor of the lessor in the
        amount of $19,571.
      Lease expenses amounted $84,117 and $89,883 for the years
        ended June 30, 2006 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | 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 will be $ 15,000 starting of September
        1, 2007. In addition, the lessor will refund the subsidiary the renovation
        costs up to an amount of NIS 650,000 (approximately $153,000). The current
        assets of the Company include an amount of $30,137 to be refund by the
        lessor. 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
        NIS 325,000 is paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|B. | The subsidiary leases 4 cars under operating lease agreement,
        which expire in November 2008, August 2009 and June 2010. The average
        monthly payment is NIS 15,750 (approximately $3,700) and is linked to
        the CPI. In order to secure these agreements, the subsidiary pledged a
        deposit in the amount of $12,206.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Lease expenses amounted to $32,617 and $32,281 for the
        years ended June 30, 2006 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|C. | 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- 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, 2007, total grants obtained aggregate $243,190.

26

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS

|A. | The Company's authorized common stock consists of 1,400,000,000
        shares with a par value of $0.00001 per share. All shares have equal voting
        rights and are entitled to one vote per share in all matters to be voted
        upon by stockholders. The shares have no pre- emptive, subscription, conversion
        or redemption rights and may be issued only as fully paid and non-assessable
        shares. Holders of the common stock are entitled to equal ratable rights
        to dividends and distributions with respect to the common stock, as may
        be declared by the Board of Directors out of funds legally available.                                                                                                                                                                                                                                                                                                                                                                           
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|B. | On July 9, 2001, the Company issued 35,000,000 shares
        of common stock in consideration for $2,500, which was received on July
        27, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On October 14, 2002, the Company issued 14,133,000 shares
        of common stock at a price of approximately $0.007 per common share in
        consideration for $100,950 before offering costs of $17,359.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|C. | On March 19, 2003, two directors each returned 13,650,000
        shares of common stock witha par value of $0.01 per share, for cancellation
        for no consideration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|D. | On March 27, 2003 the Company's Board of Directors authorized
        a 14:1 split of the common stock. Accordingly, all references to number
        of shares, common stock and per share data in the accompanying financial
        statements have been adjusted to reflect the stock split on a retroactive
        basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|E. | In July 2003, the Company issued an aggregate of 725,483
        units comprised of 725,483 common stock and 1,450,966 warrants to a group
        of investors, for total consideration of $1,235,759 (net of issuance costs
        of $70,110), under a private placement. The consideration was paid partly
        in the year ended June 30, 2003 ($933,464) 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 $2.25 per stock, and may be exercised
        within one year. The second warrant is exercisable for one common stock
        at a price of $2.70 per stock, and may be exercised within five years.
        As of June 30, 2005, 725,483 warrants were expired unexercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|F. | On January 20, 2004, the Company consummated a private
        equity placement with a group of investors (the "investors"). The Company
        issued 3,000,000 units in consideration for net proceeds of $1,272,790
        (net of issuance costs of $227,210), each unit is comprised of 3,000,000
        common stock and 3,000,000 warrants. Each warrant is exercisable into
        one common stock at a price of $0.75 per stock, and may be exercised until
        January 31, 2007. On March 18, 2004, a registration statement on Form
        SB-2 has been declared affective and the above-mentioned common stocks
        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.

27

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|F. | (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 were reported in
        the statements of operations as financial income or expense.                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company allocated the gross amount received of $1.5
        million to the par value of the shares issued ($30) and to the liability
        in respect of the warrants issued ($1,499,970). 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 300,000 warrants to
        finders in connection with this private placement, exercisable into 300,000
        common shares at a price of $0.75 per common share until January 31, 2007.
        The fair value of the warrants issued in the amounts of $192,000 was recorded
        as deferred issuance costs and is amortized over a period of 3 years.
        On April 19, 2004, the finders exercised the warrants.                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|G. | In October 2004 the Company commenced a private placement
        offering (the October 2004 Agreement) according to which it
        issued 8,500,000 units. Each unit is compromised of one common stock and
        one warrant. The warrant is exercisable for one common stock at an exercise
        price of $0.30 per stock, subject to certain adjustments. The units were
        issued as follows:                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In November 2004, the Company issued according to the
        October 2004 Agreement 3,250,000 units comprised of 3,250,000 common stock
        and 3,250,000 warrants to a group of investors, for total consideration
        of $296,092 (net of cash issuance costs of $28,908), and additional 120,000
        warrants to finders as finders fee.                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In January 2005 the Company issued according to the
        October 2004 Agreement an additional 4,300,000 units for total consideration
        of $425,025 (net of cash issuance costs of $4,975), and additional 90,000
        warrants were issued to finders as finders fee.                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In March 2005 the Company issued according to the October
        2004 Agreement additional 750,000 units for total consideration of $68,962
        (net of cash issuance costs of $6,038), and additional 35,000 warrants
        were issued to finders as finders fee.                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In March 2005 the Company issued, according to the October
        2004 Agreement 200,000 common shares and 200,000 share purchase warrants
        to one investor for total consideration of $20,000 which were paid to
        the Company in May 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | On November 30, 2006, all the warrants were expired
        unexercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|H. | 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 12,000,000 units in consideration
        for $1,176,000 (net of cash issuance costs of $24,000). Each unit is compromised
        of one common stock and one warrant. The warrant is exercisable for one
        common stock at a price of $0.30 per stock. On November 30, 2006, all
        the warrants were expired unexercised. Under this agreement the Company
        issued to finders 1,845,000 shares and 475,000 warrants with exercise
        price of $2.5 per stock exercisable until November 2007.

28

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|I. | 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
        12,000,000 units in consideration for net proceeds of $1,137,000 (net
        of issuance costs of $63,000). Each unit is comprised of one common stock
        and one warrant. Each warrant is exercisable into one common stock at
        a price of $0.30 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 ($60,000) and issuance of warrants for number
        of shares equal to 5% of the number of shares that were issued (600,000)
        with an exercise price of $0.1 per stock, subject to certain adjustments,
        exercisable until November 30, 2006.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 $1,200,000 to the par value of the shares
        issued ($120) and to the liability in respect of the warrants issued ($1,199,880).
        Issuance expenses in the amount of $63,000 and finders fee in the amount
        of $144,000 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 $720,000 and the amount of the deferred issuance costs was $178,116.                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On November 30, 2006, all the warrants were expired
        unexercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|J. | On March 23, 2005, the Company issued 2,400,000 shares
        of common stock and 2,400,000 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 $696,000 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|K. | On February 11, 2004, the Company issued an aggregate
        amount of 1,000,000 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 $800,000 and was recorded as an operating
        expense in the statement of operations in the year ended June 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

29

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|L. | On November 28, 2005, 80,000 warrants, which were issued
        to finders as finder fees in related to the January 24, 2005 Agreement,
        were exercised to shares.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                             
|M. | On January 25, 2006, 10,000 warrants, which were issued
        to finders as finder fees in related to the January 24, 2005 Agreement,
        were exercised to shares. 
|   |                                                                                                                                                                             
|N. | Convertible Debenture                                                                                                                                                       

| | 1. | On April 3, 2006, the Company issued Senior Secured
        Convertible Debentures (the Debentures ), for gross proceeds
        of $3,000,000. In conjunction with this financing, the Company issued
        47,393,364 warrants exercisable for three years at an exercise price of
        $0.075. The Company paid a finder's fee of 10% in cash and issued 9,478,672
        warrants exercisable for three years, half of which are exercisable at
        $0.075 and half of which are exercisable at $0.077. The Company also issued
        1,000,000 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 $0.075.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $951,467 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.                                                                                                                           

30

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|N. | Convertible Debenture (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The fair value of the conversion feature of the debentures
        at grant date, in the amount of $1,951,466 was recorded as a liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The balance of the consideration, in the amount of $97,067,
        was allocated to the debentures. The discount in the amount of $2,902,933
        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 $534,646 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.                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company recorded in the years ended June 30, 2006
        and 2007, $67,847 and $110,703 respectively as financial expenses in respect
        to the discount amortization and accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Till November 9, 2006 all of the convertible debentures,
        which were issued on April 3, 2006, were converted into 193,952,201 shares.
        As a result an amount of $ 1,787,084 was reclassified into common stock
        and additional paid-in capital as follow: from conversion of the feature
        embedded in convertible debenture ($1,951,466), convertible debenture
        ($201,974), accrued interest ($73,644) net of issuance expenses in the
        amount of $440,000. In addition, the warrants and options to consultants
        in the amount of $476,029 and deferred issuance expenses in the amount
        of $378,708 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 $ 440,000
        on October 19, 2006 and issued 10,000,000 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 37,304,610 of the
        warrants which were issued on April 3, 2006, were exercised. 15,138,261
        warrants were exercised into shares in consideration for $ 1,021,833 (net
        of cash exercise costs of $113,537), and 22,166,349 warrants were exercised
        cashless into 9,334,712 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                       

31

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|O. | On May 14, 2007, the Company consummated a private equity
        placement with a group of investors (the investors) for an
        equity investment. The investors shall invest a minimum of $7,000,000
        and up to a maximum of $13,500,000 for shares of the Company's common
        stock, $.00001 par value at a per share price of $0.0125, and warrants
        to purchase shares at an exercise price of $0.025 exercisable until five
        years after the closing date of the agreement.                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | As of June 30, 2007 the Company issued 625,235,040 shares
        of the Companys common stock and issued 625,235,040 warrants to
        purchase the Company common stock in consideration for $7,751,111 (net
        of cash issuance costs of $64,320). In addition, the Company received
        $ 367,969 on account of the shares and warrants.                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | According to an escrow agreement signed on May 17, 2007,
        another investor has agreed to pay $5,000,000 in monthly instalments over
        10 months starting six months from closing, for 400,000,000 shares and
        400,000,000 warrants as part of the investment.                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | As of June 30, 2007, 100,000,000 warrants were exercised
        cashless for 73,306,773 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | As part of the investment agreement the Company issued
        52,363,640 warrants to finders as finders fee in connection with
        introducing the Company to the investors. The warrants are exercisable
        for five years at an exercise price of $0.0125.                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|P. | On June 19, 2007, the Company entered into an investor
        relations agreement with American Capital Ventures Inc., whereby American
        Capital Ventures Inc. will provide investor relations services for a period
        of 6 month to the Company in consideration for a monthly retainer and
        for the issuance of 1,000,000 shares of common stock of the Company. The
        Company issued the 1,000,000 shares of common stock on July 17, 2007.                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Q. | The Company issued 5,677,501 warrants to the investors
        related to the May 14, 2007 agreement as compensation to investors who
        delivered the invested amount previous to the closing date of the placement.
        The warrants are exercisable for five years at an exercise price of $0.0125.
        The Company recorded the fair value of the warrants as financial expenses
        in the amount of $651,656. 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|R. | Options to employees and consultants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On September 18, 2006 the Company approved allocation
        of an additional 15,000,000 of it 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.                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On January 24, 2007 the Company reserved additional
        250,000,000 of it common stock for the 2005 option plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

32

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|R. | Options to employees and consultants (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Options to employees:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On October 30, 2006 the Board of Directors decided to
        reduce the exercise price of the options that were granted to the Company's
        employees and directors from $ 0.1 to $ 0.022. According to SFAS 123(R)
        modifications are treated as an exchange of the original award, resulting
        in additional compensation expenses based on the differences between the
        fair value of the new award and the original award immediately before
        modification. The incremental expenses should be expensed over the remaining
        vesting period.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | As a result, the Company recognized compensation expenses
        of $46,196 immediately for the options that were already fully vested
        and the remaining compensation expenses amounted to $7,632 will be expense
        through the remaining vesting period of the options. The fair value for
        these options was estimated using Black-Scholes option-pricing model.                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On September 18, 2006 and October 30, 2006 the Board
        of Directors approved to grant to two officers a total of 8,500,000 stock
        options exercisable at a price of $0.022 per share. The fair value for
        these options at the grant date was $140,678.                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On November 9, 2006 and December 27, 2006 the Company
        granted 6,840,000 options exercisable at a price of $0.019-$0.022 per
        share to the Companys employees and directors under the 2005 Plan.
        The fair value for these options at the grant date was $113,829.                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On January 24, 2007 the Company granted 202,000,000
        options exercisable at a price of $0.0175 per share to the Companys
        employees and directors under the 2005 Plan. The fair value for these
        options at the grant date was $3,045,752                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On May 17, 2007 the Company granted 21,500,000 options
        exercisable at a price of $0.1 per share to the Companys employees
        and directors under the 2005 Plan. The fair value for these options at
        the grant date was $1,933,152.                                                                                                                                                                                                                                                                                                                               

33

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|R. | Options to employees and consultants (cont.):                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                        
|   | Options to employees (cont.):                                                                                          
|   |                                                                                                                        
|   | A summary of the Companys share option activity
        (except options to consultants) under the Plans is as follows:

| |                      |  | Year ended June 30, |  
| | -------------------- |  | ------------------- | -
| |                      |  | 2007                |  
| |                      |  |                     |  
| |                      |  |                     |  
| |                      |  |                     |  
| |                      |  |                     |  
| |                      |  |                     |  
| |                      |  | Number              |  
| |                      |  |                     |  
| | Options outstanding  |  |                     |  
| | at beginning of year |  | 15,155,790          |  
| | Options granted      |  | 238,840,000         |  
| | Options forfeited    |  | (1,998,230          | )
| |                      |  |                     |  
| |                      |  |                     |  
| | Options outstanding  |  |                     |  
| | at end of the period |  | 251,997,560         |  
| |                      |  |                     |  
| |                      |  |                     |  
| | Options exercisable  |  |                     |  
| | at the end of the    |  |                     |  
| | period               |  | 15,302,978          |  
| |                      |  |                     |  
| |                      |  |                     |  
| | Options vested and   |  |                     |  
| | expected to vest     |  | 240,162,830         |  

Intrinsic value of exercisable options
  (the difference between the Company's closing stock price on the last trading
  day in fiscal 2007 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, 2007. This amount changes based on the fair market value of the
  Company's stock.

34

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|R. | Options to employees and consultants (cont.):                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                           
|   | Options to employees (cont.):                                                                                                             
|   |                                                                                                                                           
|   | The Company's outstanding options to employees as of
        June 30, 2007, have been separated into ranges of exercise prices as follows:

| |                          |  |             |  |   |             |  |  |             |  |  | Weighted    | 
| | ------------------------ |  | ----------- |  | - | ----------- |  |  | ----------- |  |  | ----------- | 
| |                          |  |             |  |   | Exercise    |  |  |             |  |  | average     | 
| |                          |  | Options for |  |   | Price       |  |  |             |  |  | remaining   | 
| |                          |  | Ordinary    |  |   | per         |  |  | Options     |  |  | contractual | 
| | Issuance date            |  | Shares      |  |   | Share       |  |  | Exercisable |  |  | terms       | 
| |                          |  |             |  |   |             |  |  |             |  |  |             | 
| | January 2003- June 2005  |  | 2,587,560   |  | $ | 0.022-0.12  |  |  | 2,587,560   |  |  | 3.92        | 
| | January 2006-March 2006  |  | 11,090,000  |  | $ | 0.022-0.1   |  |  | 8,068,750   |  |  | 8.13        | 
| | September 2006 - October |  | 8,500,000   |  |   |             |  |  |             |  |  |             | 
| | 2006                     |  |             |  | $ | 0.022       |  |  | 2,937,501   |  |  | 9.31        | 
| | November 2006 -          |  |             |  |   |             |  |  |             |  |  |             | 
| | December 2006            |  | 6,820,000   |  | $ | 0.019-0.022 |  |  | 1,709,167   |  |  | 9.5         | 
| | January 2007             |  | 201,500,000 |  | $ | 0.0175      |  |  | -           |  |  | 9.58        | 
| | May 2007                 |  | 21,500,000  |  | $ | 0.1         |  |  | -           |  |  | 9.88        | 

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

| |                                     |   |                |  |  |          |  |   | Period from | 
| | ----------------------------------- | - | -------------- |  |  | -------- |  | - | ----------- | 
| |                                     |   |                |  |  |          |  |   | inception   | 
| |                                     |   | Year ended     |  |  | through  | 
| |                                     |   | June
      30, |  |  | June 30, | 
| |                                     |   | 2007           |  |  | 2006     |  |   | 2007        | 
| |                                     |   |                |  |  |          |  |   |             | 
| | Research and development expenses   | $ | 703,445        |  |  | -        |  | $ | 703,445     | 
| | General and administrative expenses |   | 1,682,591      |  |  | -        |  |   | 1,682,591   | 
| |                                     |   |                |  |  |          |  |   |             | 
| |                                     | $ | 2,386,036      |  |  | -        |  | $ | 2,386,036   | 

Options to consultants:

On October 30, 2006 the Board of Directors
  decided to reduce the exercise price of the options that were granted to the
  Company's consultants from $ 0.1 to $ 0.022. According to SFAS 123(R) modifications
  are treated as an exchange of the original award, resulting in additional compensation
  based on the differences between the fair value of the new award and the original
  award immediately before modification in the amount of $8,335. The incremental
  expenses in the amount of $1,838 should be expensed over the remaining vesting
  period.

On October 18, 2006 the Company granted
  750,000 fully vested options to a consultant under the 2005 Plan. The grant
  date fair value for these options amounts to $14,158. Prepaid expenses in the
  amount of $4,247 were recorded on June 30, 2007 in respect of the future services,
  to be provided by the consultant.

35

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|R. | Options to employees and consultants (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Options to consultants (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On December 27, 2006 the Company granted 1,000,000 options
        to a consultant under the 2005 plan. The grant date fair value for these
        options amounts to $19,264.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On January 24, 2007 the Company granted 10,500,000 options
        exercisable at a price of $0.0175 per share to the Companys consultants
        under the 2005 Plan. The fair value for these options at the grant date
        was $171,456.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On January 28, 2007 the Company entered into a consulting
        agreement. According to the agreement the Company granted the consultant
        5,000,000 fully vested warrants to purchase 5,000,000 shares of the Companys
        common stock at an exercise price of $0.0125 per share effective upon
        signing the contract, and 5,000,000 warrants to purchase 5,000,000 shares
        of the Companys common stock at an exercise price of $0.0125 per
        share, if the contract is renewed beyond the initial six month period
        and effective on August 1, 2007. All warrants will be exercisable for
        3 years. The warrants were granted not under the option Plan.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The fair value for the fully vested options at the grant
        date was $80,964.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Prepaid expenses in the amount of $13,494 were recorded
        on June 30, 2007 in respect of the future services, to be provided by
        the consultant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On May 17, 2007 the Company granted 9,500,000 options
        exercisable at a price of $0.1 per share to the Companys consultants
        under the 2005 Plan. The fair value for these options at the grant date
        was $1,255,157.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In addition, on May 17, 2007 the Company granted 4,500,000
        options exercisable at a price of $0.1 per share to the Companys
        consultant not under the option Plan. 2,500,000 options will be vested
        on October 2007 and the rest on April 2008. The fair value for these options
        at the grant date was $338,147.                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 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 4.56- 4.91%, expected dividend yield of 0%, expected volatility
        of 114%-134%, and a weighted-average contractual life of the options of
        up to 10 years.                                                                                                                                                                                                     

36

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|R. | Options to employees and consultants (cont.):                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                          
|   | Options to consultants (cont.):                                                                                          
|   |                                                                                                                          
|   | A summary of the Companys share option activity
        related to options to consultants under the Plans is as follows:

| |                             |  | Year ended June 30, |  
| | --------------------------- |  | ------------------- | -
| |                             |  | 2007                |  
| |                             |  |                     |  
| |                             |  |                     |  
| |                             |  |                     |  
| |                             |  |                     |  
| |                             |  |                     |  
| |                             |  | Number              |  
| | Options outstanding at      |  |                     |  
| | beginning of year           |  | 1,769,189           |  
| | Options granted             |  | 31,250,000          |  
| | Options forfeited           |  | (100,000            | )
| |                             |  |                     |  
| |                             |  |                     |  
| | Options outstanding at end  |  |                     |  
| | of the period               |  | 32,919,189          |  
| |                             |  |                     |  
| |                             |  |                     |  
| | Options exercisable at the  |  |                     |  
| | end of the period           |  | 7,319,196           |  
| | Options vested and expected |  |                     |  
| | to vest                     |  | 34,364,189          |  

The Company's outstanding options to
  consultants as of June 30, 2007, have been separated into ranges of exercise
  prices as follows:

ExerciseOptions for
      
      Price
      
      
      
      Weighted averageOrdinary
      
      per
      
      Options
      
      remainingIssuance date
      
      Shares
      
      Share
      
      Exercisable
      
      contractual termsDecember 31, 2003
      
      169,189
      
      $ 0.4
      
      169,189
      
      0.98October - November, 2005
      
      250,000
      
      $ 0.022-0.13
      
      250,000
      
      0.92January 17, 2006
      
      1,250,000
      
      $ 0.022-0.1
      
      900,007
      
      8.28October 18, 2006
      
      750,000
      
      $ 0.022
      
      750,000
      
      3.3December 27,2006
      
      1,000,000
      
      $ 0.019
      
      250,000
      
      9.5January 24, 2007
      
      10,500,000
      
      $ 0.0175
      
      -
      
      9.58January 28, 2007
      
      5,000,000
      
      0.0125
      
      5,000,000
      
      2.58May 17, 2007
      
      14,000,000
      
      0.1
      
      -
      
      7.63


37

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 9: - SHARE CAPITAL AND STOCK OPTIONS (CONT.)

|R. | Options to employees and consultants (cont.):                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                        
|   | Options to consultants (cont.):                                                                                                        
|   |                                                                                                                                        
|   | Compensation expenses related to options granted to
        consultants were recorded to research and development expenses, as follows:

| |                                     |   |                |  |   |          |  |   | Period from | 
| | ----------------------------------- | - | -------------- |  | - | -------- |  | - | ----------- | 
| |                                     |   |                |  |   |          |  |   | inception   | 
| |                                     |   | Year ended     |  |   | through  | 
| |                                     |   | June
      30, |  |   | June 30, | 
| |                                     |   | 2007           |  |   | 2006     |  |   | 2007        | 
| |                                     |   |                |  |   |          |  |   |             | 
| | Research and development expenses   | $ | 669,304        |  | $ | 114,800  |  | $ | 2,129,756   | 
| | General and administrative expenses |   | 250,534        |  |   | -        |  |   | 250,534     | 
| |                                     | $ | 919,838        |  | $ | 114,800  |  | $ | 2,380,290   | 

NOTE 10:- RESEARCH AND DEVELOPMENT COSTS

| |                                                       |   | Year ended | 
| | ----------------------------------------------------- | - | ---------- | 
| |                                                       |   | June 30,   | 
| |                                                       |   | 2007       | 
| | Stock-based compensation to employees and consultants | $ | 1,372,749  | 
| | Salaries and employees related costs                  |   | 803,833    | 
| | Subcontractors and consultants                        |   | 214,687    | 
| | Materials and disposal components                     |   | 281,497    | 
| | Other                                                 |   | 411,840    | 
| |                                                       | $ | 3,084,606  | 

NOTE 11:- GENERAL AND ADMINISTRATIVE EXPENSES

| |                                                       |   | Year ended | 
| | ----------------------------------------------------- | - | ---------- | 
| |                                                       |   | June 30,   | 
| |                                                       |   | 2007       | 
| | Stock-based compensation to employees and consultants | $ | 1,933,125  | 
| | Salaries and employees related costs                  |   | 790,728    | 
| | Professional services                                 |   | 753,256    | 
| | Other                                                 |   | 248,675    | 
| |                                                       | $ | 3,725,784  | 

38

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 12:- KNOW HOW WRITE-OFF

On May 5, 2003, the Company entered into
  a license agreement (License Agreement) with the Weizmann Institute
  of Science, the Technion-Israel Institute of Technology, Shai Marezki and other
  individual to acquire an exclusive license for an innovative stem cell production
  technology. Under the License Agreement, the Company has paid $400,000 and committed
  to pay royalties based on its future sales or rights distribution transactions.
  Also, the licensors of the License Agreement had an option to assign all of
  their patent rights in the License Agreement to the Company in exchange for
  an aggregate of 5% of the fully diluted share capital of the Company. This option
  may only be exercised within a 60-day period commencing from the date when the
  Company notifies the licensors that the market capital of the Company has exceeded
  $25,000,000. The option will expire if it is not exercised within this period.
  On February 26, 2007 and on March 26, 2007 the Company has sent notification
  to the Licensors that the market capital of the Company has exceeded $25,000,000.

On May 15, 2007, the Company entered
  into an Assignment Agreement with the Weizmann Institute of Science, the Technion-Israel
  Institute of Technology, Shai Marezki (Chief Technology Officer of the Company
  and a shareholder) and other individual (Assignors) to acquire the
  technology for an innovative stem cell production and the Patent as defined
  in the exclusive licenses agreement from May 5, 2003. According to the Assignment
  Agreement, the Assignors have agreed to assign their rights in the Patent in
  consideration for approximately $2 million in cash (5% of the Companys
  value at the assign day). Shai Marezkis share amounted to $367,969. In
  addition, the License Agreement shall be terminated and the Company is released
  from any obligation to pay to the Assignors any future royalties.

The Company expensed the cost of the
  purchased technology and patent.

On the same date, certain Assignors entered
  into an investment agreement with the Company for an amount of $794,562 (see
  Note 9 (o) ).

39

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 13:-FINANCIAL EXPENSES (INCOME), NET

| |                                          |   |                           |   |   |          |   |   | For the period |  
| | ---------------------------------------- | - | ------------------------- | - | - | -------- | - | - | -------------- | -
| |                                          |   |                           |   |   |          |   |   | from           |  
| |                                          |   |                           |   |   |          |   |   | May 11, 2001   |  
| |                                          |   |                           |   |   |          |   |   | (date of       |  
| |                                          |   |                           |   |   |          |   |   | incorporation) |  
| |                                          |   |                           |   |   |          |   |   | through        |  
| |                                          |   | Year
      ended June 30, |   |   | June 30, |  
| |                                          |   | 2007                      |   |   | 2006     |   |   | 2007           |  
| |                                          |   |                           |   |   |          |   |   |                |  
| | Foreign currency translation differences | $ | 16,153                    |   | $ | 3,126    |   | $ | 39,813         |  
| | Interest on short-term bank credit and   |   | 14,374                    |   |   | 5,217    |   |   | 33,214         |  
| | bank's expenses                          |   |                           |   |   |          |   |   |                |  
| | Interest accrued on know-how licenses    |   | 3,600                     |   |   | 18,791   |   |   | 68,572         |  
| | Interest income on deposits              |   | (39,099                   | ) |   | (42,607  | ) |   | (110,632       | )
| | Deferred issuance expenses amortization  |   | 168,227                   |   |   | 205,081  |   |   | 604,032        |  
| | Discount amortization                    |   | 87,688                    |   |   | 17,217   |   |   | 104,905        |  
| | Interest expenses of debenture           |   | 23,015                    |   |   | 50,630   |   |   | 73,644         |  
| | Change in fair value of warrants         |   | (716,214                  | ) |   | (150,000 | ) |   | (2,696,064     | )
| | Income from marketable securities        |   | (32,526                   | ) |   | -        |   |   | (32,526        | )
| | Interest expenses related to warrants    |   | 651,696                   |   |   | -        |   |   | 651,696        |  
| | issued to investors                      |   |                           |   |   |          |   |   |                |  
| | Expenses of hedging instruments          |   | 14,421                    |   |   | -        |   |   | 14,421         |  
| |                                          |   |                           |   |   |          |   |   |                |  
| |                                          | $ | 191,335                   |   | $ | 107,455  |   | $ | (1,248,925     | )

NOTE 14:-INCOME TAX

|A. | Tax laws applicable to the companies:                                                                  
|-- | -------------------------------------------------------------------------------------------------------
|   |                                                                                                        
|   | 1.                                                                                                     
|   | 2.                                                                                                     
|   |                                                                                                        
|   |                                                                                                        
|   |                                                                                                        
|B. | Tax assessments:                                                                                       
|   | The Company and the subsidiary have not received
        final tax assessments since its incorporation.

40

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 14:-INCOME TAX (CONT.) 

|C. | Tax rates applicable to the Group:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|D. | Carryforward losses for tax purposes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In the year ended June 30, 2007 the main reconciling
        items from the statutory tax rate of the Company (29%-31%) to the effective
        tax rate (0%) is carryforward tax losses for which a full valuation allowance
        was provided.                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Carry forward tax losses of the Company total
        approximately $4,800,000 as of June 30, 2007. According to the tax laws
        in the U.S., these losses may be gradually carried forward until 2024.
        Carry-forward tax losses of the subsidiary in Israel, total approximately
        $4,500,000 as of June 30, 2007. Since the Company and its subsidiary have
        a history of losses it is more likely than not that the deferred tax regarding
        the loss carryforwards will not be utilized in the foreseeable future,
        consequently, a valuation allowance was set against the tax assets arising
        from these losses.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Utilization of U.S. net operating losses may
        be subject to a substantial annual limitation 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.                                                                                                                                                                                                                                                                                                                            

41

---

|PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY  
|------------------------------------------------
|(A Development Stage Company)                   
|                                                
|                                                
|NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS
|In U.S. Dollars                                 

NOTE 15:-TRANSACTIONS AND BALANCES WITH RELATED PARTIES

Balances with related parties:

June
        30,2007
      
      
      2006Know-how licensors (included current maturities)
      $
      -
      
      $
      37,500Accrued expenses
      $
      (2,727
      )
      $
      (2,452
      )Salary expenses
      $
      188,420
      
      $
      164,802


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

NOTE 16: SUBSEQUENT EVENTS

As of August 29, 2007, an addition amount of $241,600 was received
  in connection with May 14, 2007 investment agreement.







#    #    #    #





42

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- 28 -

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

None

Item 8A. Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we have
carried out an evaluation of the effectiveness of the design and operation of
our company's disclosure controls and procedures as of the end of the period
covered by this annual report, being June 30, 2007. This evaluation was carried
out under the supervision and with the participation of our company's
management, including our company's president and chief executive officer. Based
upon that evaluation, our company's president and chief executive officer
concluded that concluded that our disclosure controls and procedures are
effective as of the end of the period covered by this report. There have been no
changes in our internal controls over financial reporting that occurred during
the period covered by this report that have materially affected, or are
reasonably likely to materially affect our internal controls over financial
reporting.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in our company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our company's reports filed
under the Exchange Act is accumulated and communicated to management, including
our company's president and chief executive officer as appropriate, to allow
timely decisions regarding required disclosure.

Item 8B. Other Information

Subsequent Events

On June 19, 2007, we entered into an investor relations agreement
  with American Capital Ventures Inc., whereby American Capital Ventures Inc.
  will provide investor relations services to our company in consideration for
  a monthly retainer and for the issuance of 1,000,000 shares of common stock
  of our company. We issued the 1,000,000 shares of common stock on July 17, 2007
  to American Capital Ventures Inc. relying on Rule 506 of Regulation D promulgated
  under the 1933 Act.

On July 12, 2007, we entered into an investor relations agreement
  with CEOcast, Inc., whereby CEOcast, Inc. will provide investor relations services
  to our company in consideration for monthly retainer and for the issuance of
  1,000,000 shares of common stock of our company. The Board of Directors has
  approved the grant on August 29, 2007, We did not yet issue the 1,000,000 shares
  of common stock yet to CEOcast, Inc. We intend to issue the shares of common
  stock relying on Rule 506 of Regulation D promulgated under the 1933 Act.

On August 1, 2007, the board increased the salary of Zami Aberman,
  our Chief Executive Officer and President, to $20,000 per month.

On August 29, 2007, our board of directors increased the number
  of options available under our 2005 stock option plan by 100,000,000 shares
  to total 380,000,000 options total.

PART III

Item 9. Directors, Executive Officers, Promoters, Control
Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange
Act.

As at June 30, 2007 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
      AppointedZami Aberman
    Chief Executive Officer, President and
      Director
    54
    September 26, 2005 November 21, 2005Yaky Yanay
    Chief Financial Officer, Secretary
    36
    November 1, 2006Ora Burger
    Vice President, Development
    40
    October 26, 2005Dr. Shai Meretizki
    Chief Technology Officer
    39
    October 17, 2004Doron Shorrer
    Director
    54
    October 2, 2003Hava Meretzki
    Director
    39
    October 2, 2003Isaac Braun
    Director
    54
    July 6, 2005Israel Ben-Yoram
    Director
    44
    January 26, 2005Mark Germain
    Director
    57
    May 17, 2007


---

- 29 -

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 on
September 26, 2005 and a director of our company on November 21, 2005. Mr.
Aberman became our acting Chairman of the Board on April 3, 2006. Mr. Aberman
has 20 years of Experience in Marketing and Management in the Hi-Tech Industry.
He held Chief Executive and Chairman positions in Israel, the USA, Europe, Japan
and Korea. He operated within high-tech global companies in the fields of
Automatic Optical Inspection, network security, Video over IP, software, chip
design and robotic markets. Mr. Aberman serve 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., involved in data management. Before those
positions he served 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. As well, Mr. Aberman served as President and
CEO of Netect Ltd specializing in the field of Internet security software, he
was the Co-Founder, President and CEO of Associative computing Ltd, developing
an associative parallel processor for real-time video processing, he served as
chairman of Display Inspection Systems Inc specializing in laser based
inspection machines and he served as President and CEO of Robomatix Technologies
Ltd, a public company (RBMXF.OB).

In 1992, Mr. Aberman was awarded the Rothschild Prize for
excellence in his field from the President of the State of Israel. 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, Mr. Yanay was the Chief Financial
Officer of Elbit Vision System Ltd (EVSNF.OB) a company engaged in automatic
optical inspection. Mr. Yanay served as a manager of audit groups of the
technology sector at Ernst &Young Israel from 1999 to 2002. He served in the
Israeli Ministry of Foreign Affairs from 1993 to 1999. Mr. Yanay holds a
bachelors degree with an honour 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. Ora Burger

Dr. Burger was appointed as our Vice President, Development on
October 26, 2005. Dr. Burger was recruited to Pluristem in 2003 to promote the
research of hemapoietic stem cells (HSC) growing and expanding in a
physiological like microenvironment 3-D culture in our company' novel PluriX(TM)
bioreactor. She was subsequently promoted to manage turnkey projects in research
and development - specifically the production of transplantable HSC using a 3-D
biodegradable scaffolding platform in the PluriX(TM) bioreactor. This project is
cosponsored by the Chief Scientist of the Israeli Ministry of Industry and Trade
under the most prestigious Magneton grant program directed toward facilitating
technology transfer to the forefront of innovation from the University to
leading high-technology and biotechnology companies.

Prior to joining our company, Dr. Burger served as a Research
and Development Advisor in several emerging-growth biotechnology companies
validating technologies for further development. She acted as Director of
Research and Development for Diagnostic Technology where she led the development
of ELISA kit, intended for the prenatal diagnose of pregnancy complications such
as preeclampsia, preterm delivery and fetal growth restriction.

Dr. Burger holds a B.A. and MSc. in plant science from the
faculty of agronomy of the Hebrew University and a DSc. in Biotechnology
Engineering from Technion. She completed postdoctoral training at Technion and
Tel Aviv University, Sackler School of Medicine, working on therapeutic models
to cure the damage of Helicobacter pylori, a

---

- 30 -

bacterial infection which causes ulcers, gastritis, and gastric
cancer. Her work was recently re-illuminated following the 2005 Nobel Prize in
Medicine to the scientists who discovered the clinical central importance of the
subject: Ulcer Derived from Bacterial Infections. Dr. Burger was until recently
a lecturer in Biotechnology and Food Engineering Faculty at the Technion
institute.

Dr. Shai Meretzki

Dr. Shai Meretzki was the founder and is the chief technology
officer of our wholly owned subsidiary, Pluristem, Ltd. He received his Ph.D. in
biotechnology at the Technion-Israel Institute of Technology in 2002. Dr.
Meretzki has conducted extensive research on the subject of stem cell expansion.
His research project for his Ph.D. thesis was Stationary packed bed bioreactor
for propagation of transplantable human haemopoietic stem cells. 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.

Doron Shorrer

Mr. Shorrer was appointed a director on October 2, 2003. Mr.
Shorrer, ISR (CPA) 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 these positions, Mr. Shorrer
held senior appointments that included Arbitrator at the Claims Resolution
Tribunal for Dormant Accounts in Switzerland; Economic and Financial Advisor,
Commissioner of Insurance and Capital Markets for the State of Israel; Member of
the board of directors of Nechasim of the State of Israel; Member Committee
for the Examination of Structural Changes in the Capital Market (The Brodet
Committee); General Director of the Ministry of Transport; Co-Founder and
director of an accounting firm with offices in Jerusalem, Tel-Aviv and Haifa;
Member of the Lecture Staff of the Amal School Chain; Chairman of a Public
Committee for Telecommunications; and Economic Consultant to the Ministry of
Energy.

Among many areas of expertise, Mr. Shorrer formulates,
implements and administers business planning in the private and institutional
sector in addition to consulting on economic, accounting and taxation issues to
a large audience ranging from private concerns to government ministries. Mr.
Shorrer holds a B.A. in Economics and Accounting and an M.A. in Business
Administration (specialization in finance and banking) from the Hebrew
University of Jerusalem and is a Certified Public Accountant (ISR).

Hava Meretzki

Ms. Meretzki was appointed a director on October 2, 2003. Ms.
Meretzki, Adv. 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 previously was a director of the Israel Electric Company. 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 was appointed a director on July 6, 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 was appointed a director on January 26, 2005. Mr.
Ben-Yoram has been a director and partner in the accounting firm of Mor,
Ben-Yoram and Partners in Israel since 1985 to present. This accounting firm
currently employs over 15 employees in the field of auditing, consulting, and
accompanying projects. Since 1992 to present,

---

- 31 -

Mr. Ben-Yoram has also served as a shareholder and the head
director of Mor, Ben-Yoram Ltd., a private company in Israel in parallel to the
operation of the Mor, Ben-Yoram and Partners accounting firm. This company
provides management services, economic consulting services and other
professional services to businesses. Mr. Ben-Yoram received a B.A. in accounting
from the University of Tel Aviv, an M.A. in Economics from the Hebrew University
of Jerusalem, an LLB and an MBA from Tel Aviv University and an LLM from Bar
Ilan University.

Mark Germain

Mr. Germain was appointed as Co-Chairman of the Board of
Directors on May 17, 2007. Mr. Germain is the Managing Director of The Olmsted
Group, LLC, a merchant bank 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, mergers
and acquisitions and financings. He graduated New York University School of Law
in 1975, Order of the Coif, and practiced corporate and securities law before
leaving for the private sector in 1986. Since then, and until he entered the
biotech field in 1991, he served in senior executive capacities, including as
president of a public company sold in 1991. Among the public biotech companies
Mr. Germain is a director of Wellford Real Properties, Inc. and chairman of its
audit committee and a director of Stem Cell Innovations, Inc.. On May 17,
2007,

Significant Employees

We currently do not have any significant employees aside from
our directors and officers.

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

On October 2, 2003, our board of directors created an audit
committee and adopted an audit committee charter. On July 6, 2005 we appointed
Hava Meretzki, Israel Ben-Yoram and Isaac Braun as members of our Audit
Committee. However, our board of directors has determined that we do not have a
member of our audit committee that qualifies as an audit committee financial
expert as defined in Item 401(e) of Regulation S-B. Mr. Israel Ben-Yoram and
Mr. Isaac Braun are independent as the term is used in Item 7(d)(3)(iv) of
Schedule 14A under the Securities Exchange Act of 1934, as amended. Ms. Hava
Meretzki is not considered independent as she is married to our former Chief
Executive Officer and the founder and chief technology officer of our wholly
owned subsidiary, Pluristem, Ltd., Dr. Shai Meretzki. We believe that the
members of our audit committee are collectively capable of analysing and
evaluating our financial statements and understanding internal controls and
procedures for financial reporting. During the fiscal year 2007, the audit
committee met a total of 6 times.

Other Committees of the Board

On October 2, 2003, our board of directors also created a
compensation committee and a corporate governance committee. Our board of
directors adopted a compensation committee charter and appointed Doron Shorrer
and

Hava Meretzki as members of our compensation committee. Our
board of directors also adopted a corporate governance committee charter and
appointed Doron Shorrer and Hava Meretzki as members of our corporate governance
committee

Involvement in Certain Legal Proceedings

Our directors, executive officers and control persons have not
been involved in any of the following events during the past five years:

---

- 32 -

1. any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time;

2. any conviction in a criminal proceeding or being subject to
a pending criminal proceeding (excluding traffic violations and other minor
offences);

3. being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; and

4. being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended, or vacated.

Code of Ethics

Effective October 2, 2003, 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
Securities and Exchange Commission as Exhibit 14.1 to the annual report for the
year ended June 30, 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 Life Systems Inc. c/o Clark Wilson LLP, Suite 800  885 West Georgia
Street, Vancouver, British Columbia, V6C 3H1.

Section 16(a) Beneficial Ownership 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 Securities and Exchange Commission 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, 2007, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, with the exception of the following:

Name
    Number of Late Reports
    Number of Transactions Not
      Reported on a Timely Basis
    Failure to File Requested
      FormsYaky Yanay(1)(2)
    2
    3
    NilMark Germain(1)
    1
    1
    Nil


(1) The named officer, director or greater than 10%
stockholder, as applicable, filed a late Form 3  Initial Statement of
Beneficial Ownership of Securities. (2) The named officer,
director or greater than 10% stockholder, as applicable, filed a late Form 4 
Initial Statement of Beneficial Ownership of Securities.

Item 10.Executive Compensation.

The following table shows the particulars of compensation paid
to the following persons, where applicable, for the year ended June 30, 2007:

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

---

- 33 -

| | (b) | each of our two most highly compensated executive
      officers who were serving as executive officers at the year ended June 30,
      2007; 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 TABLEName and Principal
        Position
      Year
      Salary
        ($)
      Bonus ($)
      Options
        granted
      Option Awards ($)(5)
      Non-Equity Incentive
        Plan Compensa- tion ($)
      Change in Pension Value
        and Nonqualified Deferred Compensation
        Earnings ($)
      All Other
        Compensa- tion ($)
      Total ($)Zami Aberman(1)
        Chief Executive 
        Officer
      2007
      181,619
      223,742
      56,000,000
      853,202
      Nil
      Nil
      Nil
      1,258,563Yaky Yanay(2)
        Chief Financial 
        Officer
      2007
      93,389
      103,555
      12,500,000
      192,156
      Nil
      Nil
      50,000
      439,100Yossi Keret(3)
        former Chief 
        Financial Officer
      2007
      40,566
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      40,566Shai Meretzki (4) 
        Chief Technology 
        Officer, Pluristem, Ltd.
      2007
      188,240
      Nil
      10,250,000
      154,937
      Nil
      Nil
      250,000
      593,177


| | (1) | Zami Aberman has served as our Chief Executive Officer
      since September 26, 2005.                                                                                                                                                                                                                    
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                           
| | (2) | Yaky Yanay has served as our Chief Financial Officer
      since November 1, 2006. On May 14, 2007 Mr. Yanay participated in the
      equity investment, and received 4,000,000 shares and 4,000,000 options,
      vested immediately, exercisable at $0.025 per share for five
  years.                
| |     |                                                                                                                                                                                                                                                                                                           
| | (3) | Mr. Keret served as our Chief Financial Officer from May
      30, 2004 to October 16, 2006.                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                           
| | (4) | Mr. Meretzki has served as our Chief Technology Officer
      since September 26, 2005. On May 14, 2007 Mr. Meretzki participated in the
      equity investment, and received 20,000,000 shares and 20,000,000 options,
      vested immediately, exercisable at $0.025 per share for five
  years.      
| |     |                                                                                                                                                                                                                                                                                                           
| | (5) | The dollar value recognized for the stock option awards
      was determined in accordance with SFAS123(R). For a disclosure of the
      assumptions made in the valuation please refer to footnote 2(i) in our
      financial statements filed under Item 8 of this Annual Report on Form
      10K-SB.

There are no written employment or consulting agreements
between our company and any of our directors and executive officers, except for
the following:

|(a) | a consulting agreement dated September 26, 2005 with Zami
      Aberman, under which Mr. Aberman is paid an equivalent of US$13,000 per
      month in New Israeli Shekels at the then current exchange rate plus Value
      Added Tax; On September 18, 2006, the Board of Directors approved an
      update of Mr. Aberman consulting agreement as follows: From September
      2006, the monthly payments will be in the amount of $15,000 + VAT. The
      Dollar rate will be not less then 4.35 Dollar per NIS .
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(b) | an agreement with Yaky Yanay dated November 1, 2006,
      under which Mr. Yanay is paid 35,500 New
Israeli                                                                                                                                                                                                                                                                                                                                                                                                              

---

- 34 -

|    | Shekels per month (US$8,355 at a conversion rate of 4.249
      NIS to the $US). Mr. Yanay is provided with a cellular phone and a company
      car pursuant to the terms of his agreement.                                                                                                                                                                                                                                                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(c) | a consulting agreement dated November 24, 2005 with
      Meretzki Consulting Ltd., a company incorporated under the laws of the
      state of Israel and wholly owned by Dr. Shai Meretzki, under which
      Meretzki Consulting Ltd. is paid a monthly retainer of 60,000 New Israeli
      Shekels ($14,121 USD at current exchange rate) plus Value Added Tax. Dr.
      Shai Meretzki is provided with a cellular phone and a company car pursuant
      to the terms of the consulting agreement.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(d) | an agreement with Yossi Keret dated March 28, 2004, under
      which Mr. Keret is paid 35,500 New Israeli Shekels per month (US$8,355 at
      a conversion rate of 4.249 NIS to the $US). This agreement terminated upon
      the resignation of Mr. Keret as our Chief Financial
  Officer;                                                                                                                                                                                                          

Arrangements and plans to provide pension, retirement or
similar benefits for directors or executive officers will be decided upon by the
compensation committee. We do not have any material bonus or profit sharing
plans pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that we have agreed to pay Mr. Aberman
two (2%) percent and to Mr. Yanay up to 1.4% of any financings we conduct
through August 2007. 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, where the value of such compensation exceeds $60,000 per
executive officer, except Dr. Shai Meretzki, whose termination provisions
provide for 6 months payment on termination, which at current salary would
total approximately $120,000. Additionally, Mr. Abermans stock options fully
vest upon a change of control.

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 of directors in the future. We do not have any material bonus or
profit sharing plans pursuant to which cash or non-cash compensation is or may
be paid to our directors or executive officers, except that stock options may be
granted at the discretion of our board of directors from time to time. 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.

Option Grants

The closing balance of stock options, stock that has not vested
and stock through equity incentive plan for our named executive officers for the
year ended June 30, 2007, is set out in the following table:

---

- 35 -

OUTSTANDING EQUITY AWARDS AT
        FISCAL YEAR-ENDOption Awards
      Stock AwardsName
      Number
        of Securities Underlying Unexercised
        Options (#) Exercisable
      Number
        of Securities Underlying Unexercised
        Options (#) Unexercisable
      Equity Incentive
        Plan Awards: Number of
        Securities Underlying Unexercised
        Unearned Options (#)
      Option
        Exercise Price ($)
      Option Expiration Date
      Number of
        Shares or Units of Stock That Have Not Vested
        (#)
      Market Value
        of Shares or Units of Stock That Have Not Vested ($)
      Equity Incentive
        Plan Awards: Number of Unearned
        Shares, Units or Other Rights
        That Have Not Vested (#)
      Equity Incentive Plan
        Awards: Market or Payout Value
        of Unearned Shares, Units or Other Rights That Have Not Vested
        ($)Zami Aberman
      20,395,833
      40,104,167
      Nil
      0.0175- 
        0.022
      1/2016-1/2017
      Nil
      Nil
      Nil
      NilYaky Yanay
      4,062,502
      8,437,498
      Nil
      0.0175- 
        0.02
      9/2016-1/2017
      Nil
      Nil
      Nil
      NilShai Meretzki
      4,638,670
      7,562,500
      Nil
      0.0175- 
        0.022
      1/2013-1/2017
      Nil
      Nil
      Nil
      NilDoron Shorrer
      3,315,749
      9,535,421
      Nil
      0.0175- 
        0.1
      5/2013-5/2017
      Nil
      Nil
      Nil
      NilHava Meretzki
      3,044,627
      5,493,750
      Nil
      0.0175- 
        0.022
      5/2013-1/2017
      Nil
      Nil
      Nil
      NilIsaac Braun
      2,790,844
      5,493,750
      Nil
      0.0175- 
        0.022
      5/2013-1/2017
      Nil
      Nil
      Nil
      NilIsrael Ben- 
        Yoram
      2,861,339
      5,493,750
      Nil
      0.0175- 
        0.022
      5/2013-1/2017
      Nil
      Nil
      Nil
      NilMark Germain
      14,583,333
      35,416,667
      Nil
      0.0175
      1/2017
      Nil
      Nil
      Nil
      Nil


Aggregated Option/Exercises in Last Fiscal Year and 2007 Fiscal
Year End Option/Values

During the fiscal year ended June 30, 2007, 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 Plan described below.

Stock Option Plan

On November 25, 2003, we adopted our 2003 Stock Option Plan,
under which options to purchase up to 4,100,000 shares of our common stock can
be granted to our directors, officers, employees and consultants. We granted a
total of 3,645,780 options on December 30, 2003 with various exercise prices and
expiration dates, to directors, officers, employees and consultants. On June 10,
2004 the former chief executive officer left our company and 156,734 of her
options expired and were returned to the option pool. On July 6, 2004 we granted
451,170 options to the company's new chief financial officer. On July 22, 2004
we granted 500,000 options exercisable at a price of $0.40 per share until July
22, 2014 outside of our stock option plan. These options and an additional
500,000 options included in the 2003 Stock Option Plan expired, unexercised, on
March 30, 2005.

On February 15, 2005 we granted 70,495 options to Mendi Ze'evi,
our former director and chief executive officer, exercisable at a price of $0.30
per share until February 15, 2008. On January and June 2005 we granted 239,683
to two of our directors, exercisable at a price of $0.12 per share until May 1,
2013. Until June 30, 2007, several of our employees left our company and
1,493,645 options expired and were returned to the option pool.

---

- 36 -

On October 1, 2005 our company granted 100,000 options to a
consultant, the options are vested 25% on issue and 25% every 4 months
thereafter, exercisable for 2 years at an exercise price of $0.13 per share.

On November 11, 2005 our company granted 150,000 options to a
consultant, the options are exercisable for 3 years.

On June 30, 2007, there were 1,093,251 of our common stock
still available for future grant under the 2003 Stock Option Plan.

On November 21, 2005, we adopted our 2005 Stock Option Plan,
under which options to purchase up to 15,000,000 shares of our common stock can
be granted to our directors, officers, employees and consultants.

We granted a total of 12,940,000 options on January and March
2006 at an exercise price of $0.10, expiring on January and March 2016, to
directors, officers, employees and consultants. On January 24, 2007 we amended
our 2005 Stock Option Plan reserving a total of 280,000,000 shares of our common
stock.

On September 18, 2006 and October 30, 2006 our Board of
Directors approved to grant to two officers 8,500,000 stock options exercisable
at a price of $0.022 per share. The options have a two years vesting period with
six months grace period (i.e. vesting equally monthly during the remaining 18
months).

On October 18, 2006 we granted 750,000 options to a consultant,
the options are exercisable for four years at a price of $0.022.

On October 30, 2006 our Board of Directors decided to reduce
the exercise price of the options that were granted to our company's employees,
directors and consultants from $ 0.1 to $ 0.022.

On November 9, 2006 and December 27, 2006 we granted 7,840,000
options exercisable at a price of $0.019 -$0.022 per share to our companys
employees, directors and consultants under the 2005 Plan.

On January 24, 2007 we granted 212,500,000 options exercisable
at a price of $0.0175 per share to our companys employees, directors and
consultants under the 2005 Plan.

On January 28, 2007 our company entered into a consulting
agreement. According to which, we granted the consultant 5,000,000 warrants to
purchase 5,000,000 shares of our Companys common stock at an exercise price of
$0.0125 per share effective upon signing the contract, and 5,000,000 warrants to
purchase 5,000,000 shares of our companys common stock at an exercise price of
$0.0125 per share, if the contract is renewed beyond the initial six month
period and effective on August 1, 2007. All warrants will be exercisable for 3
years. The warrants were granted not under the option Plan.

On May 17, 2007 we granted 31,000,000 options exercisable at a
price of $0.1 per share to our companys employees, directors and consultants
under the 2005 Plan.

In addition, on May 17, 2007 we granted 4,500,000 options
exercisable at a price of $0.1 per share to our companys consultant not under
the option Plan. 2,500,000 options will be vested on October 2007 and the rest
on April 2008.

Until June 30, 2007, several of our employees left our company
and 1,120,000 options expired and were returned to the option pool.

On June 30, 2007, there were 7,590,000 of our common stock
still available for future grant under the 2005 Stock Option Plan.

Compensation of Directors

We reimburse our directors for expenses incurred in connection
with attending board meetings and on April 15, 2004, we approved of the
following compensation for directors: annual compensation of $8,400 plus
applicable

---

- 37 -

taxes; meeting participation fees of $750 plus taxes; and for
meeting participation by telephone, $350. On February 7, 2007 the Board of
Directors approved to raise the annual Director fee to $10,000. During the
fiscal year ended June 30, 2007 we paid a total of $130,922 to directors as
compensation.

On March 5, 2007 the Board of Directors approved to accelerate
vesting of directors stock options in the following circumstances: Termination
of a directors position by the shareholders: acceleration of 100% of any
unvested options. Termination of a directors position by resignation:
acceleration of 50% of any unvested options.

Other than as described in the paragraph above, 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 behalf of our company other than
services ordinarily required of a director. Other than indicated in this annual
report, no director received and/or accrued any compensation for his or her
services as a director, including committee participation and/or special
assignments during the fiscal year ended June 30, 2007.

DIRECTOR COMPENSATIONName
      FeesEarnedor Paid inCash($)
      OptionGranted
      OptionAwards($)(3)
      Non-EquityIncentivePlanCompensation($)
      Change in PensionValue
        andNonqualifiedDeferredCompensationEarnings
      AllOtherCompensation($)
      Total($)Zami Aberman (2)
      19,624
      56,000,000
      853,202
      Nil
      Nil
      Nil
      872,826Mark Germain (1)
      36,452
      50,000,000
      753,900
      Nil
      Nil
      Nil
      790,352Doron Shorrer
      17,424
      11,600,000
      474,790
      Nil
      Nil
      Nil
      492,214Hava Meretzki
      18,174
      7,600,000
      115,134
      Nil
      Nil
      Nil
      133,308Isaac Braun
      19,624
      7,600,000
      115,134
      Nil
      Nil
      Nil
      134,758Israel Ben-Yoram
      19,624
      7,600,000
      115,134
      Nil
      Nil
      Nil
      134,758


(1) Mr. Germain is entitled to a consulting fee of $10,000 per
month, as of March 11, 2007.

(2) including fees for serving as chairman of the Board of
Directors, and options for serving as chairman of the Board and as the President
and CEO of the Company .

(3) The dollar value recognized for the stock option awards was
determined in accordance with SFAS123(R). For a disclosure of the assumptions
made in the valuation please refer to footnote 2(i) in our financial statements
filed under Item 8 of this Annual Report on Form 10K-SB.

Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders Matters.

The following table sets forth, as of June 30, 2007, certain
information with respect to the beneficial ownership of our common stock by each
security holder known by us to be the beneficial owner of more than 5% of our
common stock and by each of our current directors and executive officers. Each
person has sole voting and investment power with respect to the shares of common
stock, except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated.

Title of Class
    Name and
      Address of Beneficial Owner
    Amount and Natureof Beneficial Owner(1)
    Percentage ofClass*Common Shares
    Zami Aberman Chief Executive
      Officer, Chairman of the Board, President and Director 
        63 Rabutzky Street 
        Raanana, Israel
      25,268,000 (2)
      2.1%


---

- 38 -

Title of Class
      Name and Address of Beneficial Owner
      Amount and Natureof Beneficial
        Owner(1)
      Percentage ofClass*Common Shares
      Shai Meretzki 
        Chief Technology Officer of Pluristem, Ltd. 
        38 Raul Wallenberg 
        Haifa, Israel
      52,730,670(3)
      4.5%Common Shares
      Hava Meretzki 
        Director 
        38 Raul Wallenberg 
        Haifa, Israel
      3,336,000(4)
      *Common Shares
      Doron Shorrer 
        Director 
        33 Koreh Hadorot Street 
        Jerusalem, Israel
      3,506,000(5)
      *Common Shares
      Israel Ben-Yoram 
        Director 
        24 Barkan Street 
        Rishon Lezion, Israel
      3,491,089(6)
      *Common Shares
      Isaac Braun 
        Director 
        9 Zeharia Street, POB 402 
        Bene Barak, Israel
      3,420,594(7)
      *Common Shares
      Mark Germain 
        Director 
        Wellsford Real Properties Inc. 
        535 Madison Avenue, New York, 
        New York 10022
      18,000,000(8)
      1.5%Common Shares
      Yaky Yanay 
        Chief Financial Officer 
        Argaman 14 Shimshit Israel
      11,700,000(9)
      1%Common Shares
      Ora Burger 
        Vice President, Development 
        5 Bulchin St. 
        Haifa 32882 
        Israel
      3,883,838(10)
      *Common Shares
      Jonathan Honig 
        4263 NW 61st Lane 
        Boca Raton, FL 33496
      70,042,918
      6%Common Shares
      Barry C. Honig 
        595 South Federal Highway, Suite 600, 
        Boca Raton, FL 33432
      87,490,695
      7.5%Common Shares
      Ronald I Heller 
        74 Farview Road 
        Tenafly, NJ 07670
      56,000,000
      5%Common Shares
      Wood River Trust 
        1007 Orange St., Suite 1410 
        Nemours Building 
        Wilmington, Delaware, 19801
      173,306,773(11)
      15%Common Shares
      Directors and Officers (as a group)
      125,336,191(12)
      10%


---

- 39 -

* is indicated for amounts less than 1%

(1) Based on 1,156,195,593 shares of common stock
issued and outstanding as of August 28, 2007. 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 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)Mr. Aberman was granted 4,500,000 options to
purchase shares of common stock pursuant to our 2005 Stock Option Plan,
exercisable at $0.10 per share until January 16, 2016. These options vest as
follows: 25% on after 6 months, 4% on the 7 month and each successive month
anniversary to and including the 23 month anniversary and the balance on the 24
month anniversary. On October 30, 2006 he was granted another 6,000,000 options
exercisable at $0.02 per share until October 30, 2016 and on January 24, 2007
50,000,000 more options at an exercisable price of $0.0175 until January 23,
2017. The options vest according to the mentioned above. The number 25,268,000
includes all options to be vested to and including October 31, 2007.

(3)4,802,000 of which are registered under the name
of A.R.Y. Holdings Ltd., which are owned and controlled by Dr. Shai Meretzki.
451,170 of which are options to purchase shares of common stock granted on
December 30, 2003 that are currently exercisable or exercisable within 60 days.
2,400,000 of which were granted in connection with the issuance of Notice of
Allowance by the United States Patent Office for our patent application number
09/890,401. Dr. Meretzki was granted 1,500,000 options to purchase shares of
common stock pursuant to our 2005 Stock Option Plan, exercisable at $0.10 per
share until January 16, 2016. These options vest as follows: 25% after 6 months,
2006, 4% on the 7 month and each successive month anniversary to and including
the 23 month anniversary and the balance on the 24 month anniversary. On
December 27, 2006 he was granted another 250,000 options exercisable at $0.019
per share for ten years, and on January 24, 2007 10,000,000 more options at an
exercisable price of $0.0175 until January 23, 2017. The options vest according
to the mentioned above. On May 14, 2007 Mr. Meretzki participated in the equity
investment, and received 20,000,000 shares and 20,000,000 options, vested
immediately, exercisable at $0.025 per share for five years. The number
52,730,670 includes all options to be vested to and including October 31, 2007.

(4)Representing 338,377 options to purchase shares
of our common stock granted on December 30, 2003. On January 17, 2006 Ms.
Meretzki was granted 600,000 options to purchase shares of common stock pursuant
to our 2005 Stock Option Plan, exercisable at $0.10 per share until January 16,
2016. These options vest as follows: 25% after 6 months, 4% on the 7 month and
each successive month anniversary to and including the 23 month anniversary and
the balance on the 24 month anniversary. On December 27, 2006 she was granted
another 350,000 options exercisable at $0.019 per share for ten years, and on
January 24, 2007 7,250,000 more options at an exercisable price of $0.0175 until
January 23, 2017. The options vest according to the mentioned above. The number
3,336,000 includes all options to be vested to and including October 31, 2007.

(5)Representing 451,170 options to purchase shares
of our common stock granted on December 30, 2003 and on January 17, 2006 Mr.
Shorrer was granted 800,000 options to purchase shares of common stock pursuant
to our 2005 Stock Option Plan, exercisable at $0.10 per share until January 16,
2016. These options vest as follows: 25% after 6 months, 4% on the 7 month and
each successive month anniversary to and including the 23 month anniversary and
the balance on the 24 month anniversary. On December 27, 2006 he was granted
another 350,000 options exercisable at $0.019 per share for ten years, and on
January 24, 2007 7,250,000 more options at an exercisable price of $0.0175 until
January 23, 2017. In addition, on May 17, 2007 4,000,000 options were granted to
him at an exercisable price of $0.1 until May 16, 2017. The options vest
according to the mentioned above. The number 3,506,000 includes all options to
be vested to and including October 31, 2007.

(6)Representing 155,089 options to purchase shares
of our common stock granted June 22, 2005. On January 17, 2006 Mr. Ben-Yoram was
granted 600,000 options to purchase shares of common stock pursuant to our 2005
Stock Option Plan, exercisable at $0.10 per share until January 16, 2016. These
options vest as follows: 25% after 6 months, 4% on the 7 month and each
successive month anniversary to and including the 23 month anniversary and the
balance on the 24 month anniversary. On December 27, 2006 he was granted another
350,000 options exercisable at $0.019 per share for ten years, and on January
24, 2007 7,250,000 more options at an exercisable price of $0.0175 until January
23, 2017. The options vest according to the mentioned above. The number
3,491,089 includes all options to be vested to and including October 31, 2007.

(7)Includes warrants exercisable into 84,594 shares
of our common stock granted on January 26, 2005. On January 17, 2006 Mr. Braun
was granted 600,000 options to purchase shares of common stock pursuant to our
2005 Stock Option Plan, exercisable at $0.10 per share until January 16, 2016.
These options vest as follows: 25% after 6 months, 4% on the 7 month and each
successive month anniversary to and including the 23 month anniversary and the
balance on the 24 month anniversary. On December 27, 2006 he was granted another
350,000 options exercisable at $0.019 per share for ten years, and on January
24,

---

- 40 -

2007 7,250,000 more options at an exercisable price of $0.0175
until January 23, 2017. The options vest according to the mentioned above. The
number 3,420,594 includes all options to be vested to and including October 31,
2007.

(8) On January 24, 2007 Mr. Germain was granted
50,000,000 options at an exercisable price of $0.0175 until January 23, 2017.
These options vest as follows: 25% after 6 months, 4% on the 7 month and each
successive month anniversary to and including the 23 month anniversary and the
balance on the 24 month anniversary. The number 18,500,000 includes all options
to be vested to and including October 31, 2007.

(9) On September 18, 2006 Mr. Yanay was granted
2,500,000 options exercisable at $0.02 per share until September 17, 2016, and
on January 24, 2007 10,000,000 more options at an exercisable price of $0.0175
until January 23, 2017. These options vest as follows: 25% after 6 months, 4% on
the 7 month and each successive month anniversary to and including the 23 month
anniversary and the balance on the 24 month anniversary. On May 14, 2007 Mr.
Yanay participated in the equity investment, and received 4,000,000 shares and
4,000,000 options, vested immediately, exercisable at $0.025 per share for five
years. The number 11,700,000 includes all options and warrants to be vested to
and including October 31, 2007.

(10)Representing 33,838 options to purchase shares
of our common stock granted on December 30, 2003. On January 17, 2006 Ms. Burger
was granted 1,000,000 options to purchase shares of common stock pursuant to our
2005 Stock Option Plan, exercisable at $0.10 per share until January 16, 2016.
These options vest as follows: 25% after 6 months, 4% on the 7 month and each
successive month anniversary to and including the 23 month anniversary and the
balance on the 24 month anniversary. On December 27, 2006 she was granted
another 1,000,000 options exercisable at $0.019 per share for ten years, and on
January 24, 2007 7,000,000 more options at an exercisable price of $0.0175 until
January 23, 2017. The options vest according to the mentioned above. The number
2,590,000 includes all options to be vested to and including October 31, 2007.

(11)The information is based solely on a Schedule
13G/A filed with the Securities and Exchange Commission by the beneficial owner.
Michael C. Doyle is the Trustee of Wood River Trust. Mr. Doyle and Wood River
Trust share the voting and dispositive power over the 173,306,773 shares.

(12)The number includes a total of 94,131,191
options and warrants to be vested to and including October 31, 2007.

Changes in Control.

Other than as stated below, we are unaware of any contract or
other arrangement the operation of which may at a subsequent date result in a
change of control of our company.

Item 12. 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, 2007, 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 three 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.

The promoters of our company are our directors and
officers.

---

- 41 -

PART IV

Item 13. Exhibits.

Exhibits required by Item 601 of Regulation S-B

|(3)  | Articles of Incorporation and Bylaws                                                                                                                                                                                                                                                                             
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                  
|3.1  | Articles of Incorporation (incorporated by reference from
      our registration statement on Form SB-2 filed September 10, 2001).                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                  
|3.4  | Amended By-laws (incorporated by reference from our
      Current Report on Form 8-K filed January 22, 2007)                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                  
|(4)  | Instruments Defining the Rights of Security
      Holders                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                  
|4.1  | 2003 Stock Option Plan (incorporated by reference from
      our registration statement on Form S-8 filed on December 29, 2003).                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                  
|4.2  | 2005 Stock Option Plan (incorporated by reference from
      our quarterly report on Form 10-QSB filed on February 9, 2006).                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                  
|(10) | Material Contracts                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                  
|10.1 | Exclusive, World Wide Patent and Technology License and
      Assignment Agreement (incorporated by reference from our Current Report on
      Form 8-K filed May 6, 2003).                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                  
|10.2 | Consulting Agreement dated April 1, 2005 with Biological
      Industries, Ltd. (incorporated by reference from our current report on
      Form 8-K filed on November 1, 2005).                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                  
|10.3 | Consulting Agreement dated September 26, 2005 with Zami
      Aberman (incorporated by reference from our quarterly report on Form
      10-QSB filed February 9, 2006).                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                  
|10.4 | Consulting Agreement dated November 24, 2005 with
      Meretzki Consulting Ltd. (incorporated by reference from our quarterly
      report on Form 10-QSB filed February 9, 2006).                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                  
|10.5 | Form of Stock Option Agreement (incorporated by reference
      from our current report on Form 8-K filed on January 19, 2006).                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                  
|10.6 | Form of Securities Purchase Agreement between our company
      and each investor who participated in the Private Placement issuance of
      the Senior Secured Convertible Debentures, listed below exhibit
      (incorporated by reference from our current report on Form 8-K filed on
      April 5, 2006).
|     |                                                                                                                                                                                                                                                                                                                  
|10.7 | Form of Debenture between our company and each of the
      investors who participated in the Private Placement issuance of the Senior
      Secured Convertible Debentures (incorporated by reference from our current
      report on Form 8-K filed on April 5, 2006).                                        
|     |                                                                                                                                                                                                                                                                                                                  
|10.8 | Form of Warrant between our company and each investor who
      participated in the Private Placement issuance of the Senior Secured
      Convertible Debentures (incorporated by reference from our current report
      on Form 8-K filed on April 5, 2006).                                                  
|     |                                                                                                                                                                                                                                                                                                                  
|10.9 | Form of Registration Rights Agreement between our company
      and each investor who participated in the Private Placement issuance of
      the Senior Secured Convertible Debentures (incorporated by reference from
      our current report on Form 8-K filed on April 5, 2006).                            

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|10.10 | Form of Security
        Interest Agreement between our company, each investor who participated
        in the Private Placement issuance of the Senior Secured Convertible Debentures
        and Krieger & Prager, LLP (incorporated by reference from our current
        report on Form 8-K filed on April 5, 2006).                                           
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                    
|10.11 | Agreement dated
        February 28, 2006 between our company and Mr. Ernest Muller in respect
        of the Private Placement issuance of the Senior Secured Convertible Debentures
        (incorporated by reference from our quarterly report on Form 10-QSB filed
        on May 4, 2006).                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                    
|10.12 | Form of Agreement
        dated April 28, 2006, between our company and Zegal & Ross Capital,
        Tayside Trading, Levi Israel LLC and EDA Capital in respect of the Private
        Placement issuance of the Senior Secured Convertible Debentures (incorporated
        by reference from our quarterly report on Form 10-QSB filed on May 4,
        2006).
|      |                                                                                                                                                                                                                                                                                                                                                                    
|10.13 | Agreement dated
        April 3, 2006, between our company and Yokim Asset Management Corp. in
        respect of the Private Placement issuance of the Senior Secured Convertible
        Debentures (incorporated by reference from our quarterly report on Form
        10-QSB filed on May 4, 2006).                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                    
|10.14 | Agreement dated
        May 22, 2006, between our company and Dutton Associates Independent Research
        (incorporated by reference from our current report on Form 8-K filed on
        June 20, 2006).                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                    
|10.15 | Media Relations
        Campaign Agreement dated June 1, 2006 between our company and Emerson
        Gerard Associations, Inc. (incorporated by reference from our current
        report on Form 8-K filed on June 20, 2006).                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                    
|10.16 | Consulting Agreement
        dated June 15, 2006 between our company and Biologics Consulting Group,
        Inc. (incorporated by reference from our current report on Form 8-K filed
        on June 26, 2006).                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                    
|14.   | Code of Ethics                                                                                                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                    
|14.1  | Code of Business
        Conduct and Ethics and Compliance Program adopted by the Board of Directors
        (incorporated by reference from our annual report on Form 10-KSB filed
        on September 23, 2005).                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                    
|(21)  | Subsidiaries                                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                    
|      | Pluristem, Ltd.,
        an Israeli company.                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                    
|(31)  | Rule 13a-14(a)/15d-14(a)
        Certifications                                                                                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                    
|31.1* | Certification
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Zami Aberman.                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                    
|31.2* | Certification
        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Yaky Yanay.                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                    
|(32)  | Section 1350
        Certifications                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                    
|32.1* | Certification
        pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
        of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                             

*Filed herewith.

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- 43 -

Item 14. Principal Accounting Fees and Services

Audit Fees

The aggregate fees billed by Kost Forer Gabbay & Kasierer,
a member of Ernst & Young Global, for professional services rendered for the
audit of our annual financial statements included in our annual report on Form
10-KSB for the fiscal year ended June 30, 2007, for the review of quarterly
financial statements included in our quarterly reports on Form 10-QSB for the
quarters ending September 30, 2006, December 31, 2006 and March 31, 2007 were
$40,000.

The aggregate fees billed by Kost Forer Gabbay & Kasierer,
a member of Ernst & Young Global, for professional services rendered for the
audit of our annual financial statements included in our annual report on Form
10-KSB for the fiscal year ended June 30, 2006, for the review of quarterly
financial statements included in our quarterly reports on Form 10-QSB for the
quarters ending September 30, 2005, December 31, 2005 and March 31, 2006 and for
the review of our SB-2 were $56,000.

Audit Related Fees

None

We do not use Kost Forer Gabbay & Kasierer, a member of
Ernst & Young Global, for financial information system design and
implementation. These services, which include designing or implementing a system
that aggregates source data underlying the financial statements or generates
information that is significant to our financial statements, are provided
internally or by other service providers. We do not engage Kost Forer Gabbay
& Kasierer, a member of Ernst & Young Global, to provide
compliance-outsourcing services.

Tax Fees

The aggregate fees billed by Kost Forer Gabbay & Kasierer,
a member of Ernst & Young Global, in the year ended June 30, 2007 for the
professional services rendered for tax related matters were $10,000.

The aggregate fees billed by Kost Forer Gabbay & Kasierer,
a member of Ernst & Young Global, in the year ended June 30, 2006 for the
professional services rendered for tax related matters were $26,000.

Other Fees  Application to Chief Scientist of Israel

The aggregate fees billed by Kost Forer Gabbay & Kasierer,
a member of Ernst & Young Global, for the application to the Chief Scientist
of Israel were $44,851. Other services in 2006 included assistance in submitting
an application to the Office of the Chief Scientist of Israel. In 2006 other
services included assistance in submitting an application to the Office of the
Chief Scientist of Israel.

Effective May 6, 2003, the Securities and Exchange Commission
adopted rules that 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.

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- 44 -

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.

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- 45-

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 Life Systems Inc.

By: /s/ Zami Aberman (Zami Aberman, Chief Executive
Officer, Principal Executive Officer)

Date: September 4, 2007

By:/s/ Yaky Yanay Yaky Yanay, Chief Financial
Officer (Principal Financial and Accounting Officer) Dated: September 4,
2007

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 4, 2007

By: /s/Yaky YanayYaky Yanay, Chief Financial Officer
  (Principal Financial and Accounting Officer) 
  Dated: September 4, 2007

By: /s/ Doron Shorrer Doron Shorrer, Director
Dated: September 4, 2007

By: /s/ Hava Meretzki Hava Meretzki, Director
Dated: September 4, 2007

By: /s/ Isaac Braun  Isaac Braun, Director
Dated: September 4, 2007

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- 46 -

By: /s/ Israel Ben-Yoram
  Israel - Israel Ben-Yoram, Director 
  Dated: September 4, 2007

By: /s/ Mark Germain 
  Mark Germain, Co. Chairman of the Board and Director 
  Dated: September 4, 2007

---