PLURISTEM LIFE SYSTEMS INC (Form: 10QSB, Received: 02/09/2006 15:29:54)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2005

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

For the transition period from __________ to __________

Commission file number 001-31392

PLURISTEM LIFE SYSTEMS, INC.

(Exact name of small business issuer as specified in its charter)

Nevada		98-0351734
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

MATAM Advanced Technology Park, Building No. 20, Haifa, Israel 31905

(Address of principal executive offices)

011-972-4-850-1080

(Issuer's telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 [ ]

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

Yes o

No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 63,733,483 common shares issued and outstanding as of January 18, 2006

Transitional Small Business Disclosure Format (Check one): Yes [ ] No x

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

It is the opinion of management that the consolidated interim financial statements for the quarter ended December 31, 2005, include all adjustments necessary in order to ensure that the consolidated interim financial statements are not misleading.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2005

IN U.S. DOLLARS

INDEX

	Page

Consolidated Balance Sheet	2-3
Consolidated Statements of Operations	4
Statements of changes in Stockholders’ Equity (Deficiency)	5-7
Consolidated Statements of Cash Flows	8-9
Notes to Consolidated Financial Statements	10-14

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED BALANCE SHEET
In U.S. Dollars

		December 31,
		2005
		(Unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	1,018,484
Prepaid expenses		12,385
Other accounts receivables		54,590
Total current assets		1,085,459



LONG-TERM RESTRICTED LEASE DEPOSIT		30,949



SEVERANCE PAY FUND		40,043



PROPERTY AND EQUIPMENT, NET		256,897


DEFERRED ISSUANCE EXPENSES		147,502


Total assets	$	1,560,850

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED BALANCE SHEET
In U.S. Dollars

		December 31,
		2005
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Current maturities know-how licensors	$	218,750
Trade payables		140,976
Accrued expenses		137,260
Other accounts payable		70,044
Total current liabilities		567,030

LONG-TERM LIABILITIES
Accrued severance pay		51,860



STOCKHOLDERS’ EQUITY
Share capital:
Common stock $0.00001 par value: Authorized: 1,400,000,000 shares Issued and Outstanding: 63,653,483 shares		636
Additional paid-in capital		6,451,846
Deficit accumulated during the development stage		(5,510,522)
		941,960

	$	1,560,850

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In U.S. Dollars (except share and per share data)

		Six Month Period Ended December 31,				Three Month Ended December 31,				Period From May 11, 2001 (Inception) Through December 31,
		2005		2004		2005		2004		2005

Research and development costs, net	$	520,177	$	411,305	$	266,871	$	149,970	$	3,310,359

General and administrative expenses		412,679		478,857		203,770		265,508		3,573,098

In-process research and development write-off		-		-		-		-		246,470

		932,856		890,162		470,641		415,478		7,129,927

Financial expenses (income), net		(71,690)		(181,207)		15,376		(13,597)		(1,619,405)


Net loss for the period	$	861,166	$	708,955	$	486,017	$	401,881	$	5,510,522

Basic and diluted net loss per share	$	(0.01)	$	(0.03)	$	(0.01)	$	(0.01)

Weighted average number of shares
used in computing basic and diluted
net loss per share:		63,653,483		27,423,700		63,653,483		27,953,592

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
In U.S. Dollars (except shares data)

									Deficit
									Accumulated		Total
					Additional		Receipts		during the		Stockholders’
	Common Stock				paid-in		On account		Development		Equity
	Shares		Amount		Capital		of shares		Stage		(Deficiency)

Issuance of common stock on July 9, 2001	35,000,000	$	350	$	2,150	$	-	$	-	$	2,500

Balance as of June 30, 2001 (audited)	35,000,000		350				-		-		2,500
Net 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		-		-		83,591
Forgiveness of debt	-		-		11,760		-		-		11,760
Stocks cancelled on March 19, 2003	(27,300,000)		(273)		273		-		-		-
Receipts on account of stock and warrants, net of finders and legal fees of $56,540	-		-		-		933,464		-		933,464
Net loss	-		-		-		-		(462,995)		(462,995)

Balance as of June 30, 2003 (audited)	21,833,000	$	218	$	97,633	$	933,464	$	(540,898)	$	490,417

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In U.S. Dollars (except share and per share data)

									Deficit
									accumulated		Total
					Additional		Receipts		During the		Shareholders’
	Common Stock				paid-in		on account		development		Equity
	Shares		Amount		Capital		of shares		stage		(Deficiency)

Balance as of July 1, 2003	21,833,000	$	218	$	97,633	$	933,464	$	(540,898)	$	490,417

Issuance of common stock on July 16, 2003,
net of issuance expenses of $70,110	725,483		7		1,235,752		(933,464)		-		302,295
Issuance of common stock on January 20, 2004	3,000,000		30		-		-		-		30
Issuance of warrants on January 20, 2004 for finder’s fee	-		-		192,000		-		-		192,000
Common stock granted to consultants on February 11, 2004	1,000,000		10		799,990		-		-		800,000
Stock based compensation related to warrants granted to consultants on December 31, 2003	-		-		357,618		-		-		357,618
Exercise of warrants on
April 19, 2004	300,000		3		224,997		-		-		225,000
Net 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.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In U.S. Dollars (except share and per share data)

									Deficit
									accumulated		Total
					Additional		Receipts		During the		Shareholders’
	Common Stock				paid-in		on account		development		Equity
	Shares		Amount		capital		of shares		stage		(Deficiency)

Balance as of July 1, 2004	26,858,483	$	268	$	2,907,990	$	-	$	(2,551,248)	$	357,010

Stock-based compensation related to warrants
granted to consultants on September 30, 2004	-		-		161,641		-		-		161,641

Issuance of common stock and warrants on November 30, 2004 related to the October 2004 Agreement net of issuance costs of $28,908	3,250,000		33		296,059		-		-		296,092


Issuance of common stock and warrants on
January 26, 2005 related to the October 2004 Agreement net of issuance costs of $4,975	4,300,000		43		424,982		-		-		425,025

Issuance of common stock and warrants on
January 31, 2005 related to the January 31, 2005 Agreement	7,000,000		70		-		-		-		70
Issuance of common stock and options on February 15, 2005 to former director of the company	50,000		(*)		14,500		-	`	-		14,500

Issuance of common stock and warrants on
February 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.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In U.S. Dollars (except share and per share data)



					Deficit
					accumulated
			Additional	Receipts	During the	Total
	Common Stock		paid-in	on account	development	Shareholders’
	Shares	Amount	capital	of shares	stage	Equity (Deficiency)

Issuance of warrants on February 16, 2005 for finder fee related to the January 31, 2005 Agreement	-	-	144,000	-	-	144,000

Issuance of common stock and warrants on
March 3, 2005 related to the January 24, 2005 Agreement net of issuance costs of $24,000	12,000,000	120	1,175,880	-	-	1,176,000

Issuance of common stock on March 3, 2005 for finder fee related to the January 24, 2005 Agreement	1,845,000	18	(18)	-	-	-

Issuance of common stock and warrants on
March 3, 2005 related to the October 2004 Agreement net of issuance costs of $6,038	750,000	8	68,954	-	-	68,962

Issuance of common stock and warrants to the Chief Executive Officer on March 23, 2005	2,400,000	24	695,976	-	-	696,000

Issuance of common stock on March 23, 2005 related to the October 2004 Agreement	200,000	2	19,998		-	20,000

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In U.S. Dollars (except share and per share data)


									Deficit
									accumulated
					Additional		Receipts		uring the		Total
	Common Stock				paid-in		on account		development		shareholders’
	Shares		Amount		capital		of shares		stage		Equity (Deficiency)

Classification of a liability in respect of warrants to additional paid in capital, net of issuance costs of $ 178,116	-		-		541,884		-		-		541,884

Net 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)		1,803,126

Net loss for the period	-		-		-		-		(861,166)		(861,166)

Balance as of December 31, 2005 (unaudited)	63,653,483	$	636	$	6,451,846	$	-	$	(5,510,522)	$	(941,960)

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
In U.S. Dollars
	Six months ended December 31,		Period from May 11, 2001 (inception) through December 31
	2005	2004	2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$(861,166)	$(708,955)	$(5,510,522)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	20,668	15,675	164,701
Capital gain	-	-	(16,373)
Impairment of know-how	-	-	264,807
Amortization of deferred issuance costs	69,868	69,868	300,592
Stock-based compensation to consultants and employees	-	151,570	1,345,652
In-process research and development write-off	-	-	246,470
Know-how licensors – imputed interest	18,791	5,811	54,600
Salary grant in shares and warrants	-	-	710,500
Decrease (increase) in accounts receivable	93,191	(9,475)	(45,754)
Decrease in prepaid expenses	48,914	54,471	77,615
Increase (decrease) in trade payables	(44,097)	(2,301)	131,569
Increase (decrease) in other accounts payable and accrued expenses	(39,862)	39,814	(325,555)
Increase in accrued interest due to related parties	-	-	3,450
Linkage differences and interest on long-term restricted lease deposit	(80)	(1,245)	(2,164)
Change in fair value of liability in respect of warrants	(150,000)	(270,000)	(1,979,850)
Accrued severance pay, net	4,947	3,710	11,817
Net cash used in operating activities	(838,826)	(651,057)	(4,568,445)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Pluristem Ltd. (1)	-	-	31,899
Purchase of property and equipment	(28,475)	(29,759)	(223,107)
Proceed from sale of property and equipment	-	-	28,475
Purchase of long-term restricted lease deposit	(3,653)	-	19,851
Repayment of long-term restricted lease deposit	-	-	(29,829)
Purchase of know-how	-	-	(100,000)
Net cash used in investing activities	(32,128)	(29,759)	(272,711)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of issuance costs	-	296,092	4,686,209
Issuance of warrants	-	-	1,246,397
Short-term bank credit, net	-	12,516	(26)
Repayment of know-how licensors	-	(31,250)	(81,250)
Proceeds from notes and loan payable to related parties	-	-	78,195
Repayments of know – how licenses	-	-	(69,885)
Net cash provided by financing activities	-	277,358	5,859,640

Increase (decrease) in cash and cash equivalents	(870,954)	(403,458)	1,018,484
Cash and cash equivalents at the beginning of the period	1,889,438	668,867	-
Cash and cash equivalents at the end of the period	$1,018,484	$265,409	$1,018,484

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

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
In U.S. Dollars

	Six months ended December 31,		Period from May 11, 2001 (inception) through December 31,
	2005	2004	2005

Non-cash investing and financing information:
Unpaid know-how	$-	$-	$218,750



(1) Acquisition of Pluristem Ltd.

Fair value of assets acquired and
liabilities assumed at the acquisition date:

Working capital (excluding cash and cash			$(427,176)
equivalents)
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.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

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. The Company has a wholly owned subsidiary, Pluristem Ltd. (the “subsidiary”) that was incorporated under the laws of Israel and began its activity in January 2004.

The Company is devoting substantially all of its efforts towards conducting research and development of critical cell expansion services to cord blood banks. 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 $5,510,522 through December 31, 2005. 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 that might arise from this uncertainty, 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.

The accompanying unaudited interim consolidated financial statements have been prepared as of December 31, 2005, in accordance with United States generally accepted accounting principles relating to the preparation of financial statements for interim periods. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended December 31, 2005 are not necessarily indicative of the results that may be expected for the year ended June 30, 2006.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 2: -

SIGNIFICANT ACCOUNTING POLICIES

a.	The significant accounting policies applied in the annual consolidated financial statements of the Company as of June 30, 2005 are applied consistently in these consolidated financial statements.

These financial statements should be read in conjunction with the audited annual financial statements of the Company as of June 30, 2005 and their accompanying notes.

Certain amounts from prior years have been reclassified to conform to current period presentation.

b.	Accounting for stock-based compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees (“APB 25”) and FASB Interpretation No. 44 “Accounting for Certain Transactions Involving Stock Compensation (“FIN 44”) in accounting for its employee stock option plan. Under APB 25, when the exercise price of the Company’s stock options is less than the market price of the underlying stocks on the date of grant, compensation expense is recognized over the vesting period.

Pro forma information regarding the Company’s net loss and net loss per stock as required by Financial Accounting Standards Board Statement No. 148 “Accounting for Stock Based Compensation – Transaction and Disclosure (“SFAS No. 148”) that amended Financial Accounting Standards Board Statement No. 123 (“SFAS 123”) has been determined as if the Company had accounted for its stock options under the fair value method prescribed by SFAS No. 123.

The fair value for options granted is amortized over their vesting period and estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Dividend yield	0%
Volatility	112%
Weighted average risk-free interest rate	3.81%
Expected life (in years)	9.5

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 2: -

SIGNIFICANT ACCOUNTING POLICIES (continued)

Pro forma information under SFAS No. 123, is as follows:

		Six months ended December 31				Three months ended December 31		Period from May 11, 2001 (inception) through December 31
		2005		2004		2004		2005

Net loss available to Common stock – as Reported	$	861,166	$	708,955	$	401,881	$	5,510,522
Add - stock based employee compensation – fair value		56,898		396,238		204,418		690,932

Pro forma net loss	$	918,064	$	1,105,193	$	606,299	$	6,201,454


Basic and diluted net loss per stock as reported	$	(0.01)	$	(0.03)	$	(0.01)

Basic and diluted pro forma net loss per stock	$	(0.01)	$	(0.04)	$	(0.02)

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 2: -

SIGNIFICANT ACCOUNTING POLICIES (continued)

d.	Impact of recently issued accounting standards:

In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154 ("FAS 154"), "Accounting Changes and Error Corrections"- a replacement of APB No. 20, "Accounting changes" and FAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. APB Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in the net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS154 require retrospective application to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company estimates that the adoption of FAS 154 will not have a significant impact on its results of operations and financial condition.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004) (“statement 123 (R)”), “Share-Based Payment”, which in revision of SFAS 123,. Statement 123(R) supersedes APB Opinion No. 25, “Accounting For Stock Issued To Employees”, and amends FASB statement 123 (R) is similar to the approach describe in statement 123. However, Statement 123 (R) requires all share-based payments to employees, including grant of employees stock options, to be recognized in the income statements based on their fair value .Pro forma discloser is no longer an alternative. Statement 123 (R) must be adopted no later than perid beginning after December 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company except to adopt statement 123 (R) on July 1, 2006.

Statement 123(R), permits public companies to adopt its requirements using one of two methods:

•

A “Modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of statement 123 (R) for all share-based payments granted after the effective date and (b) based on the requirements of statements 123 (R) for all awards granted to employees prior to the effective date of statements 123 (R) that remains unvested on the effective date.

•

A “Modified retrospective” method which includes the requirements of the modified prospective method describe above but also permits entities to restate, based on the amounts previously recognized under statements 123 for purpose of Pro forma disclosure, all periods presented.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 2: -

SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company plans to adopt statement No. 123 (R) using the modified prospective method.

The Company is unable to estimate the future impact that Statement 123R will have on its financial position, results of operations or cash flows due to unknown events, such as the type and number of share-based payments that will be granted, their terms, and their vesting periods.

In March 2005, the SEC released SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). SAB 107 provides the SEC staff’s position regarding the application of Statement 123R, which contains interpretive guidance related to the interaction between Statement 123R and certain SEC rules and regulations, and also provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. SAB 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions

NOTE 3: -CHANGES IN SHARE CAPITAL

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. The 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.

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 $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 with a 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.

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 $1,235,752 (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.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 3: -CHANGES IN SHARE CAPITAL (continued)

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. If the price of the common stock will be more than $1 within 10 consecutive trading days, then the Company may, by notice to the warrants' holders, reduce the expiry date of 1,500,000 warrants to 60 days from the day of notice. In case the Company fails to register the above-mentioned shares and the related shares resulting from the exercise of the warrants, it will be subject to penalties as detailed in the private placement agreement. 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.

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 June 20, 2004, 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. As of December 31, 2005, the fair value of the liability in respect for the warrants issued was $0. The fair value as of December 31, 2005 was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 3.75%, expected dividend yield of 0%, expected volatility of 155%, and expected life of 1.06 years.

The change in the carrying amount of the liability in respect of the warrants in the amount of $1,079,970, $270,000 and $150,000, for the year ended June 30, 2004 and 2005 and for the six months ended December 31, 2005, respectively was recognized in the statements of operations as financial income.

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. The fair value of the warrants was estimated using the Black-Scholes option pricing model under the same weighted average assumptions.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 3: -CHANGES IN SHARE CAPITAL (continued)

In October 2004 the Company commenced a private placement offering (“the October 2004 Agreement”) accordingly 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, and may be exercised until November 30, 2006. 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 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 and may be exercised until November 30, 2006. 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.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 3: -CHANGES IN SHARE CAPITAL (continued)

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, and may be exercised until November 30, 2006. 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.

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. The change in the carrying amount of the liability in respect of the warrants, recorded as income, in the year ended June 30, 2005 amounted to $479,880.

The fair value as of May 13, 2005 was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 3.75%, expected dividend yield of 0%, expected volatility of 104%, and expected life of 1.54 years.

On March 23, 2005, the Company issued 2,400,000 shares of common stock and 2,400,000 common stock purchase warrants 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. Each warrant is exercisable until November 30, 2006 into one common share at a price of $0.30 per share. Salary expenses of $696,000 were recognized during the nine month period ended March 31, 2005 in respect of this bonus based on the quoted market price of the Company's stock and the fair value of the options granted determined using the Black – Scholes valuation model.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 3: -CHANGES IN SHARE CAPITAL (continued)

k.	Following the Board resolutions and authorizations from January 28, 2004, the Company issued on February 11, 2004, an aggregate amount of 1,000,000 common stock to a number of consultants and service providers 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.

l.	Stock Option Plan 2003 ("ESOP")

Under the Company's 2003 Stock Option Plan (the "Plan"), options may be granted to officers, directors, employees and consultants of the Company or its subsidiary.

Pursuant to the Plan, the Company reserved for issuance 4,100,000 of its common stock. As of December 31, 2005, 365,020 common stock of the Company are still available for future grant under the terms of the Plan.

Each option granted under the Plan is exercisable through the expiration date of the Plan which is December 2013 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. Any option, which are canceled or forfeited before expiration, become available for future grants.

Options to employees:

On December 2003, the Company granted 2,976,591 options to employees and directors at an exercise price of $0.76. All options were granted with an exercise price that exceeded the quoted market price of the Company's stock on the date of grant. Fair value (determined using the Black-Scholes valuation model) of options granted was $0.29 at date of grant. During the period ended June 30, 2004, 156,734 options to employees were forfeited.

During the year ended June 30, 2005, 451,170 options with an exercise price of of $0.3 per share were granted to the Company’s Chief Financial Officer. On February 15, 2005 the Company issued 50,000 shares and 70,495 options to former director and Chief Executive Officer of the Company. The exercise price of the options is $0.3 per share and they are fully vested and exercisable till February 15, 2008. Compensation expenses of $14,500 were recognized during the year ended June 30, 2005 in accordance with APB 25. During the year ended June 30, 2005, 15,415 options to employees were forfeited.

As of December 31, 2005, 3,250,912 options to employees are exercisable.

On October 17, 2004 the Board of Directors decided to reduce the exercise price of the options that were granted to the Company’s employees and directors from $0.76 to $0.3. On September 21, 2005 the Board of directors decided to reduce the exercise price of the options that were granted to the Company’s employees and directors from $0.3 to $0.12 . According to APB Opinion No. 25 and FIN 44 when the exercise price of a fixed stock option award is reduced, the award shall be accounted for as a variable plan from the date of modification to the date the award is exercised, forfeited, or expires unexercised. The reduction of the exercise price did not result in compensation expenses in the year ended June 30, 2005 and in the six months period ended December 31, 2005.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 3: -CHANGES IN SHARE CAPITAL (continued)

Options to consultants:

In the framework of the stock option plan, the Company issues warrants to consultants, for carrying out investor relation's activities On December 2003, the Company granted 669,189 options to consultants at a weighted average exercise price of $0.92.

In July 2004, the Company's board of directors approved to modify the terms of 500,000 options granted to a consultant on December 2003 (of which 250,000 are with an exercise price of $1 and 250,000 with an exercise price of $1.25) to provide for a cashless exercise of the options. The Board of directors also resolved that the options' exercise price will be reduced to $0.4 and that the options will be fully vested. In addition, it was resolved to grant the consultant additional 500,000 options with an exercise price of $0.4, vested immediately and with a cashless exercise feature. The additional 500,000 options were granted outside of the terms of the options plan. In June 2005 the consultant agreed to cancel the 1,000,000 options and to be granted 600,000 shares of the Company’s common stock. Since the fair value of the options that were canceled and the shares that were issued were equal, no additional compensation expenses were recorded.

As of December 31, 2005, 169,189 options to consultants are exercisable.

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 warrants was estimated using Black-Scholes option-pricing model with the following weighted-average assumptions for June 30, 2004: risk-free interest rates of 4.2%, expected dividend yield of 0%, expected volatility of 84%, and a weighted-average contractual life of the warrants of up to 10 years. Compensation expenses of $357,618 and $161,641 and $0 were recognized during the year ended June 30, 2004 and 2005 and in the period of six months ended December 31, 2005, respectively in accordance with EITF 96-18.

PLURISTEM LIFE SYSTEMS INC. AND ITS SUBSIDIARY

(A Development Stage Company)

(Previous Name - A. I. SOFTWARE INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In U.S. Dollars

NOTE 3: -CHANGES IN SHARE CAPITAL (continued)

m.	Stock Option Plan 2005 ("ESOP")

Under the Company's 2005 Stock Option Plan (the "Plan"), options may be granted to officers, directors, employees and consultants of the Company or its subsidiary.

Pursuant to the Plan, the Company reserved for issuance 15,000,000 of its common stock.

Each option granted under the Plan is exercisable trough the expiration date of the Plan which is January 2016 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. Any option, which are cancelled or forfeited before expiration, become available for future grants.

Options to employees:

On September 21, the Board of Directors appointed a new Chief Executive Officer, and approved to grant him 4,500,000 stock options exercisable at a price of $0.12 per share to be vested over a three years period. As the balance of the common stock available for grants under the 2003 plan was less than the amount granted, it was resolved that he will be granted under the 2005 plan. On January 17, 2005 the Company granted him the stock options from the 2005 plan. The Board resolved also to reduce the exercise price to $0.1 according to the stock market price at the date of actual grant and also to revise the vesting period to two years. The reduction of the exercise price did not result in compensation expenses in the six months period ended December 31, 2005. The award shall be accounted for as a variable plan from the date of modification to the date the award is exercised, forfeited, or expires unexercised

Options to consultants:

On November 21, 2005 the Board of Directors approved Dr. Shai Maretzki’s consulting agreement with the Company (which was signed on the same date) for a period of 2.5 years. Under this agreement the Company will grant him 1,500,000 stock options from the new 2005 ESOP Plan, under its terms and upon the formal approval of the 2005 ESOP Plan by Tax Authorities. The options will have a two years vesting period with six months grace period (i.e. vesting equally during the remaining 18 months). The option’s exercise price will be determined as the stock price at the date of grant. The actual grant date was determined to be January 17, 2006, the date of receipt of the formal approval by the Income Tax Authorities. The stock price at that day was $0.10. The Company did not recognize compensation expenses as of December 31, 2005.

NOTE 4: -GRANT RECEIVED FROM THE GOVERNMENT OF ISRAEL

The Company’s subsidiary received funding as part of its participation in the Office of Chief Scientist Magnet program operated by Israel's Ministry of Industry and Trade. Through December 31, 2005, the subsidiary received grants in the amount of $245,872 and $151,119 for the six month period ended December 31, 2005.

Item 2. Management's Discussion and Analysis or Plan of Operation.

FORWARD LOOKING STATEMENTS

This quarterly 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 quarterly 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 quarterly report, the terms "we", "us", "our", and "Pluristem" mean Pluristem Life Systems, Inc. and our wholly owned subsidiary, unless otherwise indicated.

Corporate History

We were incorporated in the State of Nevada under the name A.I. Software, Inc. on May 11, 2001 and commencing 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 an 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 and provide future appreciation, 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 expansion technology. This 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. Under this license agreement, we agreed to pay $400,000 cash over time and we will pay royalties on our future sales and product or rights distribution transactions. Also, the licensors of the license agreement have an option to assign all of their patent rights in 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 may only be exercised within a 60-day period commencing from the date when we notify the licensors that the market capital of our company has exceeded $25,000,000. The option will expire if it is not exercised within this period.

To enable us to conduct further research and development of the exclusive license for the stem cell expansion 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

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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".

Our Current Business

With the acquisition of Pluristem, Ltd., we aim to become a leader in expansion of hematopoietic stem cells outside of the human body. Stem cells are unspecialized cells that can renew themselves for long periods through cell division. Scientists have developed sufficient fundamental understanding to use stem cells for cell therapy and bone marrow transplants for the potential treatment of a broad range of complicated diseases. Cell therapy is the use of living cells in the treatment of medical disorders. Cell therapy is still in its beginning stages of research and development and only a few potential products are already in clinical studies.

We plan to specialize initially in the expansion of hematopoietic stem cells found in umbilical cord blood, using the technology platform we acquired under the license agreement with the Weizmann Institute of Science and the Technion-Israel Institute of Technology. We intend to improve this technology platform and develop it into a functional stem cell expansion system for the treatment of severe blood disorders. The first product targets a critical global shortfall of matched tissue for bone marrow transplantation. We completed initial pre-clinical trials on mice that have insufficient immune systems so as to simulate human blood and immune systems (SCID mice). We intend to test our first product in clinical trials to gain Federal Drug Administration approval.

Brief Introduction on Stem Cell Research and Cell Therapy

Since 1998, when embryonic human stem cells were first isolated, research on stem cells has received much public attention. Stem cells have two important characteristics that distinguish them from other types of cells. First, they are unspecialized cells that renew themselves for long periods through cell division. Second, under certain physiologic or experimental conditions, stem cells can be induced to become cells with special functions, such as the beating cells of the heart muscle or the insulin-producing cells of the pancreas.

Scientists primarily work with two kinds of stem cells from humans: embryonic stem cells and adult stem cells, which have different functions and characteristics. In some adult tissues, such as bone marrow, muscle, and brain, discrete populations of adult stem cells generate replacements for cells that are lost through normal wear and tear, injury, or disease.

Cell therapy is the use of living cells in the treatment of medical disorders. Stem cells, progenitors and differentiated functional cells of various tissues are evolving as potential treatment modality for life threatening diseases and major clinical indications lacking effective cures. Cell therapy is still in its beginning stages of research and development and only a few potential products are already in clinical studies.

Even though we have the capability to work with embryonic stem cells, we have chosen to concentrate our efforts on hematopoietic stem cells. Hematopoietic stem cells can be found in every adult's bone marrow, which is the spongy tissue found in the cavities of our bones. Hematopoietic stem cells are the precursors of the various types of blood cells in the human body. These cells include:

•	White cells that fight infections and inflammations (leukocytes) and form the basis of the immune system (lymphocytes);

•	Red cells that carry oxygen through our bodies (erythrocytes); and

•	Platelets that help blood to clot.

Scientists have developed sufficient understanding to actually use hematopoietic stem cells for therapy, such as through the procedure of bone marrow transplant. Thus, this class of human stem cell holds the promise of being able to repair or replace cells or tissues that are damaged or destroyed by many of our most devastating diseases and

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disabilities. Furthermore, bone marrow transplants are ultimate treatments in many pathological disorders, including:

•	Malignant blood system diseases, such as leukemia, lymphoma and myaloma,

•	Diseases characterized by the lack of, or defective, production of bone marrow, such as aplastic anemia,

•	Severe combined immune deficiency,

•	Non-hematopoietic malignancies (solid tumors), or bone marrow disorders, following chemotherapy and radiation, and

•	Metabolic diseases or congenital hemoglobinopathies, such as thalessemia.

For stem cell transplants to succeed, the donated stem cells must repopulate and/or engraft the recipient's bone marrow, where they will provide a new source of essential blood and immune system cells. Within the hematopoietic cell system, only a special type of stem cells called pluripotent hematopoietic stem cells have extensive capacities to expand, differentiate and self-renew. Accordingly, pluripotent hematopoietic stem cells are exclusively required for repopulation and engraftment of donated stem cells following transplantation. In spite of the key role of pluripotent hematopoietic stem cells in maintaining the hematopoietic cell system, they appear in extremely low frequency in the bone marrow tissue. The current technology limitation on maintaining or expanding undifferentiated stem cells outside of human body is a major drawback to essential clinical applications of these cells. This current unavailability of technology to expand the number of stem cells outside of human body reflects the need for novel stem cell regulators. However, in spite of all the challenges involved in hematopoietic stem cell transplants, physicians are now trying, sometimes successfully, to assist in hematopoietic and immune system recovery following high-dose chemotherapy and/or radiation therapy treatment for malignant and non-malignant diseases such as leukemia and certain immune and genetic disorders.

We entered into a consulting agreement as of April 1, 2005 with Biological Industries, Ltd., of Kibbutz Bet-HuEmek, MP Oshrat 25015 whereby our company and Biological Industries Ltd. have agreed to globally distribute joint project products in the field of serum-free media specially designed for hematopoietic and mesenchymal stem cells utilizing our PluriX ^TM Bioreactor system. Biological Industries Ltd. is a privately-held, leading biotechnology manufacturer and provider of a large range of animal cell culture products including sterile, sea, liquid and powdered synthetic media, supplements and novel serum free media products in the filed of cellular biology. Biological Industries Ltd. exports products to thirty countries internationally. Biological Industries Ltd. will pay us a license fee equal to 5% of sales of serum-free media developed in the joint project products for seven years commencing on the date of the first sale.

Brief Introduction on Bone Marrow Transplants

Bone marrow transplantation is a relatively new medical procedure being used to treat diseases once thought incurable. Since its first successful use in 1968, bone marrow transplants have been used to treat patients diagnosed with leukemia, aplastic anemia, lymphomas such as Hodgkin's disease, multiple myeloma, immune deficiency disorders and some solid tumors such as breast and ovarian cancer. The bone marrow transplant procedure generally involves three phases. In the first phase, lasting 5 to 14 days, the bone marrow recipient is prepared for the graft. Immunosuppressive and cytotoxic chemotherapy administered with or without irradiation are used to enable the recipient to accept the graft, to prevent graft rejection, and in cases of acute leukemia, to eliminate residual leukemia.

In the second phase, bone marrow is procured from a compatible donor and intravenously administered to the graft recipient.

The third phase is a period of waiting for the bone marrow to engraft and function normally in the recipient. During the time required for engraftment (approximately 2 to 4 weeks), the graft recipient is vulnerable to infection, bleeding, severe weight loss, rejection of the graft and graft-versus-host disease. Graft-versus-host disease occurs in approximately 50% of bone marrow transplant patients. If the marrow engrafts and the patient survives the immediate post-transplant period (first 3 to 6 weeks), the patient faces another set of complications, including graft-versus-host disease and interstitial pneumonia. Interstitial pneumonia occurs in 60% of bone marrow transplant

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patients, typically 4 to 6 weeks post transplant. The disease progresses rapidly and is fatal in approximately 50% of the cases. 50%-60% of patients survive where the bone marrow transplant is made during disease remission, and only 10%-25% survive in cases where the bone marrow transplant is done outside of remission. (Source: The Cost Effectiveness of BMT Therapy and Its Policy Implications, School of Public Health, UCLA).

There are several types of bone marrow transplants. They are distinguished according to the source of the stem cells. An autologus bone marrow transplant means the transplant stem cells come from the patient. An allogenic bone marrow transplant means the stem cells come from a donor. A syngeneic bone marrow transplant means the stem cells come from an identical twin.

Research and clinical work in the field of bone marrow transplants is presently limited due to:

•	The average number of active pluripotent hematopoietic stem cells in any given bone marrow is extremely low, less than 0.5% of total mononuclear cells;

•	The difficulties of the human body to accept bone marrow transplants from donors, and the ensuing damaging reactions;

•	The patient is quite prone to infections following radiation and/or chemotherapy treatments, and may have been infected even prior to the transplant;

•	Sorting of healthy cells from cancerous cells has not proven 100% successful;

•	The great complications in storing and enriching these cells in the absence of in vitro differentiation;

•	The absence of a large-scale and sustainable model that enables the testing of the ability of hematopoietic stem cells to renew the hematopoietic cell system; and

•	There are some clinical situations where autologus bone marrow after tumor purging provides insufficient numbers of hematopoietic stem cells for the bone marrow transplant.

Transplantation experts believe that the ideal approach to a successful stem cell transplant is to use a large number of stem cells to maximize the probability of bone marrow repopulation and minimize the time needed for the return of normal numbers of hematopoietic and immune cells in the patient.

One of the major efforts in developing hematopoietic stem cell technologies has been to identify new and better sources for stem cells. The majority of transplantable hematopoietic stem cells in adults currently come primarily from peripheral blood or adult donor bone marrow. Another important and attainable source of transplantable and lasting hematopoietic stem cells is from umbilical cord blood. Such blood is drawn from the umbilical cord after birth, but before the discharge of the placenta, giving way to the following advantages:

•	The standard procedure at birth is that umbilical cord blood is discarded with the placenta. No morbidity is involved, making this option free of ethical controversy;

•	Collection of umbilical cord blood is simple and non-invasive both to the mother and the baby;

•	Use of umbilical cord blood is already approved by the Federal Drug Administration and does not require further clinical testing;

•	The hematopoietic stem cells drawn from umbilical cord blood can differentiate into primary hematopoietic precursors and create hematopoietic clones in cultures better than those hematopoietic stem cells taken from adult bone marrow;

•	Umbilical cord blood has lower levels of contamination with common viral pathogens, such as Cytomegalovirus, and is more tolerant of alloantigens; and

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•	Umbilical cord blood hematopoietic stem cells have high tolerance levels, giving way to lower graft-versus-host diseases.

It is important to note that scientists have found no difference in the functionality of hematopoietic stem cells drawn from bone marrow, peripheral blood or umbilical cord blood. However, owing to the small volume of blood collected from umbilical cords (typically less than 100 ml), use of umbilical cord blood has been limited to date to transplants in babies and children weighing less than 45 kg. Moreover, there are no existing hematopoietic stem cell expansion technologies for umbilical cord blood that can increase, to the best of our knowledge, the number of hematopoietic stem cells without causing differentiation of the hematopoietic stem cells. Once the hematopoietic stem cells have differentiated, they cannot be transplanted into the patient. Therefore, the development of a system that will facilitate the proliferation of hematopoietic stem cells in an appropriate culture media or substrate could enable the use of such hematopoietic stem cells drawn from umbilical cord blood for transplanting in adults where insufficient hematopoietic stem cells are available.

In summary, transplants of hematopoietic stem cells derived from umbilical cord blood are a novel alternative to conventional bone marrow transplants and have several unique advantages, in spite of their present quantitative limitations. Umbilical cord blood lends itself to sorting and storing in cord blood banks and transplant clinics, leading to the ability to build data bases of expanded umbilical cord blood for national and worldwide access and use, making search of bone marrow transplant donors easily facilitated and making autologus bone marrow transplants in adults potentially feasible. We believe that the advantages in use of umbilical cord blood hematopoietic stem cells, combined with our platform technology have the potential to change the way bone marrow transplants are conducted in the future.

Our Core Technology – the PluriX™ Bioreactor System

For decades, scientists have attempted to "grow" stem cells outside of human body in culture to increase the number of stem cells for transplantation. The challenge of this undertaking lies in overcoming stem cells' predisposition to differentiate. Adult hematopoietic stem cells tend to produce other cells with limited repopulating properties when grown in culture rather than to replicate and regenerate additional stem cells. Current stem cell expansion techniques are complicated by the diverse mix of differentiated cells generated in stem cell cultures. Existing scientific methods considered in increasing the number of stem cells include culturing the stem cells on two dimensional stromal layers and growing in the presence of cytokines. To the best of our knowledge, none of these existing methods to grow stem cells outside of patients' bodies are able to prevent differentiation of stem cells while promoting their proliferation.

Through the license agreement we entered with the Weizmann Institute of Science and the Technion-Israel Institute of Technology, we acquired an exclusive license for an innovative stem cell expansion technology. This technology, if fully developed and commercialized, will offer novel solutions to expand hematopoietic stem cells taken from umbilical cord blood. We intend to improve this technology and develop it into a functional stem cell expansion system that we can sell or license to other research laboratories, umbilical cord blood banks, or clinics in the future. We have named this system the PluriX™ Bioreactor system.

The PluriX™ Bioreactor system is a system of stromal cell cultures and substrates that create an artificial physiological environment in which hematopoietic stem cells can grow and reproduce outside of the human body. The system mimics the environment which exists in human bones, in which stem cells reproduce in nature. The stem cells are “tricked” into growing and reproducing in the PluriX™ Bioreactor in a similar way they would in living bone. We expect that the three dimensional PluriX™ Bioreactor system has the potential to bring about the expansion of umbilical cord blood hematopoietic stem cells to proportions that will be enough for transplants in adults, without promoting differentiation.

We are designing and developing the PluriX™ Bioreactor system to perform controlled expansion of hematopoietic stem cells for bone marrow transplants. The general idea is to cause self-renewal of early stage stem cells and prevent them from differentiating through use of the PluriX™ Bioreactor system. The PluriX™ Bioreactor system creates an artificial physiological environment in which hematopoietic stem cells can grow and reproduce. This system is in direct contrast to standard teflon bags or culture flasks, which cannot promote hematopoietic stem cells self-renewal and prevent their differentiation. In the PluriX™ Bioreactor system, hematopoietic stem cells are influenced by contact with the surrounding environment, made up of stromal cell cultures and substrates. Therefore,

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by keeping the hematopoietic stem cells in the closed environment of the PluriX™ Bioreactor system, the hematopoietic stem cells maintain their original form, which means that they can proliferate without differentiating.

We believe that the PluriX™ Bioreactor system, once fully developed, will enable the production of certain stem cells, such as umbilical cord blood hematopoietic stem cells, for which there might otherwise be insufficient quantities available for transplants in adults. Having access to a sufficient number of hematopoietic stem cells is essential to successful clinical outcomes. This is particularly the case with umbilical cord blood transplants. The limited quantities of available hematopoietic stem cells in umbilical cord blood and difficulties in expanding the starting volumes to therapeutic quantities have restricted the widespread practice of umbilical cord blood transplants. The PluriX™ Bioreactor system is designed to solve this dilemma by providing the capability to easily and cost-effectively expand umbilical cord blood hematopoietic stem cells to higher quantities for therapeutic treatments.

The PluriX™ Bioreactor system is comprised of several components, including (1) a reservoir, (2) gas mixture, (3) a gas filter, (4) an injection point, (5) a Plug Flow Bioreactor, (6) a flow monitor and a flow valve, (7) a separating container, (8) a container for medium exchange, (9) a peristaltic pump, (10) a sampling point, (11) a container for medium exchange and (12) an oxygen monitor. The PluriX™ Bioreactor system is designed to be operated with minimal operator activity by a medical or laboratory technician. Operation of the PluriX™ Bioreactor system is intended to be relatively simple, and therefore, a trained lab technician will be able to operate and monitor between 10 to 20 PluriX™ Bioreactor systems at any one time. In other words, one lab technician will operate 70 to 100 PluriX™ Bioreactor systems per year.

1.	Primary Advantages of PluriX™ Bioreactor System

We believe our core technology, the PluriX™ Bioreactor system, once fully developed, will have the following advantages:

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Our PluriX™ Bioreactor system can be used to expand umbilical cord blood hematopoietic stem cells for use in adult transplants. This means that healthy autologus umbilical cord blood hematopoietic stem cells can be taken at the time of birth, expanded into mature hematopoietic stem cells and stored by a cell bank in the instance that it may be needed by that specific patient at a later date. This will eliminate the current practice of transplanting cancerous cells back into the patient.

•

Our PluriX™ Bioreactor system can be used for allogenic expansion, i.e. to expand the hematopoietic stem cells from donors other than the patient himself. Allogenic stem cells can also be expanded for use as a transplant source for adults in the instances that enough stem cells are not attainable from a particular donor.

•	Our PluriX™ Bioreactor system can be used to produce a high number of hematopoietic stem cells, which might result in increased potential for faster, successful engraftment of stem cells in transplant patients.

•	By making the option of expanding hematopoietic stem cells taken from transplant patients themselves available, we believe that costs related to donor searches for bone marrow transplants will be reduced significantly.

Markets for Our Product and Services

There are presently between 40,000 to 50,000 bone marrow transplants performed annually worldwide. 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, we estimate that the number of potential bone marrow transplants should 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, the standard bone marrow transplant procedure costs approximately $100,000 per patient. This translates into approximately $5 billion annually that patients and their medical insurers around the world are spending.

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Intellectual Property

Our success will depend in part on our ability, and the ability of our licensors, to obtain patent protection for our technology and processes we acquired under the license agreement with the Weizmann Institute of Science and the Technion-Israel Institute of Technology. Under the license agreement we have exclusive rights to the technology covering a patent application entitled "Method and Apparatus for Maintenance and Expansion of Hematopoietic Stem Cells and/or Progenitor Cells" filed with the World Intellectual Property Organization under the Patent Cooperation Treaty (PCT) patent number PCT/US00/02688. Corresponding patent applications have also been filed in a number of countries including the United States under patent application number 09/890,401. On January 28, 2005, we received notice from the U.S. Patent and Trademark Office that it has allowed the U.S. patent application number 09/890,401, but changing the title of the patent from “Method and Apparatus for Maintenance and Expansion of Hemopoietic Stem Cells and/or Progenitor Cells” to “Method of Producing Undifferentiated Hemopoietic Stem Cells Using a Stationary Phase Plug-Flow Bioreactor.” This patent – No 6,911,201, allowance provides coverage to our concept of creating a three-dimensional bone-like environment that supports stem cell expansion without differentiation. Our other issued patent presents claims to: (i) certain apparatus for cell culturing, including a bioreactor suitable for culturing human hematopoietic stem cells or hematopoietic progenitors cells; (ii) three dimensional stromal cells based bioreactor.

The patent was issued in South Africa in October, 2002, and is due to expire in approximately 2020. Patents were approved in Australia and New Zealand in July 2003 and are due to expire in approximately 2020. In addition, we and our exclusive licensors plan to file applications for patents in the United States and equivalent applications in certain other countries claiming other aspects of our technology and processes.

The validity and breadth of claims in medical technology 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, or our licensors, 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 or our licensors will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights held or licensed by us. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of our technology or design around any patents that have been or may be issued to us or our licensors. Since patent applications in the United States are maintained in secrecy until patents issue, we also can not be certain that others did not first file applications for inventions covered by our, and our licensors' 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 license granted by Weizmann Institute of Science and Technion-Israel Institute of Technology and others for the patent rights related to our core technology, the PluriX™ Bioreactor system. If we breach the license agreement or otherwise fail to comply with the license agreement, or if the license agreement expires or is otherwise terminated, we may lose our rights in such patents, which would have a material adverse affect on our business, financial condition and results of operations.

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 commercialize our technology 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 market our technology or maintain our competitive position with respect to our technology. If our technology components,

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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. 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 technology 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 and commercialization of our technology.

Research and Development

Foundational Research

For the last five years, our former Chief Executive Officer, 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 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 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. The technology resulting from this research is the subject of our license agreement (see “Intellectual Property”).

Ongoing Research and Development Plan

For the next three to four years, we intend to continue developing our stem cell expansion technology based on the PluriX™ Bioreactor system, which will consist of four broad stages:

3D Stroma Culture Optimization – During this stage, we are collecting stroma cells from donor bone marrow and other 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.

Stem-cells/Stromal cells Co-Culture Development & Optimization - At this stage we intend to focus on the establishment of the PluriX™ Bioreactors containing high-density cell and pluripotent hematopoietic stem cells co-cultures; maintenance of common cells on high-density cell-coated carriers and testing of expanded stem cells outside a host body using mice without immune systems repopulating cells assay.

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 Device Exemption application to initiate human clinical trials designed to demonstrate the safety, efficacy and clinical benefits of selectively expanded stem cell populations from umbilical cord blood. All research and development activities will be carried out under the advice of a Food and Drug Administration advisor.

Employees

We presently have 15 employees in research and development and 4 employees in management through our wholly owned subsidiary, Pluristem, Ltd.

Competition

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The biotechnology and medical device industries are characterized by rapidly evolving technology and intense competition. Our competitors include major pharmaceutical, medical device, medical products, chemical and specialized biotechnology companies, many of which have financial, technical and marketing resources significantly greater than ours. In addition, many biotechnology companies have formed collaborations with large, established companies to support research, development and commercialization of products that may be competitive with ours. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures. We are aware of certain other products manufactured or under development by competitors that are used for the prevention or treatment of certain diseases and health conditions that we have targeted for product development. There can be no assurance that developments by others will not render our technology obsolete or noncompetitive, that we will be able to keep pace with new technological developments or that our technology will be able to supplant established products and methodologies in the therapeutic areas that are targeted by us. The foregoing factors could have a material adverse affect on our business, financial condition and results of operations.

Our competition will be determined in part by the potential indications for which our technology is developed and ultimately approved by regulatory authorities. In addition, the first product to reach the market in a therapeutic or preventive area is often at a significant competitive advantage relative to later entrants to the market. Accordingly, the relative speed with which we, or our potential corporate partners, can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market are expected to be important competitive factors. Our competitive position will also depend on our ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, develop and implement production and marketing plans, obtain and maintain patent protection and secure adequate capital resources. We expect our technology, if approved for sale, to compete primarily on the basis of product efficacy, safety, patient convenience, reliability, value and patent position.

We believe we compete with the following larger and more established specialized biotechnology companies that are developing devices and products to be used for the prevention or treatment of certain diseases and health conditions that we have targeted for product development: Aastrom Biosciences, Inc., ViaCell Inc., Gamida-Cell Ltd., Advanced Cell Technology, Inc., BioTransplant Inc., and CellGenix. However, to the best of our knowledge none of these companies have developed a platform that can support expansion of hematopoietic stem cells without promoting their differentiation in cytokines free conditions.

Government Regulations and Supervision

Once fully developed, we intend to market our technology, the PluriX™ Bioreactor system, to research laboratories, clinics and umbilical blood banks primarily in the United States and in Europe. Accordingly, we believe our research and development activities and the manufacturing and marketing of our technology are subject to the laws and regulations of governmental authorities in the United States and other countries in which our technology 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.

Regulatory Process in the United States

Regulatory approval of new medical devices and biological products is a lengthy procedure 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.

We may develop our PluriX™ Bioreactor system into a GMP-compliant cell culture system for production of human cells outside of the human body to be sold 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 PluriX™ Bioreactor system is uncertain. While normally there is extreme caution in allowing matter to be transplanted into the human body, the severity of the diseases our applications will treat may result in certain leniency from the Food and Drug Administration for terminally ill patients (see “Product Approval”).

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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.

In addition, the output of expanded human stem cells from our PluriX™ Bioreactor system is potentially subject to regulation as medical products under the Federal Food, Drug and Cosmetic Act, and as biological products under the Public Health Service Act. Different regulatory requirements may apply to our technology depending on how they are categorized by the Food and Drug Administration under these laws.

Furthermore, the Food and Drug Administration has published regulations which require registration of certain facilities, which may include our future clinics, and is in the process of publishing regulations for the manufacture or manipulation of human cellular or tissue based products which may impact our future clinics.

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, labeling, storage, record-keeping, approval, distribution, use, reporting, advertising and promotion of our future products. Noncompliance 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

We are currently only in the developmental stage of our technology, PluriX™ Bioreactor system and have not begun the process of seeking regulatory approval from the Food and Drug Administration. Once our PluriX™ Bioreactor system is fully developed, we intend to consult with a Food and Drug Administration advisor to assist us in determining our path in the process toward gaining regulatory approval from the Food and Drug Administration. Obtaining regulatory approval of new medical devices and biological products from the Food and Drug Administration is a lengthy procedure 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. We summarize below our understanding of the regulatory approval requirements that may be applicable to us if we begin the process of seeking an approval from the Food and Drug Administration.

Generally, in order to obtain an approval from the Food and Drug Administration of a new medical product, an applicant must submit proof of safety and efficacy. In some cases, such proof entails extensive pre-clinical and clinical laboratory tests. The testing, preparation of necessary applications and processing of those applications by the Food and Drug Administration is expensive and may take several years to complete. There can be no assurance that the Food and Drug Administration will act favorably 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.

If human clinical trials of a proposed medical product are required, the manufacturer or distributor of the product will have to file an Investigational Device Exemption or Investigational New Drug submission with the Food and Drug Administration prior to commencing human clinical trials. The submission must be supported by data, typically including the results of pre-clinical and laboratory testing. Following submission of the Investigational Device Exemption or Investigational New Drug, the Food and Drug Administration has 30 days to review the application and raise safety and other clinical trial issues. If an applicant is not notified of objections within that period, clinical trials may be initiated, and human clinical trials may commence at a specified number of investigational sites with the number of patients approved by the Food and Drug Administration.

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The Food and Drug Administration categorizes medical devices into three regulatory classifications subject to varying degrees of regulatory control. In general, Class I devices require compliance with labeling and record keeping regulations, Quality System Regulation, 510(k) pre-market notification, and are subject to other general controls. Class II devices may be subject to additional regulatory controls, including performance standards and other special controls, such as post-market surveillance. Class III devices, which are either invasive or life-sustaining products, or new products never before marketed (for example, non-"substantially equivalent" devices), require clinical testing to demonstrate safety and effectiveness and the approval of the Food and Drug Administration prior to marketing and distribution.

Because the technology represented by our PluriX™ Bioreactor system has never before been marketed, we believe that our PluriX™ Bioreactor system, if successfully developed, will be classified as Class III medical devices and be subject to the requirements of clinical testing to demonstrate safety and effectiveness and the approval of the Food and Drug Administration prior to marketing and distribution.

In addition, we, and any contract manufacturer, may be required to be registered as a medical device manufacturer with the Food and Drug Administration. These manufacturers will be inspected on a routine basis by the Food and Drug Administration for compliance with the Food and Drug Administration's Quality System Regulations. The regulations of the Food and Drug Administration would require that we, and any contract manufacturer, design, manufacture and service products and maintain documents in a prescribed manner with respect to manufacturing, testing, distribution, storage, design control and service activities. The Medical Device Reporting regulation requires that we provide information to the Food and Drug Administration on deaths or serious injuries alleged to be associated with the use of our devices, as well as product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur. In addition, the Food and Drug Administration prohibits a company from promoting an approved device for unapproved applications and reviews company labeling for accuracy.

Also, if we are able to successfully develop our PluriX™ Bioreactor system, we believe that the stem cells produced in the PluriX™ Bioreactor system may be regulated by the Food and Drug Administration as a licensed biologic, although there can be no assurance that the Food and Drug Administration will not choose to regulate these stem cells in a different manner. The Food and Drug Administration categorizes human cell or tissue based products as either minimally manipulated or more than minimally manipulated, and has proposed that more than minimally manipulated products be regulated through a "tiered approach intended to regulate human cellular and tissue based products only to the extent necessary to protect public health." For products which may be regulated as biologics, the Food and Drug Administration requires: (i) preclinical laboratory and animal testing; (ii) submission to the Food and Drug Administration of an Investigational Device Exemption or Investigational Device Exemption New Drug application which must be effective prior to the initiation of human clinical studies; (iii) adequate and well-controlled clinical trials to establish the safety and efficacy of the product for its intended use; (iv) submission to the Food and Drug Administration of a biologic license application; and (v) review and approval of the biologic license application as well as inspections of the manufacturing facility by the Food and Drug Administration prior to commercial marketing of the product.

Generally, pre-clinical testing covers laboratory evaluation of product chemistry and formulation as well as animal studies to assess the safety and efficacy of the product. The results of these tests are submitted to the Food and Drug Administration as part of the Investigational Device Exemption. Following the submission of an Investigational Device Exemption, the Food and Drug Administration has 30 days to review the application and raise safety and other clinical trial issues. If an applicant is not notified of objections within that period, clinical trials may be initiated. Clinical trials are typically conducted in three sequential phases. Phase I represents the initial administration of the drug or biologic to a small group of humans, either healthy volunteers or patients, to test for safety and other relevant factors. Phase II involves studies in a small number of patients to assess the efficacy of the product, to ascertain dose tolerance and the optimal dose range and to gather additional data relating to safety and potential adverse affects. Once an investigational drug is found to have some efficacy and an acceptable safety profile in the targeted patient population, multi-center Phase III studies are initiated to establish safety and efficacy in an expanded patient population and multiple clinical study sites. The Food and Drug Administration reviews both the clinical plans and the results of the trials and may request an applicant to discontinue the trials at any time if there are significant safety issues.

The results of the pre-clinical tests and clinical trials are submitted to the Food and Drug Administration in the form of a biologic license application for marketing approval. The testing and approval process is likely to require substantial time and effort and there can be no assurance that any approval will be granted on a timely basis, if at all.

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Additional animal studies or clinical trials may be requested during the Food and Drug Administration review period that may delay marketing approval. After the Food and Drug Administration approval for the initial indications, further clinical trials may be necessary to gain approval for the use of the product for additional indications. The Food and Drug Administration requires that adverse affects be reported to the Food and Drug Administration and may also require post-marketing testing to monitor for adverse affects, which can involve significant expense.

Under current requirements, facilities manufacturing biological products must also be licensed. To accomplish this, a biologic license application must be filed with the Food and Drug Administration. The biologic license application describes the facilities, equipment and personnel involved in the manufacturing process. An establishment license is granted on the basis of inspections of the applicant's facilities in which the primary focus is on compliance with regulations and procedures and the ability to consistently manufacture the product in the facility in accordance with the Investigational Device Exemption. If the Food and Drug Administration finds the inspection unsatisfactory, it may decline to approve the biologic license application, resulting in a delay in production of products.

As part of the approval process for human biological products, each manufacturing facility must be registered and inspected by the Food and Drug Administration prior to marketing approval. In addition, state agency inspections and approvals may also be required for a biological product to be shipped out of state.

Regulatory Process in Europe

If we successfully develop our PluriX™ bioreactor system and seek regulatory approval in Europe, we believe our PluriX™ Bioreactor system may be regulated in Europe as a Class I Sterile, Class IIb or Class III medical device, under the authority of the Medical Device Directives being implemented by European Union member countries. These classifications apply to medical laboratory equipment and supplies including, among other products, many devices that are used for the collection and processing of blood for patient therapy.

The Medical Device Directives regulations vest the authority to permit affixing of the CE Mark with various notified bodies. These are private and state organizations which operate under license from the member states of the European Union to certify that appropriate quality assurance standards and compliance procedures are followed by developers and manufacturers of medical device products or, alternatively, that a manufactured medical product meets a more limited set of requirements. Notified bodies are also given the responsibility for determination of the appropriate standards to apply to a medical product. Receipt of permission to affix the CE Mark enables a company to sell a medical device in all European Union member countries. Other registration requirements may also need to be satisfied in certain countries. We have not received permission from a notified body to affix the CE Mark to our PluriX™ Bioreactor system.

PLAN OF OPERATIONS

Overview

You should read the following discussion of our financial condition and results of operations together with the consolidated unaudited financial statements and the notes to consolidated unaudited 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.

From our inception on May 11, 2001 to April, 2003, we had been engaged in software development, premised on the use of artificial intelligence in computer programming technology and in many areas of the computer, Internet, robotics, and games industries, and as well, a software application to assist in finding domain names. In May 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 and provide future appreciation, it was decided to concurrently pursue initiatives in the biotech industry as an extension to our existing business. On May 5, 2003, we entered into a license agreement with Weizmann Institute to Science and the Technion-Israel Institution of Technology to acquire an exclusive license for a stem cell expansion technology. To better develop this exclusively licensed technology, we purchased 100% of the issued and outstanding shares of Pluristem, Ltd. on June 10, 2003. Pluristem, Ltd. is a research and development company based in Israel. As of July 1, 2003, we have suspended our efforts to further develop artificial intelligence in computer programming and other software applications.

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Plan of Operations

Our primary objective over the next twelve months will be to further develop the expanded hematopoietic stem cell product and process. We will perform the development of the production process performed in the PluriX™ Bioreactor. Methods for the preparation of the cord blood seed, its freezing and thawing, development of the stromal cells and establishment of a master cell bank and working cell bank will be developed first. Following bioprocess development, fill and finish and development of analytical methods will be performed. In parallel, we will set up a quality assurance plan and implement it. A documentation center and compliance procedures will be established. In parallel, we will execute pre-clinical studies to demonstrate the expanded hematopoietic stem cell product activity in repopulating mice bone marrow. Regulatory activities will start by crystallizing the regulatory strategy, preparing a pre-filing document and perform a pre-filing meeting with the Food and Drug Administration.

Concurrently, we will initiate contact with research centers and cord blood banks to establish cooperative relations for future business development.

We will continue our cooperation with the Technion Institute of Technology in Israel regarding the Magneton grant received from the Israeli government. Within this grant we, together with the Technion researchers will further develop the PluriX ^TM Bioreactor using biodegradable scaffold structure which imitates the human bone.

We intend to consult with Food and Drug Administration consultants to assist us in determining the process toward gaining Food and Drug Administration regulatory approval.

We have not generated any revenues and our operating activities have used cash resources of over $391,639 for the three month period ended December 31, 2005. This negative cash flow is 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 - expanded hematopoietic stem cell product, 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 $2,500,000 generally falling in two major categories: research and development costs and general and administrative expenses.

Research and Development Costs

For the next twelve months, we estimate that our research and development costs will be approximately $1,500,000. We intend to spend our research and development costs on optimizing the 3-D bioreactor operations, developing the expanded hematopoietic stem cell product, implanting stem cells from cord blood into the stromal cell cultures of PluriX™ Bioreactors for expansion and on conducting studies on mice to examine stem cell development and expansion.

General and Administrative Expenses

For the next twelve months, we estimate that our general and administrative expenses will be approximately $1,000,000. These expenses will include 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 in the next twelve months. Our products will not be ready for sale for up to five years.

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

•	Raise equity or debt financing or a combination of equity and debt financing of at least $6,000,000.

•	Optimize 3-D PluriX ^TM Bioreactor operations – Using the 3-D environment of the PluriX ^TM , a dense population of stromal supporting cells (cells) has been reached to provide the basis for stem cell in vitro expansion without

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differentiation. Optimization of the bioreactor system is a continuous process to enable the stem cells self-renew while remaining in their original state.

•	Development of expanded hematopoietic stem cell product process and analytical methods.

•

Studies to analyze the hematopeoietic stem cell to reconstitute the hematopoietic system within animal model. Trials will be conducted 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 expansion process to be analyzed in vivo.

•	Crystallize the regulatory and medical strategy prior to meeting with the Food and Drug Administration.

•	Establish relations with research centres and cord blood banks.

Liquidity and Capital Resources

During the three month period ended December 31, 2005, we incurred a net loss of $486,017, as compared to a net loss of $2,098,108 in the year ended June 30, 2005. 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. As at December 31, 2005 we had cash of $1,018,484, which will be sufficient to fund our operations for approximately 4 months.

While we expect that we have sufficient funds to operate until early spring of 2006, we will have to raise additional funds from the market before we have any cash flow from operations. The approval process for our products in the United States and other jurisdictions is protracted and we believe will take several years. In addition, any acquisitions that we may plan 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 of our securities.

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 this period and into 2006, we will continue with the research and development activities referenced above.

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 expect that we now own most of the laboratory equipment that we will need to conduct our planned research and development 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, 2005, 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 stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Recently Issued Accounting Standards

- 15 -

In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154 ("FAS 154"), "Accounting Changes and Error Corrections" – a replacement of APB No. 20, "Accounting Changes" and FAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. APB Opinion 20 previously required that most voluntary changes in accounting principle to be recognized by including in the net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We estimate that the adoption of FAS 154 will not have a significant impact on our results of operations, financial condition and liquidity.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004) "Share-Based Payment" ("123(R)"), which in revision of FASB Statement No. 123, "Accounting For Stock-Based Compensation". Statement 123(R) supersedes APB Opinion No. 25, "Accounting For Stock Issued To Employees", and amends FASB Statements No. 95, "Statement of Cash Flows". Generally the approach in FASB Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grant of employees stock options, to be recognized in the income statements based on their fair value. Pro-forma disclosure is no longer an alternative. Statement 123(R) must be adopted no later than the period beginning after December 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We adopted Statement 123(R) on January 1, 2006.

Statement 123(R) permits public companies to adopt its requirements using one of two methods:

•

A "Modified Prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remains unvested on the effective date.

•

A "Modified Retrospective" method which includes the requirements of the modified prospective method described above but also permits entities to restate, based on the amounts previously recognized under Statement 123 for purpose of pro-forma disclosure, all periods presented.

We plan to adopt Statement 123(R) using the modified prospective method.

We are unable to estimate the future impact that Statement 123(R) will have on our financial position, results of operations or cash flows due to unknown events, such as the type and number of share-based payments that will be granted, their terms, and their vesting periods.

In March 2005, the SEC released SEC Staff Accounting Bulletin No. 107, "Share-Based Payment" ("SAB 107"). SAB-107 provides the SEC staff's position regarding the application of Statement 123(R), which contains interpretive guidance related to the interaction between Statement 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of share-based payment arrangements for public companies. SAB 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions.

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.

Acquisition of Technology Rights

In the acquisition of stem cell expansion technology rights through the license agreement, we considered whether these rights meet the criteria of an asset or should be expensed. As a result of the negative cash flows that have

- 16 -

occurred and are expected to continue in the foreseeable future, the PluriX™ Bioreactor system and license agreement technology assets which we acquired in the 2003 fiscal year were written off during the 2004 fiscal year.

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 $5,510,522 since inception through the three month period ended December 31, 2005.

Off Balance Sheet Arrangements

Our company has no off balance sheet arrangements that are not disclosed in our Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission on September 23, 2005.

RISK FACTORS

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 expansion 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 expansion technology and must be considered in the development stage. We were incorporated on May 11, 2001 with a business plan to develop an 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 May of 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 a stem cell expansion technology. 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 expansion technology licensed to us.

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 and commercialise our stem cell expansion technology. 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 have a going concern note as described in an explanatory paragraph to our consolidated financial statements for the year ended June 30, 2005.

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

We are engaged in the business of developing and commercializing a technology and proposed device called the PluriX™ Bioreactor system. The proposed function of our PluriX™ Bioreactor system is to allow researchers and physicians 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. Our PluriX™ Bioreactor system is in the development stage and we have not begun the regulatory approval process for our PluriX™ Bioreactor system. We have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the short or medium term. Any profitability in the future from our business will be dependent upon successful commercialization of our PluriX™ Bioreactor system, which will require significant additional research and development as well as substantial clinical trials.

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

- 17 -

Our PluriX™ Bioreactor system is 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 may not prove to be safe and efficacious in clinical trials. If any of these events occur, we may not have adequate resources to continue operations for the period required to resolve the issue delaying commercialization and we may not be able to raise capital to finance our continued operation during the period required for resolution of that issue. Accordingly, we may be forced to discontinue or suspend our operations.

We need to raise additional financing to support the research and development of our PluriX™ Bioreactor system 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.

We raised proceeds of approximately $3,250,000 in three private placement offerings of our securities in October of 2004 and January of 2005 to support the development and commercialization of our PluriX™ Bioreactor system. These funds are expected to fund operations until Summer of 2006. Our ability to continue to develop and commercialize the PluriX™ Bioreactor system is dependent upon our ability to raise significant additional financing when needed. If we are unable to obtain such financing, we will not be able to fully develop and commercialize our technology. Our future capital requirements will depend upon many factors, including:

•	continued scientific progress in our research and development programs;

•	costs and timing of conducting clinical trials and seeking regulatory approvals and patent prosecutions;

•	competing technological and market developments;

•	our ability to establish additional collaborative relationships; and

•	the effect of commercialization activities and facility expansions if and as required.

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

If we fail to obtain and maintain required regulatory approvals for our PluriX™ Bioreactor system, our ability to commercialize our PluriX™ Bioreactor system will be limited severely.

Once fully developed, we intend to market our PluriX™ Bioreactor system primarily in the United States, Europe and Japan. We must obtain the approval of the Food and Drug Administration before commercialization of our technology 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.

Furthermore, even if we obtain regulatory approval for our PluriX™ Bioreactor system, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory approval,

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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 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.

Even if we obtain regulatory approvals to commercialize our technology, we may encounter a lack of commercial acceptance of our PluriX™ Bioreactor system, which would impair the profitability of our business.

Our research and development efforts are primarily directed toward obtaining regulatory approval to market the PluriX™ Bioreactor system as an alternative to, or as an improvement for, the traditional bone marrow harvest and peripheral blood progenitor cell stem cell collection methods. These stem cell collection methods have been widely practiced for a number of years, and our technology may not be accepted by the marketplace as readily as these or other competing processes and methodologies. Additionally, our PluriX™ Bioreactor system 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 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 may become obsolete and our business may suffer.

The market for our technology 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 technology, including some by private companies for 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 technology. Our competitors may have developed, or could in the future develop, new technologies that compete with our technology or even render our technology 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 technology and we will suffer a competitive disadvantage. Finally, to the extent that others develop new technologies that address the targeted application for our PluriX™ Bioreactor system, 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, including our Chief Executive Officer, Zami Aberman and our Chief Financial Officer, Yossi Keret. 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. If our patents and proprietary right agreements do not provide sufficient protection for our PluriX™ Bioreactor system technology, our business and competitive position will suffer.

We rely on an exclusive, world-wide license relating to the production of human cells granted to us by the Weizmann Institute of Science and Technion-Israel Institute of Technology for certain of our patent rights. If we materially breach such agreement or otherwise fail to materially comply with such agreement, or if such agreement expires or is otherwise terminated by us, we may lose our rights under the patents held by the Weizmann Institute of Science and Technion-Israel Institute of Technology. At the latest, the license will terminate when the patents underlying the license expire. The underlying patents will expire in approximately 2020. Also, the scope of the patents licensed to us may not be sufficiently broad to offer meaningful protection. In addition, the patents licensed

- 19 -

to us could be successfully challenged, invalidated or circumvented so that our patent rights would not create an effective competitive barrier. 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 commercially viable technology 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 and market our PluriX™ Bioreactor system 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 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 the PluriX™ Bioreactor system during research and development efforts, including future clinical trials, or after commercialization results in adverse affects. As a result, we may incur significant product liability exposure. We may not be able to maintain adequate levels of insurance at reasonable cost and/or reasonable terms. Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition.

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

Our principal research and development facilities are located in Israel. As a result, we are directly influenced by the political, economic and military conditions affecting Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors 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 Defense Forces and are subject to being called up for active military duty at any time. All Israeli male citizens who have served in the army are subject to an obligation to perform reserve duty until they are between 45 and 54 years old, depending upon the nature of their military service.

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Because some of our officers and directors are located in non-U.S. jurisdictions, you may have no effective recourse against the management for misconduct and may not be able to enforce 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 investors 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 3. Controls and Procedures.

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, being December 31, 2005, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer 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 reports filed under the Exchange Act is accumulated and communicated to management, including our president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

On November 21, 2005, Zami Aberman, our Chief Executive Officer, was appointed as a director of our company.

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. As of January 31, 2006, there were 2,860,000 shares of our common stock still available for future grant under the plan.

Pursuant to a consulting agreement dated September 26, 2005 with our chief executive officer and president, Zami Aberman, we agreed to grant Zami Aberman stock options to purchase up to 4,500,000 shares of our common stock at an exercise price of $0.12 per share. We have agreed to grant the stock options to purchase up to 4,500,000 shares of our common stock to Zami Aberman pursuant to our 2005 Stock Option Plan at an exercise price of $0.10 per share.

Item 6. 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).

3.2	Bylaws (incorporated by reference from our registration statement on Form SB-2 filed September 10, 2001).

3.3	Restated Bylaws (incorporated by reference from our Quarterly Report on Form 10-QSB filed November 19, 2003).

(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 December 29, 2003)

4.2	2005 Stock Option Plan*

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(10)

Material Contracts

10.1	Software Development Agreement (incorporated by reference from our registration statement on Form SB-2 filed September 10, 2001).

10.2	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).

10.3	Form of Common Stock and Warrant Purchase Agreement between our company and each of the following investors who participated in the October 25, 2004 Private Placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Common Shares and Warrants Purchased

Park Ridge Investments A.V.V.	1,000,000
Shaya Britz	500,000
GlenRock Israel Ltd.	600,000
Bezalel Ziv Ron	100,000
Alshuler-Shaham Ltd.	300,000
ROLFE Investments Ltd.	250,000
Eshed Dash Ltd.	500,000
Dahav Financial Systems Ltd.	300,000
Platinum Partners Value Arbitrage Fund L.P.	1,000,000
Yosef Solt	250,000
Ori Ackerman	250,000
Iris Nehoray	600,000
Elazar Nehoray	600,000
Ilana Nehoray	600,000
Osnat Nehoray	600,000
Avinoam Rapaport	100,000
Kopelman Ltd.	250,000
Tibo Marcovich	200,000
Shlomo Shmuelov	250,000
Ilana Rachmilovitz	50,000
Rockwell Invest Ltd.	200,000

10.4	Form of Investors’ Rights Agreement between our company and each of the following investors who participated in the October 25, 2004 Private Placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name

Park Ridge Investments A.V.V.
Shaya Britz
GlenRock Israel Ltd.
Bezalel Ziv Ron
Alshuler-Shaham Ltd.
ROLFE Investments Ltd.
Eshed Dash Ltd.
Dahav Financial Systems Ltd.
Platinum Partners Value Arbitrage Fund L.P.
Yosef Solt
Ori Ackerman
Iris Nehoray
Elazar Nehoray
Ilana Nehoray
Osnat Nehoray
Avinoam Rapaport

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Kopelman Ltd.
Tibo Marcovich
Shlomo Shmuelov
Ilana Rachmilovitz
Rockwell Invest Ltd.

10.5	Form of Escrow Agreement between our company and each of the following investors who participated in the October 25, 2004 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name

Park Ridge Investments A.V.V.
Shaya Britz
GlenRock Israel Ltd.
Bezalel Ziv Ron
Alshuler-Shaham Ltd.
ROLFE Investments Ltd.
Eshed Dash Ltd.
Dahav Financial Systems Ltd.
Platinum Partners Value Arbitrage Fund L.P.
Yosef Solt
Ori Ackerman
Iris Nehoray
Elazar Nehoray
Ilana Nehoray
Osnat Nehoray
Avinoam Rapaport
Kopelman Ltd.
Tibo Marcovich
Shlomo Shmuelov
Ilana Rachmilovitz
Rockwell Invest Ltd.

10.6	Form of Warrants between our company and each of the following investors who participated in the October 25, 2004 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Warrants

Park Ridge Investments A.V.V.	1,000,000
Shaya Britz	500,000
GlenRock Israel Ltd.	600,000
Bezalel Ziv Ron	100,000
Alshuler-Shaham Ltd.	300,000
ROLFE Investments Ltd.	250,000
Eshed Dash Ltd.	500,000
Dahav Financial Systems Ltd.	300,000
Platinum Partners Value Arbitrage Fund L.P.	1,000,000
Yosef Solt	250,000
Ori Ackerman	250,000
Iris Nehoray	600,000
Elazar Nehoray	600,000
Ilana Nehoray	600,000
Osnat Nehoray	600,000
Avinoam Rapaport	100,000
Kopelman Ltd.	250,000
Tibo Marcovich	200,000

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Shlomo Shmuelov	250,000
Ilana Rachmilovitz	50,000
Rockwell Invest Ltd.	200,000

10.7	Form of Agents’ Warrants between our company and each of the following agents who participated in the October 25, 2004 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Warrants Exercisable at $0.10 per Share

Yokim Asset Management Corp.	50,000
Yosef Solt	12,500
Ori Ackerman	25,000
David Buch	30,000
Shmuel Even	30,000 (pursuant to two separate agreements)
Avinoam Rapaport	10,000
Izhak Brown	75,000
Amnon Dardik	12,500

10.8	Agreement dated January 12, 2005 between our company and Carlthon Corp. in respect of the January 24, 2005 private placement (incorporated by reference from our annual report on Form 10-KSB filed September 23, 2005).

10.9	Form of Common Stock and Warrant Purchase Agreement between our company and each of the investors who participated in the January 24, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Common Shares and Warrants Purchased

Joseph Corso	7,000,000
Kevin Klier	1,500,000
Frank Santo JR.	800,000
Danielle Inserra	500,000
Michelle Inserra	500,000
Christopher Short	250,000
Robert V. Clark	250,000
Gina M. Brody	200,000
Joseph De Francesco	200,000
Joseph Greco SR.	200,000
Sean Walter	200,000
Joseph Greco JR.	100,000
Candace Lee	100,000
Mauricio Perez	100,000
David P. Johnson	100,000

10.10

Form of Investors’ Rights Agreement between our company and each of the following investors who participated in the January 24, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name

Joseph Corso
Kevin Klier
Frank Santo JR.
Danielle Inserra

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Michelle Inserra
Christopher Short
Robert V. Clark
Gina M. Brody
Joseph De Francesco
Joseph Greco SR.
Sean Walter
Joseph Greco JR.
Candace Lee
Mauricio Perez
David P. Johnson

10.11

Form of Escrow Agreement between our company and each of the following investors who participated in the January 24, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name

Joseph Corso
Kevin Klier
Frank Santo JR.
Danielle Inserra
Michelle Inserra
Christopher Short
Robert V. Clark
Gina M. Brody
Joseph De Francesco
Joseph Greco SR.
Sean Walter
Joseph Greco JR.
Candace Lee
Mauricio Perez
David P. Johnson

10.12

Form of Warrants between our company and each of the following investors who participated in the January 24, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Warrants Exercisable at $0.10 per Share

Joseph Corso	7,000,000
Kevin Klier	1,500,000
Frank Santo JR.	800,000
Danielle Inserra	500,000
Michelle Inserra	500,000
Christopher Short	250,000
Robert V. Clark	250,000
Gina M. Brody	200,000
Joseph De Francesco	200,000
Joseph Greco SR.	200,000
Sean Walter	200,000
Joseph Greco JR.	100,000
Candace Lee	100,000
Mauricio Perez	100,000
David P. Johnson	100,000

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10.13

Form of Common Stock Purchase Agreement between our company and each of the following financial advisers who participated in the January 24, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Common Shares

Mark Zegal	600,000
David Buch	15,000
Kanyanei Bar-Reket Ltd.	20,000
Eretz Hacarmel Ltd.	10,000

10.14

Form of Agents’ Warrants between our company and each of the following agents who participated in the January 24, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Warrants Exercisable at $2.50

Ori Ackerman	440,000
David Buch	10,000
Amir Uziel	25,000

10.15

Finder’s Fee Agreement for 1,200,000 shares between our company and Carlthon Corp. in respect of the January 24, 2005 private placement. (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005)

10.16

Form of Private Placement Subscription Agreement between our company and each of the following investors who participated in the January 31, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Common Shares

Stonestreet Limited Partnership	4,000,000
Whalehaven Capital Fund Limited	3,000,000
Alpha Capital AG	1,000,000
Bristol Capital Advisors LLC	1,500,000
Shimon Vogel	500,000
Tower Paper Co Inc. Retirement Plan	250,000
Mordechai Vogel	250,000
Yokim Asset Management Corp.	1,000,000
David Klugman Associates Inc.	500,000

10.17

Form of Investors’ Rights Agreement between our company and each of the following investors who participated in the January 31, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name

Stonestreet Limited Partnership
Whalehaven Capital Fund Limited
Alpha Capital AG
Bristol Capital Advisors LLC
Shimon Vogel
Tower Paper Co Inc. Retirement Plan
Mordechai Vogel
Yokim Asset Management Corp.
David Klugman Associates Inc.

- 27 -

10.18

Form of Escrow Agreement between our company and each of the following investors who participated in the January 31, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name

Stonestreet Limited Partnership
Whalehaven Capital Fund Limited
Alpha Capital AG
Bristol Capital Advisors LLC
Shimon Vogel
Tower Paper Co Inc. Retirement Plan
Mordechai Vogel
Yokim Asset Management Corp.
David Klugman Associates Inc.

10.19

Form of Warrants between our company and each of the following investors who participated in the January 31, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005):

Name	Amount of Warrants Exercisable at $0.30 per Share (unless otherwise indicated)

Stonestreet Limited Partnership	4,000,000
Whalehaven Capital Fund Limited	3,000,000
Alpha Capital AG	1,000,000
Bristol Capital Advisors LLC	1,500,000
Shimon Vogel	500,000
Tower Paper Co Inc. Retirement Plan	250,000
Mordechai Vogel	250,000
Yokim Asset Management Corp.	1,000,000
David Klugman Associates Inc.	500,000

10.20

Agent’s Purchase Agreement between our company and Yokim Asset Management Corp. in respect of the January 31, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005).

10.21

Agent’s Warrant for 600,000 warrants between our company and Yokim Asset Management Corp. in respect of the January 31, 2005 private placement (incorporated by reference from our registration statement on Form SB-2 filed April 27, 2005).

10.22

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).

10.23

Consulting Agreement dated September 26, 2005 with Zami Aberman*

10.24

Consulting Agreement dated November 24, 2005 with Meretzki Consulting Ltd.*

10.25

Form of Stock Option Agreement (incorporated by reference from our current report on Form 8-K filed on January 19, 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.

- 28 -

(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 Yossi Keret.

(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.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant 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: February 9, 2006

By: /s/ Yossi Keret

Yossi Keret, Chief Accounting Officer

(Principal Financial Officer and Principal Accounting Officer)

Date: February 9, 2006

EXHIBIT 4 .1

PLURISTEM LIFE SYSTEMS, INC.

2005 STOCK OPTION PLAN

This 2005 Stock Option Plan (the "Plan") provides for the grant of options to acquire common shares (the "Common Shares") in the capital of Pluristem Life Systems, Inc., a corporation formed under the laws of the State of Nevada (the "Corporation"). Stock options granted under this Plan will include:

(a)

stock options that qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), which will be referred to in this Plan as "Incentive Stock Options";

(b)

stock options that qualify under Section 102 of the Israeli Tax Ordinance (New Version) 1961, as amended and the rules and regulations promulgated thereunder (the "Ordinance"), which will be referred to in this Plan as "Section 102 Options";

(c)

stock options that do not qualify under Section 422 of the Code , which will be referred to in this Plan as "Non-Qualified Stock Options"; and

(d)

Section 3(i) Options, being options under Section 3(i) of the Ordinance to consultants and Controlling Shareholders that are excluded from the term “Israeli Employee” as defined in Section 3.1 herein.

Incentive Stock Options, Section 102 Options, Non-Qualified Stock Options and Section 3(i) Options granted under this Plan are collectively referred to as "Options".

1.	PURPOSE

1.1 The purpose of this Plan is to retain the services of valued key employees and consultants of the Corporation and such other persons as the Plan Administrator (as hereinafter defined) shall select in accordance with Section 3 below, and to encourage such persons to acquire a greater proprietary interest in the Corporation, thereby strengthening their incentive to achieve the objectives of the shareholders of the Corporation, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by the Plan Administrator.

1.2 This Plan shall at all times be subject to all legal requirements relating to the administration of stock option plans, if any, under applicable corporate laws, applicable United States federal and state securities laws, the Code, applicable Israeli tax laws, Israeli securities laws, Israeli corporate laws, Israeli foreign exchange control laws the rules of any applicable stock exchange or stock quotation system, and the rules of any other foreign jurisdiction applicable to Options granted to residents therein (collectively, the "Applicable Laws").

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2.	ADMINISTRATION

2.1 This Plan shall be administered initially by the board of directors of the Corporation (the "Board"), except that the Board may, in its discretion, establish a committee composed of two (2) or more members of the Board or two (2) or more other persons to administer the Plan, which committee (the "Committee") may be an executive, compensation or other committee, including a separate committee especially created for this purpose. The Board or, if applicable, the Committee is referred to herein as the "Plan Administrator".

2.2 If and so long as the Common Shares is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Corporation wishes to grant Incentive Stock Options, then the Board shall consider in selecting the Plan Administrator and the membership of any Committee, with respect to any persons subject or likely to become subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside directors" as contemplated by Section 162(m) of the Code, and (b) "Non-Employee Directors" as contemplated by Rule 16b-3 under the Exchange Act.

2.3 The Committee shall have the powers and authority vested in the Board hereunder (including the power and authority to interpret any provision of the Plan or of any Option). The members of any such Committee shall serve at the pleasure of the Board. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members of the Committee and any action so taken shall be fully effective as if it had been taken at a meeting.

2.4 Subject to the provisions of this Plan and any Applicable Laws, and with a view to accomplishing the purpose of the Plan, the Plan Administrator shall have sole authority, in its absolute discretion, to:

(a)

construe and interpret the terms of the Plan and any Option granted pursuant to this Plan;

(b)

define the terms used in the Plan;

(c)

prescribe, amend and rescind the rules and regulations relating to this Plan;

(d)

correct any defect, supply any omission or reconcile any inconsistency in this Plan;

(e)

grant Options under this Plan, except grants to directors, the CEO, the CFO and the CTO of the Corporation, which will be granted by the Board as a whole;

(f)

determine the individuals to whom Options shall be granted under this Plan and whether the Option is granted as an Incentive Stock Option, Section 102 Option, a Non-Qualified Stock Option or Section 3(i) Option;

(g)

make an election under Section 102(b)(1) or (2) of the Ordinance;

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(h)

determine the time or times at which Options shall be granted under this Plan;

(i)

determine the number of Common Shares subject to each Option, the exercise price of each Option, the duration of each Option and the times at which each Option shall become exercisable;

(j)

determine all other terms and conditions of the Options; and

(k)

make all other determinations and interpretations necessary and advisable for the administration of the Plan.

2.5 All decisions, determinations and interpretations made by the Plan Administrator shall be binding and conclusive on all participants in the Plan and on their legal representatives, heirs and beneficiaries.

3.	ELIGIBILITY

3.1	Definitions. In this agreement:

“ Affiliate ” means any “employing company” within the meaning of Section 102(a) of the Ordinance.

“ Controlling Shareholder ” shall have the meaning ascribed to it in Section 32(9) of the Ordinance."

“Israeli Employee” means a person who is employed by the Corporation or its Affiliates in Israel , including an individual who is serving as a director or an office holder, but excluding a Controlling Shareholder.

“Related Corporation " means any corporation (other than the Corporation) that is a "Parent Corporation" of the Corporation or "Subsidiary Corporation" of the Corporation, as those terms are defined in Sections 424(e) and 424(f), respectively, of the Code (or any successor provisions) and the regulations thereunder (as amended from time to time).

3.2 Incentive Stock Options may be granted to any individual who, at the time such Option is granted, is an employee of the Corporation or any Related Corporation (as hereinafter defined) (an "Employee").

3.3 Non-Qualified Stock Options may be granted to Employees, and to such other persons who are not Employees as the Plan Administrator shall select, subject to any Applicable Laws.

3.4 Section 102 Options may be granted to Israeli Employees in accordance with Section 4 herein.

3.5 Section 3(i) Options may be granted to consultants and Controlling Shareholders that do not qualify as Israeli Employees.

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3.6 Options may be granted in substitution for outstanding Options of another corporation in connection with the merger, consolidation, acquisition of property or stock or other reorganization between such other corporation and the Corporation or any subsidiary of the Corporation. Options also may be granted in exchange for outstanding Options.

3.7 Any person to whom an Option is granted under this Plan is referred to as an "Optionee". Any person who is the owner of an Option is referred to as a "Holder".

4.	DESIGNATION OF OPTIONS PURSUANT TO SECTION 102 (RELEVANT ONLY TO ISRAELI EMPLOYEES)

4.1 The Corporation may designate Section 102 Options granted to Israeli Employees pursuant to Section 102 of the Ordinance as Unapproved 102 Options (means an Option granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee) or Approved 102 Options (means an Option granted pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit of the Optionee).

4.2 The grant of Approved 102 Options shall be made under this Plan adopted by the Board, and shall be conditioned upon the approval of this Plan by the Israeli Tax Authorities (the " ITA ").

4.3 Approved 102 Option may either be classified as Capital Gain Option (" CGO ") or Ordinary Income Option (" OIO ").

4.4 Approved 102 Option elected and designated by the Corporation to qualify under the capital gain tax treatment in accordance with the provisions of Section 102(b)(2) shall be referred to herein as CGO .

4.5 Approved 102 Option elected and designated by the Corporation to qualify under the ordinary income tax treatment in accordance with the provisions of Section 102(b)(1) shall be referred to herein as OIO .

4.6 The Corporation's election of the type of Approved 102 Options as CGO or OIO granted to Employees (the " Election "), shall be appropriately filed with the ITA before the Date of Grant of an Approved 102 Option. Such Election shall become effective beginning the first Date of Grant of an Approved 102 Option under this Plan and shall remain in effect at least until the end of the year following the year during which the Corporation first granted Approved 102 Options. The Election shall obligate the Corporation to grant only the type of Approved 102 Option it has elected, and shall apply to all Optionees who were granted Approved 102 Options during the period indicated herein, all in accordance with the provisions of Section 102(g) of the Ordinance. For the avoidance of doubt, such Election shall not prevent the Corporation from granting Unapproved 102 Options simultaneously.

4.7 All Approved 102 Options must be held in trust by a Trustee (means any entity appointed by the Corporation to serve as a trustee and approved by the ITA, all in accordance with the provisions of Section 102(a) of the Ordinance, as described in Section 5 below (the “ Trustee ”)).

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4.8 For the avoidance of doubt, the designation of Unapproved 102 Options and Approved 102 Options shall be subject to the terms and conditions set forth in Section 102 of the Ordinance and the regulations promulgated thereunder.

4.9 With regards to Approved 102 Options, the provisions of the Plan and/or the Option Agreement shall be subject to the provisions of Section 102 and the Tax Assessing Officer's permit, and the said provisions and permit shall be deemed an integral part of the Plan and of the Option Agreement. Any provision of Section 102 and/or the said permit which is necessary in order to receive and/or to keep any tax benefit pursuant to Section 102, which is not expressly specified in the Plan or the Option Agreement, shall be considered binding upon the Corporation and the Optionees.

5.	TRUSTEE

5.1 Approved 102 Options which shall be granted under the Plan and/or any Shares allocated or issued upon exercise of such Approved 102 Options and/or other shares received subsequently following any realization of rights, including, without limitation, bonus shares, shall be allocated or issued to the Trustee and held for the benefit of the Optionees for such period of time as required by Section 102 or any regulations, rules or orders or procedures promulgated thereunder (the " Holding Period "). In the case the requirements for Approved 102 Options are not met, then the Approved 102 Options may be treated as Unapproved 102 Options, all in accordance with the provisions of Section 102 and regulations promulgated thereunder.

5.2 Notwithstanding anything to the contrary, the Trustee shall not release any Shares allocated or issued upon exercise of Approved 102 Options prior to the full payment of the Optionee's tax liabilities arising from Approved 102 Options which were granted to him and/or any Shares allocated or issued upon exercise of such Options.

5.3 Upon receipt of Approved 102 Option, the Optionee will sign an undertaking to release the Trustee from any liability in respect of any action or decision duly taken and bona fide executed in relation with the Plan, or any Approved 102 Option or Share granted to him thereunder.

5.4 With respect to any Approved 102 Option, subject to the provisions of Section 102 and any rules or regulation or orders or procedures promulgated thereunder, an Optionee shall not sell or release from trust any Share received upon the exercise of an Approved 102 Option and/or any share received subsequently following any realization of rights, including without limitation, bonus shares, until the lapse of the Holding Period required under Section 102 of the Ordinance. Notwithstanding the above, if any such sale or release occurs during the Holding Period, the sanctions under Section 102 of the Ordinance and under any rules or regulation or orders or procedures promulgated thereunder shall apply to and shall be borne by such Optionee

5.5 With respect to all Shares (but excluding, for avoidance of any doubt, any unexercised Options) allocated or issued upon the exercise of Options purchased by the Optionee and held by the Optionee or by the Trustee, as the case may be, the Optionee shall be entitled to receive dividends in accordance with the quantity of such Shares, subject to the provisions of the

- 6 -

Corporation's incorporation documents (and all amendments thereto) and subject to any applicable taxation on distribution of dividends, and when applicable subject to the provisions of Section 102.

STOCK

6.1 The Plan Administrator is authorized to grant Options to acquire up to a total of 15,000,000 Common Shares. The number of Common Shares with respect to which Options may be granted hereunder is subject to adjustment as set forth in Section 7.1(m) hereof. In the event that any outstanding Option expires or is terminated for any reason, the Common Shares allocable to the unexercised portion of such Option may again be subject to an Option granted to the same Optionee or to a different person eligible under Section 3 of this Plan; provided however, that any cancelled Options will be counted against the maximum number of Common Shares with respect to which Options may be granted to any particular person as set forth in Section 3 hereof.

7.	TERMS AND CONDITIONS OF OPTIONS

7.1 Each Option granted under this Plan shall be evidenced by a written agreement approved by the Plan Administrator (each, an "Agreement"). Agreements may contain such provisions, not inconsistent with this Plan or any Applicable Laws, as the Plan Administrator in its discretion may deem advisable. All Options also shall comply with the following requirements:

(a)

Number of Shares and Type of Option

Each Agreement shall state the number of Common Shares to which it pertains and whether the Option is intended to be an Incentive Stock Option, Section 102 Option (CGO or OIO) or a Non-Qualified Stock Option; provided that :

(i)

the number of Common Shares that may be reserved pursuant to the exercise of Options granted to any person shall not exceed 5% of the issued and outstanding Common Shares of the Corporation;

(ii)

in the absence of action to the contrary by the Plan Administrator in connection with the grant of an Option, all Options shall be Non-Qualified Stock Options, Unapproved 102 Options or Section 3(i) Options, as the case maybe;

(iii)

the aggregate fair market value (determined at the Date of Grant, as defined below) of the Common Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (granted under this Plan and all other Incentive Stock Option plans of the Corporation, a Related Corporation or a predecessor corporation) shall not exceed U.S.$100,000, or such other limit as may be prescribed by the Code as it may be amended from time to time (the "Annual Limit"); and

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(iv)

any portion of an Option which exceeds the Annual Limit shall not be void but rather shall be a Non-Qualified Stock Option.

(b)

Date of Grant

Each Agreement shall state the date the Plan Administrator has deemed to be the effective date of the Option for purposes of this Plan (the "Date of Grant"). Option Price

(c)

Exercise Price

Each Agreement shall state the price per Common Share at which it is exercisable. The Plan Administrator shall act in good faith to establish the exercise price in accordance with Applicable Laws; provided that:

(i)

the per share exercise price for an Incentive Stock Option or any Option granted to a "covered employee" as such term is defined for purposes of Section 162(m) of the Code shall not be less than the fair market value per Common Share at the Date of Grant as determined by the Plan Administrator in good faith;

(ii)

with respect to Incentive Stock Options granted to greater-than-ten percent (>10%) shareholders of the Corporation (as determined with reference to Section 424(d) of the Code), the exercise price per share shall not be less than one hundred ten percent (110%) of the fair market value per Common Share at the Date of Grant as determined by the Plan Administrator in good faith; and

(iii)

Options granted in substitution for outstanding options of another corporation in connection with the merger, consolidation, acquisition of property or stock or other reorganization involving such other corporation and the Corporation or any subsidiary of the Corporation may be granted with an exercise price equal to the exercise price for the substituted option of the other corporation, subject to any adjustment consistent with the terms of the transaction pursuant to which the substitution is to occur.

(iv)

solely for the purpose of determining the tax liability pursuant to Section 102(b)(3) of the Ordinance, if at the date of grant the Corporation's shares are listed on any established stock exchange or a national market system or if the Corporation's shares will be registered for trading within ninety (90) days following the date of grant of the CGOs, the fair market value of the Shares at the date of grant shall be determined in accordance with the average value of the Corporation's shares on the thirty (30) trading days preceding the date of grant or on the thirty (30) trading days following the date of registration for trading, as the case may be.

(d)

Duration of Options

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At the time of the grant of the Option, the Plan Administrator shall designate, subject to Section 7.1(g) below, the expiration date of the Option, which date shall not be later than 10 years from the Date of Grant; provided , that the Plan Administrator decided otherwise in specific option agreements or, that the expiration date of any Incentive Stock Option granted to a greater-than-ten percent (>10%) shareholder of the Corporation (as determined with reference to Section 424(d) of the Code) shall not be later than five (5) years from the Date of Grant. In the absence of action to the contrary by the Plan Administrator in connection with the grant of a particular Option, and except in the case of Incentive Stock Options as described above, all Options granted under this Section 7 shall expire 10 years from the Date of Grant.

(e)

Vesting Schedule

No Option shall be exercisable until it has vested. The vesting schedule for each Option shall be specified by the Plan Administrator at the time of grant of the Option prior to the provision of services with respect to which such Option is granted.; provided that if no vesting schedule is specified at the time of grant, the Option shall vest as follows:

(i)

on the six month anniversary of the Date of Grant, the Option shall vest and shall become exercisable with respect to 25% of the Common Stock to which it pertains;

(ii)

on the seven month and each successive month anniversary to and including the twenty three month anniversary, the Option shall vest and become exercisable with respect to an additional four (4%) percent of the Common Stock to which it pertains ; and

(iii)

on the twenty-four month anniversary of the Date of Grant, the Option shall vest and shall become exercisable with respect to balance of the Common Stock to which it pertains.

The Plan Administrator may specify a vesting schedule for all or any portion of an Option based on the achievement of performance objectives established in advance of the commencement by the Optionee of services related to the achievement of the performance objectives. Performance objectives shall be expressed in terms of objective criteria, including but not limited to, one or more of the following: return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings, net worth, inventories, cash and cash equivalents, gross margin or the Corporation's performance relative to its internal business plan. Performance objectives may be in respect of the performance of the Corporation as a whole (whether on a consolidated or unconsolidated basis), a Related Corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performance objectives may be absolute or relative and may be expressed in terms of a progression or a range. An Option that is exercisable (in full or in part) upon the achievement of one or more performance objectives may be exercised only

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following written notice to the Optionee and the Corporation by the Plan Administrator that the performance objective has been achieved.

(f)

Acceleration of Vesting

The vesting of one or more outstanding Options may be accelerated by the Plan Administrator at such times and in such amounts as it shall determine in its sole discretion.

(g)

Term of Option

(i)

Vested Options shall terminate, to the extent not previously exercised, upon the occurrence of the first of the following events:

the expiration of the Option, as designated by the Plan Administrator in accordance with Section 7.1(d) above;

the date an Optionee receives a notice of his or her termination of employment or contractual relationship with the Corporation or any Related Corporation for Cause (as hereinafter defined); or

the expiration of five (5) years, unless otherwise determined in specific agreements by the Plan Administrator, from the date of an Optionee's termination of employment or contractual relationship with the Corporation or any Related Corporation for any reason whatsoever other than Cause, but including death or disability, unless, in the case of a Non-Qualified Stock Option, Section 102 Option or Section 3(i) Option, the exercise period is extended by the Plan Administrator until a date not later than the expiration date of the Option;

(ii)

Notwithstanding Section 7.1(g)(i) above, any vested Options which have been granted to an Optionee in the Optionee's capacity as a director of the Corporation or any Related Corporation shall terminate upon the occurrence of the first of the following events:

the event specified in Section 7.1(g)(i)A above;

the expiration of five (5) years, unless otherwise determined in specific agreements by the Plan Administrator, from the date the Optionee ceases to serve as a director of the Corporation or Related Corporation, as the case may be, unless, in the case of a Non-Qualified Stock Option or Section 102 Option, the exercise period is extended by the Plan Administrator until a date not later than the expiration date of the Option.

(iii)

Upon the death of an Optionee, any vested option still in force and unexpired may be exercised by the person or persons to whom such

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Optionee's rights under such Option shall pass by the Optionee's will or by the laws of descent and distribution of the Optionee's domicile at the time of death, within a period of twelve (12) months after the date of such termination.

(iv)

For purposes of the Plan, unless otherwise defined in the Agreement, termination for "Cause" shall mean such termination is for ‘cause' as such term is expressly defined in a then-effective written agreement between the Optionee and the Corporation or any Related Corporation, or in the absence of such then-effective written agreement and in the case of an Employee or an Israeli Employee, termination for the following reasons (i) conviction of any felony involving moral turpitude or affecting the Corporation; (ii) any refusal to carry out a reasonable directive of the chief executive officer, the Board or the Optionee's direct supervisor, which involves the business of the Corporation or its Related Corporation and was capable of being lawfully performed; (iii) embezzlement of funds of the Corporation or its Related Corporation; (iv) any breach of the Optionee's fiduciary duties or duties of care of the Corporation; including without limitation disclosure of confidential information of the Corporation; and (v) any conduct (other than conduct in good faith) reasonably determined by the Board to be materially detrimental to the Corporation. Unless accelerated in accordance with Section 7.1(f) above, unvested Options shall terminate immediately upon termination of employment or contractual relationship of an Optionee with the Corporation or a Related Corporation, or termination of an Optionee's services as a director of the Corporation or a Related Corporation, for any reason whatsoever, including death or disability.

(v)

For purposes of this Plan, transfer of employment between or among the Corporation and/or any Related Corporation shall not be deemed to constitute a termination of employment with the Corporation or any Related Corporation. Employment shall be deemed to continue while the Optionee is on military leave, sick leave or other bona fide leave of absence (as determined by the Plan Administrator). The foregoing notwithstanding, employment shall not be deemed to continue beyond the first ninety (90) days of such leave, unless otherwise determined in specific agreements by the Plan Administrator and unless the Optionee's re-employment rights are guaranteed by statute or by contract.

(h)

Exercise of Options

(i)

Options shall be exercisable, in full or in part, at any time after vesting, until termination. If less than all of the Common Shares included in the vested portion of any Option are purchased, the remainder may be purchased at any subsequent time prior to the expiration of the Option term. Only whole Common Shares may be issued pursuant to an Option,

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and to the extent that an Option covers less than one (1) Common Share, it is unexercisable.

(ii)

Options or portions thereof may be exercised by giving written notice to the Corporation, in such form and method as may be determined by the Corporation and when applicable, by the Trustee in accordance with the requirements of Section 102 of the Ordinance, which notice shall specify the number of Common Shares to be purchased, and be accompanied by payment in the amount of the aggregate exercise price for the Common Shares so purchased, which payment shall be in the form specified in Section 7.1(i) below. The Corporation shall not be obligated to issue, transfer or deliver a certificate representing Common Shares to the Holder of any Option, until provision has been made by the Holder, to the satisfaction of the Corporation, for the payment of the aggregate exercise price for all Common Shares for which the Option shall have been exercised and for satisfaction of any tax withholding obligations associated with such exercise. During the lifetime of an Optionee, Options are exercisable only by the Optionee.

(iii)

For Israeli Employees the above mentioned in section h(ii) is subject to section 102 and the trust mechanism as defined in section 5 of this Plan.

With respect to Unapproved 102 Option, if the Optionee ceases to be employed by the Corporation or any Afffiliate, the Optionee shall extend to the Corporation and/or its Affiliate a security or guarantee for the payment of tax due at the time of sale of Shares, all in accordance with the provisions of Section 102 and the rules, regulation or orders promulgated thereunder.

(i)

Payment upon Exercise of Option

Upon the exercise of any Option, the aggregate exercise price shall be paid to the Corporation in cash or by certified or cashier's check. In addition, if pre-approved in writing by the Plan Administrator who may arbitrarily withhold consent, the Holder may pay for all or any portion of the aggregate exercise price by complying with one or more of the following alternatives:

(i)

by delivering to the Corporation Common Shares previously held by such Holder, or by the Corporation withholding Common Shares otherwise deliverable pursuant to exercise of the Option, which Common Shares received or withheld shall have a fair market value at the date of exercise (as determined by the Plan Administrator) equal to the aggregate exercise price to be paid by the Optionee upon such exercise;

(ii)

by delivering a properly executed exercise notice together with irrevocable instructions to a broker promptly to sell or margin a sufficient portion of

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the Common Shares and deliver directly to the Corporation the amount of sale or margin loan proceeds to pay the exercise price; or

(iii)

by complying with any other payment mechanism approved by the Plan Administrator at the time of exercise.

(j)

No Rights as a Shareholder

A Holder shall have no rights as a shareholder of the Corporation with respect to any Common Shares covered by an Option until such Holder becomes a record holder of such Common Shares, irrespective of whether such Holder has given notice of exercise. Subject to the provisions of Section 7.1(m) hereof, no rights shall accrue to a Holder and no adjustments shall be made on account of dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights declared on, or created in, the Common Shares for which the record date is prior to the date the Holder becomes a record holder of the Common Shares covered by the Option, irrespective of whether such Holder has given notice of exercise. In case of Options and Common Shares held by the Trustee, subject to the provisions of Section 5 of the Plan.

(k)

Non-transferability of Options

Options granted under this Plan and the rights and privileges conferred by this Plan may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will, by applicable laws of descent and distribution, and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of any right or privilege conferred by this Plan contrary to the provisions hereof, or upon the sale, levy or any attachment or similar process upon the rights and privileges conferred by this Plan, such Option shall thereupon terminate and become null and void.

As long as Options and/or Common Shares are held by the Trustee on behalf of the Optionee, all rights of the Optionee over the Common Shares are personal, can not be transferred, assigned, pledged or mortgaged, other than by will or pursuant to the laws of descent and distribution.

(l)

Securities Regulation and Tax Withholding

(i)

Common Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such Common Shares shall comply with all Applicable Laws, and such issuance shall be further subject to the approval of counsel for the Corporation with respect to such compliance, including the availability of an exemption from prospectus and registration requirements for the issuance and sale of such Common Shares. The inability of the Corporation to obtain from any regulatory body the authority deemed by the Corporation to be necessary for the lawful issuance and sale of any Common Shares under this Plan, or

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the unavailability of an exemption from prospectus and registration requirements for the issuance and sale of any Common Shares under this Plan, shall relieve the Corporation of any liability with respect to the non-issuance or sale of such Common Shares.

(ii)

As a condition to the exercise of an Option, the Plan Administrator may require the Holder to represent and warrant in writing at the time of such exercise that the Common Shares are being purchased only for investment and without any then-present intention to sell or distribute such Common Shares. If necessary under Applicable Laws, the Plan Administrator may cause a stop-transfer order against such Common Shares to be placed on the stock books and records of the Corporation, and a legend indicating that the Common Shares may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided stating that such transfer is not in violation of any Applicable Laws, may be stamped on the certificates representing such Common Shares in order to assure an exemption from registration. The Plan Administrator also may require such other documentation as may from time to time be necessary to comply with applicable securities laws. THE CORPORATION HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE COMMON SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS.

(iii)

The Holder shall pay to the Corporation by certified or cashier's check, promptly upon exercise of an Option or, if sooner or later, the date that the amount of such obligations becomes determinable, all applicable federal, state, local and foreign withholding taxes that the Plan Administrator or the Trustee, in their discretion, subject to section 102 in case of Israeli Employees, determines to result upon exercise of an Option or from a transfer or other disposition of Common Shares acquired upon exercise of an Option or otherwise related to an Option or Common Shares acquired in connection with an Option. Furthermore, the Holder shall agree to indemnify the Corporation and/or its Affiliates and/or the Trustee and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Holder. Upon approval of the Plan Administrator, a Holder may satisfy such obligation by complying with one or more of the following alternatives selected by the Plan Administrator:

by delivering to the Corporation Common Shares previously held by such Holder or by the Corporation withholding Common Shares otherwise deliverable pursuant to the exercise of the Option, which Common Shares received or withheld shall have a fair market value (as determined by the Plan Administrator) equal to the minimum mandatory withholding tax obligations arising as a result of such exercise, transfer or other disposition; or

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by complying with any other payment mechanism approved by the Plan Administrator from time to time.

(iv)

The issuance, transfer or delivery of certificates representing Common Shares pursuant to the exercise of Options may be delayed, at the discretion of the Plan Administrator, until the Plan Administrator is satisfied that the applicable requirements of all Applicable Laws and the withholding provisions of the Code and/or the Ordinance have been met and that the Holder has paid or otherwise satisfied any withholding tax obligation as described in Section 7.1(l)(iii) above.

(m)

Adjustments Upon Changes In Capitalization

(i)

The aggregate number and class of shares for which Options may be granted under this Plan, the number and class of shares covered by each outstanding Option, and the exercise price per share thereof (but not the total price), and each such Option, shall all be proportionately adjusted for any increase or decrease in the number of issued Common Shares of the Corporation resulting from:

a subdivision or consolidation of Common Shares or any like capital adjustment, or

the issuance of any Common Shares, or securities exchangeable for or convertible into Common Shares, to the holders of all or substantially all of the outstanding Common Shares by way of a stock dividend (other than the issue of Common Shares, or securities exchangeable for or convertible into Common Shares, to holders of Common Shares pursuant to their exercise of options to receive dividends in the form of Common Shares, or securities convertible into Common Shares, in lieu of dividends paid in the ordinary course on the Common Shares).

(ii)

Except as provided in Section 7.1(m)(iii) hereof, upon a merger (other than a merger of the Corporation in which the holders of Common Shares immediately prior to the merger have the same proportionate ownership of common shares in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, reorganization (other than a mere re-incorporation or the creation of a holding Corporation) or liquidation of the Corporation, as a result of which the shareholders of the Corporation, receive cash, shares or other property in exchange for or in connection with their Common Shares, any Option granted hereunder shall terminate, but the Holder shall have the right to exercise such Holder's Option immediately prior to any such merger, consolidation, acquisition of property or shares, separation,

- 15 -

reorganization or liquidation, and to be treated as a shareholder of record for the purposes thereof, to the extent the vesting requirements set forth in the Option agreement have been satisfied.

(iii)

If the shareholders of the Corporation receive shares in the capital of another corporation ("Exchange Shares") in exchange for their Common Shares in any transaction involving a merger (other than a merger of the Corporation in which the holders of Common Shares immediately prior to the merger have the same proportionate ownership of Common Shares in the surviving corporation immediately after the merger), consolidation, acquisition of property or shares, separation or reorganization (other than a mere re-incorporation or the creation of a holding Corporation), all Options granted hereunder shall be converted into options to purchase Exchange Shares unless the Corporation and the corporation issuing the Exchange Shares, in their sole discretion, determine that any or all such Options granted hereunder shall not be converted into options to purchase Exchange Shares but instead shall terminate in accordance with, and subject to the Holder's right to exercise the Holder's Options pursuant to, the provisions of Section 7.1(m)(ii). The amount and price of converted options shall be determined by adjusting the amount and price of the Options granted hereunder in the same proportion as used for determining the number of Exchange Shares the holders of the Common Shares receive in such merger, consolidation, acquisition or property or stock, separation or reorganization. Unless accelerated by the Board, the vesting schedule set forth in the option agreement shall continue to apply to the options granted for the Exchange Shares.

(iv)

In the event of any adjustment in the number of Common Shares covered by any Option, any fractional shares resulting from such adjustment shall be disregarded and each such Option shall cover only the number of full shares resulting from such adjustment.

(v)

All adjustments pursuant to Section 7.1(m) shall be made by the Plan Administrator, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive.

(vi)

The grant of an Option shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, consolidate or dissolve, to liquidate or to sell or transfer all or any part of its business or assets.

8.	EFFECTIVE DATE; AMENDMENT; SHAREHOLDER APPROVAL

8.1 Options may be granted by the Plan Administrator from time to time on or after the date on which this Plan is adopted by the Board (the " Effective Date "). In case of the Israeli Optionees, Approved 102 Options will be granted only after the lapse of at least 30 days

- 16 -

following the date in which the Plan and the relevant forms will be submitted to the tax authorities as detailed in Section 4.6 above.

8.2 Unless sooner terminated by the Board, this Plan shall terminate on the tenth anniversary of the Effective Date. No Option may be granted after such termination or during any suspension of this Plan.

8.3 Any Incentive Stock Options granted by the Plan Administrator prior to the ratification of this Plan by the shareholders of the Corporation shall be granted subject to approval of this Plan by the holders of a majority of the Corporation's outstanding voting shares, voting either in person or by proxy at a duly held shareholders' meeting within twelve (12) months before or after the Effective Date. If such shareholder approval is sought and not obtained, all Incentive Stock Options granted prior thereto and thereafter shall be considered Non-Qualified Stock Options and any Options granted to Covered Employees will not be eligible for the exclusion set forth in Section 162(m) of the Code with respect to the deductibility by the Corporation of certain compensation.

9.	NO OBLIGATIONS TO EXERCISE OPTION

The grant of an Option shall impose no obligation upon the Optionee to exercise such Option.

10.

NO RIGHT TO OPTIONS OR TO EMPLOYMENT

Whether or not any Options are to be granted under this Plan shall be exclusively within the discretion of the Plan Administrator, and nothing contained in this Plan shall be construed as giving any person any right to participate under this Plan. The grant of an Option shall in no way constitute any form of agreement or understanding binding on the Corporation or any Related Corporation, express or implied, that the Corporation or any Related Corporation will employ or contract with an Optionee for any length of time, nor shall it interfere in any way with the Corporation's or, where applicable, a Related Corporation's right to terminate Optionee's employment at any time, which right is hereby reserved.

11.

APPLICATION OF FUNDS

The proceeds received by the Corporation from the sale of Common Shares issued upon the exercise of Options shall be used for general corporate purposes, unless otherwise directed by the Board.

12.

INDEMNIFICATION OF PLAN ADMINISTRATOR

In addition to all other rights of indemnification they may have as members of the Board, members of the Plan Administrator shall be indemnified by the Corporation for all reasonable expenses and liabilities of any type or nature, including attorneys' fees, incurred in connection with any action, suit or proceeding to which they or any of them are a party by reason of, or in connection with, this Plan or any Option granted under this Plan, and against all amounts paid by them in settlement thereof (provided that such settlement is approved by independent legal counsel selected by the Corporation), except to the extent that such expenses relate to matters for which it is adjudged that such Plan Administrator member is liable for wilful misconduct;

- 17 -

provided, that within fifteen (15) days after the institution of any such action, suit or proceeding, the Plan Administrator member involved therein shall, in writing, notify the Corporation of such action, suit or proceeding, so that the Corporation may have the opportunity to make appropriate arrangements to prosecute or defend the same.

13.

AMENDMENT OF PLAN

The Plan Administrator may, at any time, modify, amend or terminate this Plan or modify or amend Options granted under this Plan, including, without limitation, such modifications or amendments as are necessary to maintain compliance with the Applicable Laws. The Plan Administrator may condition the effectiveness of any such amendment on the receipt of shareholder approval at such time and in such manner as the Plan Administrator may consider necessary for the Corporation to comply with or to avail the Corporation and/or the Optionees of the benefits of any securities, tax, market listing or other administrative or regulatory requirements.

Effective Date: November 21, 2005

Exhibit 10.24

CONSULTING AGREEMENT

Duly made and executed on this 24 day of November 2005.

CONSULTING AGREEMENT between Pluristem Inc. , a company incorporated under the laws of the State of Nevada an or pluristem Ltd a company incorporated under the laws of the State of Israel (Registration No.51-3371666), of Haifa Israel (hereinafter: the “ Company ”) and Meretzki Consulting Itd . Corporation a company incorporated under the laws of the state of Israel , (hereinafter: the “ Consulting Company ”).

WHEREAS:

the Company is engaged, inter alia , in the field of stem cell expansion.

WHEREAS: the Company offered the Consulting Company, to provide it with Consulting Services, as such term is defined in this Agreement, all subject to the terms and conditions specified thereunder; and

WHEREAS: the Consulting Company is willing to provide the Company with such Consulting Services, all subject to the terms and conditions specified herein; and

WHEREAS : all services to be rendered to the Company under this Agreement are expected to be provided by the Consulting Company solely by Dr. Shai Meretzki I.D 024331753 (the “Consultant” ); and

WHEREAS : unless specified to the contrary, or unless the context otherwise implies, the Consulting Company and the Consultant shall be hereinafter referred to as the “Consultant” and shall be jointly and severally liable for any of the obligations provided under this Agreement; and

WHEREAS : the parties desire to set their respective rights and obligations in accordance with the terms and conditions specified herein.

NOW, THEREFORE, in consideration of the mutual representations, warranties, promises and undertakings of the parties, it is hereby agreed as follows;

General Provisions

1.1.

The preamble to this Agreement forms an integral part thereof.

1.2.

Section headings are solely for the easement of reading, and shall not serve to interpret this Agreement.

The Consultant Services .

2.1.

The Consultant shall provide to the Company, during the Term of this Agreement, as such term is defined below, with Consulting Services

Consulting Agreement

(hereinafter: “ Consulting Services ”).

2.2.

Manner of Performance . In performing the Consulting Services, the Consultant shall use all reasonable endeavors to promote, develop and expand Company’s business. The Consultant shall devote all necessary time and attention to the performance of his duties and will work in coordination with the Company.

2.3.

In performing the Consulting Services, the Consultant shall report to the president of the Company (the “President ”) and comply with the instructions and guidelines of the Board of Directors of the Company

Consulting Fees and Benefits .

3.1.

As compensation for the performance of the Consulting Services, the Consultant shall be compensated be as specified in Exhibit I , incorporated into this Agreement as an essential part hereof (the “ Consulting Fees ”).

3.2.

Expenses Reimbursement – the Company will reimburse the Consultant for any documented, reasonably out- of- pocket expenses from time to time properly incurred by the Consultant in connection with the Consulting Services and subject to the prior approval of the President of the Company

3.3.

The Consulting Fees amount described in this Section 3.1 shall constitute the entire and complete remuneration to which the Consultant shall be entitled in consideration for the Consulting Services, and unless specifically defined herein, the Consultant shall not be entitled to receive from the Company any additional amount whatsoever - including any and all expenses incurred by him in the framework of his providing the Consulting Services to the Company - in consideration for the Consulting Services.

3.4.

It is hereby declared and agreed that the amount of the Consulting Fees are based on the Parties` assessment as to the value of the services provided by the Consultant to the Company during the Term of this Agreement, and it may only be altered or modified by a written mutual understanding.

3.5.

It is hereby clarified, that this Agreement is concluded with the Consultant, based on Shai Meretzki special reputation and skills and, inter alia, his research experience and is based on his personal performance of the Consulting Services.

Representations and Warranties of the Consultant .

Consulting Agreement

The Consultant hereby represents and warrants to the Company as follows:

4.1.

Neither the execution and delivery of this Agreement nor the performance by the Consultant of his duties and other obligations hereunder violate or will violate any statute, law or regulation, or conflict with or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) any prior consulting agreement, contract, or other instrument to which the Consultant is a party or by which he is bound.

4.2.

The Consultant has the full right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of the Consultant enforceable against him in accordance with its terms. All required approvals and consents of the Consultant’s shareholders or Board of Directors have been properly received in order for the Consultant to execute and deliver this Agreement or perform its other obligations hereunder. No approvals or consents of any persons or entities are required for the Consultant to execute and deliver this Agreement or perform their duties and other obligations hereunder.

4.3.

The Consultant shall devote all the time and effort necessary and all his skills, knowledge and experience to the fulfillment of his duties for the benefit of the Company and in its best interest. During the term of this Agreement, the Consultant shall not be employed by or perform any work, whether for payment nor without payment, for any third party that may interfere with the provision of Consulting Services, except for such work and/or engagement as approved in writing by the Company in advance.

4.4.

During the Term of this Agreement, the Consultant undertakes to report to, and his activities shall at all times be subject to the direction of the President. The Consultant shall exercise such powers and comply with and perform, faithfully and to the best of his ability, such directions and duties in relation to the business and affairs of the Company as may from time to time be vested in or requested of him, and shall not engage in any other business activity, whether or not for profit, that may conflict with the Consultant’s duties under this Agreement and the Nondisclosure and Noncompetition Agreements.

Representations and Warranties of the Company

5.1.

The Company has the full right, power and legal capacity to enter and deliver this Agreement and to perform all its obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of the Company enforceable against it in accordance with its terms. All

Consulting Agreement

required approvals and consents of the Consultant’s shareholders or Board of Directors have been properly received in order for the Consultant to execute and deliver this Agreement or perform its other obligations hereunder.

5.2.

Neither the execution and delivery of this Agreement nor the performance by the Company of its obligation hereunder violates or will violate any statute, law or regulation, or conflict with or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) any agreement, contract, or other instrument to which the Company is a party or by which it is bound.

Confidentiality, Invention Assignment and Non-Competition

Upon the execution of this Agreement the Consultant undertakes to execute and comply with the Company’s Non Disclosure and Assignment of Intellectual Property Agreement (“ NDA ”) attached hereto as Exhibit II . The NDA prohibits, both during and after the Consultant’s engagement with the Company, unauthorized use or disclosure to anyone outside of the Company of the proprietary or trade secret information of the Company, its customers and its clients, as well as the disclosure to the Company of the proprietary or trade secret information of any third party. In addition, the NDA provides for the assignment of Consultant inventions to the Company and prohibits Consultant for a period of 6 month after their engagement from inducing employees or consultants to sever their relationship with the Company and from engaging in any employment or business activity, or holding an interest in any business, which is competitive with the business of the Company. Of course, this description is only a summary and the NDA itself will govern the Consultant’s actual obligations.

Term and Termination .

7.1.

The engagement under this Agreement commences as of 1 December 2005 , and shall remain in effect until 1 May 2008 (the "Engagement Term”).

7.2.

The Company hereby irrevocably confirms that it shall not be entitled to terminate Consultant’s engagement, except for termination for cause as defined below, until 1 February 2008, provided that the Company will act as an "On Going Concern” literal meaning, for example, paying it’s employees their salaries.

7.3.

Without derogating from the section 7.2 above this Agreement may be terminated as follows:

7.3.1.

Advanced Notice –at the end of the Engagement Term, Each party may terminate this Agreement subject to mutual written advanced

Consulting Agreement

notice of 9 months. During the first 3 months of the notice period the Consultant is expected to continue to provide Consulting Services. The Company reserves the right to decide, at its sole discretion, not to utilize the Consulting Services during, part or all of, the notice period, and in such event Consultant will be entitled to full compensation which would have been paid to him should he have continued to provide the Company with the said services during such period.

7.3.2.

Termination for Cause – In the event that the Company terminates the Consulting Services for reasons which are considered “For Cause” (as defined below), this Agreement will terminate immediately without the need to provide the Consultant with any prior notice. Termination by the Company shall constitute a termination for Cause if such termination is for one or more of the following causes:

7.3.2.1.

Unjustified refusal of the Consultant to render services to the Company in accordance with his obligations under this Agreement; provided that Consultant shall have 30 days following receipt of written notice of the cause for his termination pursuant to this Section to effect a cure. Such a cure must be done within this 30-day timeframe and to the Company and/or Board’s reasonable satisfaction. ; or

7.3.2.2.

the commission by the Consultant of an act of fraud or embezzlement, the Consultant’s misappropriation of any money or other assets or property (whether tangible or intangible); or

7.3.2.3.

The Consultant's material breach of the terms and conditions of this Agreement including but not limited to willful breach of his confidentiality and/or non-competition duties;

7.4.

It is hereby agreed that in the event of termination for Cause, Consultant’s contractual relationship shall be terminated immediately and unilaterally, and as of the occurrence of such an event of termination, Consultant shall not be entitled to the Consulting fees as provided herein.

Contractual Relationship

8.1.

It is hereby mutually declared and agreed that the Consultant shall at all time remain an independent contractor, and that nothing in this Agreement is to be construed as creating any agency, partnership, joint venture, or employer/employee relationship (whether between the Company and the Consultant).

8.2.

Consultant shall indemnify and hold the Company, its officers, directors,

Consulting Agreement

shareholders or employees harmless against any claim or cause of action initiated by Consultant or on its behalf in contradiction to the representation made in this Section 8.

8.3.

Without derogating from the above, it is specifically agreed that in the event that despite the Parties specific intention that this Agreement shall not give rise and/or create an employee – employer relationship between them, a competent judicial authority shall hold that the relationship between the Consultant and the Company in respect of the services provided pursuant to this Agreement is one of employer and employee, the following provision shall apply: Consultant shall immediately return to the Company all the sums he received from the Company pursuant and/or in connection with this Agreement and Consultant shall be entitled 30000 Israeli shekel per month.

Miscellaneous

9.1.

This Agreement shall be amended, only by a written instrument, executed by both parties.

9.2.

If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein.

9.3.

Any notice or other communication under this Agreement shall be in writing and shall be deemed to have been given when delivered personally against receipt therefor; one (1) day after delivery by facsimile; two (2) days after being sent by any overnight delivery courier; or three (3) days after being mailed registered or certified mail postage prepaid, return receipt requested to either party at the address set forth above, or to such other address as such party shall give by notice hereunder to the other party.

9.4.

The respective addresses of the parties are as set forth on the preamble of this Agreement, or as last notified by each party to the other, by registered mail.

9.5.

It is hereby agreed between the parties that the laws of the State of Israel shall govern this Agreement, and that the court in Haifa have exclusive jurisdiction over any matter arising out of, or in connection with, this Agreement.

9.6.

This Agreement constitutes the entire Agreement between the parties

Consulting Agreement

hereto, and supersedes all prior agreements, understandings and arrangements, oral or written, if any, between the parties hereto with respect to the subject matter hereof only

10.1	This Agreement and any amendment hereto may be executed in multiple counterparts, each of which shall be deemed an original agreement and all of which shall constitute one and the same agreement

10.2	The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Company its successors and assignees and upon the Consultant.

Consultant may not and shall not in any way directly or indirectly, assign, transfer, pledge or grant any legal right, or assign any duty or obligation, arising out of or as a result of this agreement, and this agreement shall exclusively obligate and benefit the Consultant alone.

10.3

The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith or with any other term, condition or provision hereof and said terms conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party.

IN WITNESS WHEREOF the parties have executed this Agreement

Company

By Mr. Zami Aberman

Consultant

By Mr. Shai Meretzki

I, the undersigned, Shai Meretzki __________, hereby acknowledge and consent to the aforesaid in this Agreement.

_________________________

Consulting Agreement

Exhibit I

The Consulting Fees

Consulting Fees

the Company shall pay the Consultant a monthly retainer of 60,000 New Israeli Shekels +VAT.

(sub-article (a) shall be referred to collectively as the " Consulting Fees " and will apply according to the circumstances).

Notwithstanding and without derogating any provision of this Agreement, the Company hereby consents and acknowledges that during the Term of this Agreement, Consultant’s fees shall not be less than 70% (seventy) of the CEO cost ( not including bonuses, ect) to the Company assuming 100% scope of such CEO engaged by the company. If the CEO will be employ in less then 100% first the CEO cost to the Company will be calculated as if the CEO work in 100% and grow accordantly and then the consulting pees will be calculated. It is also agreed that the consulting fees will not be less then 100% of the CFO cost to the Company and no more then the cost of a salary of 20,000 $.

The Consulting Fees shall be paid to the Consultant on the 7th day of each month during the Term of this Agreement, for the previous month against an invoice issued by the Consultant (the invoice shall be issued to the Company at least seven (7) days prior to the scheduled payment date).

The Consultant shall provide the Company, for its approval, upon the Company’s request with a written report of the Services performed by him and the number of hours spent to perform such Services.

Additional Benefits

In addition to the consulting Fees the Consultant shall be entitled to the following benefits:

2.1

Cellular Phone

During the Term of this Agreement, the Company will provide Consultant a cellular phone of the Company (the "Phone") pursuant to the following conditions:

The Company shall bear all the expenses in respect of the Phone.

Consulting Agreement

Any taxes connected to the use of the Phone shall be borne by the Consultant and the Consultant hereby agrees that such expenses be deducted from the Consulting Fees.

Upon termination of this Agreement, the Consultant shall return the Phone, together with any other equipment supplied, to the Company on the last day of his engagement in good order and condition. The Consultant shall have no rights of lien with respect to the Phone and/or any other equipment supplied.

Company Car

During the Term of this Agreement, the Company will provide Consultant a car and car expenses (the "Car") upon fulfillment of the following conditions:

The type of the Car shall be determined by the Company and the Company shall be entitled to replace the Car at its sole discretion.

The Consultant hereby declares that he is aware that in order to provide him with the Car, the Company intends to lease the Car from a leasing company, pursuant to a car lease agreement. Consultant undertakes to strictly comply with all of the provisions of the said leasing company relating to the use of the Car.

The Company shall bear the following expenses in respect of the Car and/or its maintenance (the "Car Expenses"):

mandatory Insurance and Third Party Insurance; and

ii.

Car license; and

iii.

Fuel; and

iv.

Car's repairs which are covered by the Leasing Agreement; and

All deductible amounts with which the Company may be charged by the insurance company issuing the insurance policy covering the Car in the event of damage to the Car; and

vi.

In the event of loss of the Car due to theft resulting from the Consultant's negligence - all deductible amounts and all other expenses related to said loss.

It is hereby agreed that any other expenses other than the Car Expenses shall be borne by the Consultant and the Consultant hereby agrees that such expenses be deducted from the

Consulting Agreement

Consulting Fees.

The value of the monthly use of the Car shall be added to the Consulting Fees, in accordance with the applicable income tax regulations applicable thereto, as straightforward income, and the Consultant shall bear any taxes and other deductions connected to the use of the Car.

In the event that the leasing company shall demand the payment of compensation of any type, due to the unlawful and/or unreasonable and/or negligent use by the Consultant of the Car - the Company shall forward such demand to the Consultant and the Consultant shall be entitled to defend, at his own expense, against such demand. Any amounts to be paid to the leasing company, regardless of whether or not the Consultant chose to defend against the leasing company's demand, shall be paid by the Consultant.

It is further agreed that the Consultant shall not be entitled to any additional traveling expenses; or any traveling expenses in accordance with the law.

The Consultant shall bear and pay all expenses relating to any violation of law committed in connection with the use of the Car and shall indemnify and/or reimburse the Company upon its first demand for all expenses incurred by it, including all legal and/or court costs, as a result of such violations.

The Car will be made available to the Company for any maintenance and/or repairs and/or for the use of the Company.

In case of termination of the Employment Agreement, the Consultant shall return the Car to the Company on the last day of his employment in good order and condition.

The Consultant is allowed to wave the above and then the Company will transfer the leasing agreement of the car registration number 9764850 to the Consultant, free of charge and the Consultant will take the Company place in the leasing agreement. The value of this transaction shall be added to the Consulting Fees, in accordance with the applicable income tax regulations applicable thereto, as straightforward income, and the company shell bear any taxes and other deductions connected to this transaction. In addition the Consultant will be paid 6,000 I.S monthly +VAT against an invoice issued by the Consultant as long as this agreement is in force.

Stock Options

Consulting Agreement

The current stock option agreements will remain in force as if the Company employs by the Consultant.

b. The Company shall grant the Consultant options to purchase 1,500,000 Common Shares according to new ESOP as adopted by the BOD on November 10 ^th , meeting.

c. All other terms of the Options shall be determined in the Company's Stock Option Plan and the Option Agreement.

d. Other than the above Consulting fees each party shall bear all of its own expenses in relation and/or connection to its performance or fulfillment of its obligations under this Agreement, including without limitation all applicable taxes and levies.

Other Benefits

Other benefits (bonuses, ect.) shall be granted by the Company to the Consultant upon the Board of director’s discretion.

Consulting Agreement

Exhibit II

Confidentiality, Invention Assignment and Non-Competition

PLURISTEM LTD.

CONSULTANT NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENT

This Non-disclosure and Confidentiality Agreement (“ NDA ”), dated as of 24/11/05, between Pluristem Ltd. (the “ Company ”), and Dr Meretzki Shai, an individual residing at Israel, who is employed by the Company (the “ Consultant ”).

As a condition of engagement or continued engagement with the Company, and in consideration of the wages, training and other benefits of such engagement, both tangible and intangible, Consultant agrees as follows:

1.	Confidential Information

a. Consultant agrees that, except in the good faith performance of the duties and responsibilities of Consultant’s engagement with the Company, or as required by order of a court or governmental agency having jurisdiction, Consultant will not at any time during or after Consultant’s engagement with the Company use, reveal, divulge or make known to any person or entity any Confidential Information (as defined below) concerning the Company, or any of the Company’s subsidiaries or affiliates. Consultant acknowledges that “Confidential Information” means and includes not only information disclosed by the Company to Consultant, but also information received, developed or learned by Consultant during the course or as a result of engagement with the Company. Confidential Information includes all information that has or could have commercial value or other utility in the business in which the Company is engaged or contemplates engaging, the Company’s products, and all information of which the unauthorized disclosure could be detrimental to the interests of the Company, or any subsidiaries or affiliates, whether or not such information is specifically labeled as Confidential Information by the Company. By way of example and without limitation, Confidential Information includes any and all information developed, obtained, licensed by or to or owned by the Company concerning trade secrets, techniques, know-how (including research data, designs, plans, procedures, manufacturing, assembly, marketing, distribution and warehousing know-how, and research records), software, computer programs, and any other intellectual property created, used or sold (through a license or otherwise) by the Company, product know-how and processes, innovations, discoveries, improvements, research, development, test results, reports, specifications, data, formats, marketing data and plans, business plans, strategies, forecasts, unpublished financial information, orders, agreements, lists and other forms of documents, price and cost information, merchandising opportunities, expansion plans, budgets, projections, customers (including, but not limited to, customers of the Company upon whom Consultant called or with whom Consultant may have become acquainted during the term

Consulting Agreement

of Consultant’s engagement), end users, suppliers, licensees, licensors and subcontractor identities, characteristics, operating procedures and salary, staffing and engagement information. Consultant's obligations under this Section 1 shall not apply to any information that (i) is or becomes known to the general public under circumstances involving no breach by Consultant (excluding counsel, accountants, financial advisors, employees, agents and material creditors of the Company), or (ii) is approved for release by written authorization of the Chief Executive Officer of the Company, or (iii) what was in his knowledge prior to this agreement.

b. Consultant understands that the Company does not want or require Consultant unlawfully to disclose to the Company any trade secrets of any third party. Accordingly, Consultant shall not disclose to the Company or use in Consultant's work any information, Prior Inventions (defined below) or materials owned by Consultant's former employers or other third parties.

c. The Consultant recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Consultant agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Consultants’ services for the Company consistent with the Company’s agreement with such third party. Without derogating from the above, such third parties confidential or proprietary information shall be deemed to be Confidential Information.

2.	Inventions

Consultant agrees that Consultant has, in the form attached hereto as Exhibit A, provided a list describing all inventions, original works of authorship, developments, know how, improvements and trade secrets which were made by Consultant prior to Consultant’s engagement with the Company (collectively referred to herein as “Prior Inventions”), which belong to Consultant, which relate to the Company’s business, products or research and development, and which are not assigned to the Company hereunder ; or if no such list is attached, Consultant represents that there are no such Prior Inventions. If in the course of Consultant’s engagement with the Company, Consultant incorporates into a Company product, process or machine a Prior Invention owned by Consultant or in which Consultant has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Inventions as part of or in connection with such product, process or machine.

Consultant agrees to make full and prompt written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all Consultant’s right, title and interest throughout the world in and to any and all inventions, improvements, discoveries, methods, developments, concepts, know-how, improvements,

Consulting Agreement

software, original works of authorship, or trade secrets, whether or not patentable or registrable under copyright or similar laws, which Consultant may solely or jointly create, make, conceive, develop or reduce to practice, or cause to be conceived or developed or reduced to practice during Consultant’s engagement by the Company that (i) relate at the time of conception or development to the actual or demonstrably proposed business or research and development activities of the Company; (ii) result from or relate to any work performed for the Company, whether or not during normal business hours or on the premises of the Company; or (iii) are developed through the use of Confidential Information (all of which are collectively referred to in this Agreement as “Developments"). Consultant further acknowledges that all Developments, which are made by Consultant (solely or jointly with others) within the scope of and during the period of Consultant’s engagement with the Company, are “works made for hire” (to the greatest extent permitted by applicable law) and are compensated by Consultant’s salary, unless regulated otherwise by law.

Consultant agrees to cooperate fully with the Company, both during and after Consultant’s engagement with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in Israel and foreign countries) relating to Developments. Consultant shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. If Consultant fails to execute any such assignment by reason of death, mental or physical incapacity or any other reason, Consultant hereby irrevocably appoints the Company and its officers and agents as Consultant's agent and attorney-in-fact to execute such documents on Consultant's behalf.

Consultant further agrees that all original works of authorship which are made by Consultant (solely or jointly with others) within the scope of and during the period of Consultant’s engagement with the Company and which are protectible by copyright are “works made for hire”.

3.	Non-Competition; Non-Solicitation

While engaged with the Company, Consultant shall not, without receiving the Company’s prior written consent (i) enter into the engagement of, or act as a consultant, director, officer, or Consultant of, or render any service or advice to, any other business, partnership, association, corporation or other entity which directly or indirectly concern with ex vivo expansion of hematopoietic stem cells.(a “Competing Business”).

While engaged with the Company and for a period of twelve (12) months after termination of engagement, Consultant shall not engage in Competition (as defined below) with the Company and shall not encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or attempt to induce)

Consulting Agreement

any customer or user of products of the Company, to engage in Competition with the Company, directly or indirectly, within any geographical area in which the Company has done business during the Consultant’s term of engagement. As used in this NDA, “Competition” means, without limitation, soliciting business from customers of the Company, or doing any work (whether as an owner, principal, Consultant, agent, consultant, representative, investor, independent contractor or otherwise) for a Competitor. “Competitor” as used in this Agreement means any person or entity that manufactures, markets or sells products similar to or used for the same purpose as those manufactured by the Company.

While engaged with the Company and for a period of twelve (12) months after termination of engagement, Consultant shall not, either directly or indirectly, solicit, induce, recruit or encourage any of the Company’s Consultants to leave their engagement, or take away such Consultants, or attempt to solicit, induce, recruit, encourage or take away Consultants of the Company, either for the Consultant’s benefit or for any other person or entity.

During the one (6) month period following termination of engagement, Consultant agrees to provide, and the Company may provide, a copy of this NDA to any entity for whom Consultant does or seeks to do any work.

4.	Company Property

Consultant agrees that, at the time of termination of Consultant’s engagement with the Company for any reason, Consultant will deliver to the Company (and will not keep in Consultant’s possession, recreate or deliver to anyone else) any and all Confidential Information and all other documents, materials, information or property belonging to the Company, its subsidiaries, successors or assigns. Consultant further agrees that any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. In the event of the termination of Consultant’s engagement, Consultant agrees to sign and deliver the “Termination Certification” attached hereto as Exhibit B. Consultant further agrees that any and all items remaining at the Company after the Consultant has left the employ of the Company shall be deemed to be the Company’s property.

5.	Survival

6.	The provisions of this NDA shall survive the termination of Consultant’s engagement with the Company and shall run to and inure to the benefit of the Company and its successors and assigns.

7.	Remedies.

Consultant acknowledges that a breach of the Consultant’s promises set forth in this NDA will result in irreparable harm to the Company, which will not be fully compensable by money damages alone.

Consulting Agreement

Therefore, in the event of any breach by Consultant of the provisions herein, Consultant agrees that the Company shall be entitled to all of the relief set forth below and will not be required to elect a remedy:

An injunction to prevent the Consultant’s further breach or to force the Consultant to comply with the provisions herein;

ii.

Money damages directly, indirectly or consequentially resulting from Consultant’s breach;

iii.

Attorney’s fees;

iv.

Costs of suit; and

Prejudgment and post-judgment interest at the rate applied for court judgments on all damages suffered by the Company, whether liquidated or unliquidated.

8.	Reviewed

Consultant represents, warrants and acknowledges that Consultant has carefully read this NDA and understands the provisions herein. Consultant further represents that Consultant has had an opportunity to have the provisions contained herein explained to Consultant by Consultant’s attorney, and to the extent Consultant so desired, Consultant has done so.

9.	Severability

If any provision of this NDA shall be found by a court or adjudicating agency to be unenforceable, said portion shall be severed from the rest without affecting in anyway any ability to enforce the remainder. If anytime period or geographical coverage period is found to be unenforceable, Consultant and Company agree that the court or adjudicating agency may substitute such terms as in its discretion it deems fit so that the protection afforded to the Company by this NDA is provided to the maximum extent allowable by law.

10.

Waivers

No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

Consulting Agreement

11.

Amendments in Writing

No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Consultant, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which it is given. This NDA sets forth the entire agreement and understanding between the Company and the Consultant relating to the subject matter herein and merges all prior discussions between the parties hereto. No provision of this NDA shall be varied, contradicted or explained by an oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Consultant.

12.

Governing Law

This NDA shall be exclusively governed by the laws of the State of Israel (without regard to the principles of conflict of laws thereof).

IN WITNESS WHEREOF, the parties have executed and entered into this Consultant Non-Disclosure and Confidentiality Agreement as of the date first set forth above.

PLURISTEM LTD.	CONSULTANT
By: /s/ Zami Aberman	/s/ Shai Meretzki
Name: Zami Aberman	Name: Shai Meretzki
Title: Director

Consulting Agreement

EXHIBIT A

LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP

Title

Date

Description

Number

•

MSC & stroma cells cultures.

•

3-D MSC & stroma cells cultures.

•

Growing high density MSC & stroma cells cultures.

•

Bioreactors for MSC & stroma cells 3-D cultures.

•

SCM from 2-D & 3-D MSC and stroma cells cultures.

•

Growing stem cells in hollow fiber system.

•

Growing stem sells in hollow fiber system receiving SCM from 2-D & 3-D MSC and stroma cells cultures.

•

Growing stem sells in hollow fiber system in co culture with MSC and stromal sell cultures.

•

Growing MNC from BM in 2-D & 3-D cells cultures.

•

Using MSN & stroma cells 2-D & 3-D cells cultures for tissue generation.

Signature of Consultant:

Print Name of Consultant:

Date:

CONSULTING AGREEMENT

Duly made and executed on this 26th day of September,2005.

CONSULTING AGREEMENT between Pluristem Life Systems Ltd., a company incorporated under the laws of the State of Israel, of MATAM Industrial Park Bldg. 20 Haifa, Israel 31905 (the “ Company ”) and Rose High Tech Ltd. a company incorporated under the laws of the state of Israel , of 63 Rabutzky Street Raannana Israel 43220 (the “ Consulting Company ”).

WHEREAS: the Company is engaged in the field of stem cell research and commercial stem cell exploitation; and

WHEREAS: the Consulting Company is willing to provide the Company with such Consulting Services, all subject to the terms and conditions specified herein; and

WHEREAS : all services to be rendered to the Company under this Agreement are expected to be provided by the Consulting Company solely by Mr. Zemi Aberman (the “Consultant” ); and

WHEREAS : the parties desire to set their respective rights and obligations in accordance with the terms and conditions specified herein.

NOW, THEREFORE, in consideration of the mutual representations, warranties, promises and undertakings of the parties, it is hereby agreed as follows;

1.	General Provisions

1.1.	The preamble to this Agreement forms an integral part thereof.

1.2.	Section headings are solely for the easement of reading, and shall not serve to interpret this Agreement.

2.	The Consultant Services .

2.1.	The Consultant shall during the Term of this Agreement, act as the CEO of the Company (the “ Consulting Services ”).

2.2.

2.3.	In performing the Consulting Services, the Consultant shall report to the Chairman of the Board of Directors of the Company (the “ Chairman ”) and comply with the instructions and guidelines of the Board of Directors of the Company (the "Board" ).

3.	Consulting Fees and Benefits .

3.1.	As compensation for the performance of the Consulting Services, the Consultant shall be compensated as follows:

3.2.

Consulting Fees . In consideration for the Consulting Services, the Company shall pay the Consultant, Consulting Fees in the gross monthly amount of US$ 13,000 plus VAT paid in Israeli Shekels, according to the representative rate of exchange of the U.S. Dollar, published by the Bank of Israel known at the applicable payment date, per each month during the Term of this Agreement and against a duly issued invoice (the “the "Consulting Fees” ). The Consulting Fees will be updated at the first anniversary of this Agreement. Subject to the issuance of the invoice as aforesaid, the Consulting Fees for each calendar month will be paid until the 5 ^th day of the following calendar month

3.2.1.

The Consulting Fees amount described in this Section 3 shall constitute the entire and complete remuneration to which the Consultant shall be entitled in consideration for the Consulting Services, and unless specifically defined herein, the Consultant shall not be entitled to receive from the Company any additional amount whatsoever - in consideration for the Consulting Services, except for such expenses incurred by the Consultant in the framework of providing the Consulting Services to the Company that shall be reimbursed as further provided for herein. -.

3.2.2.

It is hereby declared and agreed that the amount of the Consulting Fees is based on the Parties` assessment as to the value of the services provided by the Consultant to the Company during the Term of this Agreement, and it may be altered or modified by a written mutual understanding.

3.3

It is hereby clarified, that this Agreement is concluded with the Consultaning Company, based on Mr. Zemi Aberman's special reputation and skills and, inter alia, his management experience and is based on his personal performance of the Consulting Services. Therefor, the Consulting Company may not render the Consulting Services through any other person without the Company's prior written consent.

3.4	The Consultant shall be eligible to receive, an annual bonus, in the gross sum of US$13,000 (monthly Consulting Fees) plus VAT. Such bonus will be paid within 5 days after the end of each year of engagement of the Consultant hereunder against a duly issued invoice.

3.5

The Consultant shall be entitled to receive a minimum annual bonus of three percent (3%) of the Company's Profits before tax that shall be paid within 30 days following the filing of the Company Annual Report on Form 10-K. The Board, in its sole discretion and based on the Company's accomplishments during the relevant year, may resolve to increase the percentage of the annual bonus as it may deem fit but not more than six percent (6%).

3.6	In addition the Consultant shall be eligible to receive, special funding bonuses subject to the terms set forth in Exhibit I hereto.

3.7

The Company shall provide the Consultant with a car as detailed in Appendix II hereto; the Company shall pay all actual maintenance, and operating fixed and variable, tax and insurance expenses of the car. The company will pay the tax amount that is required to keep the Consultant Fee unaffected. The Company shall not pay any tickets or fines resulting state and/or municipal traffic violations; plus

3.8	The Company shall provide the Consultant with a cellular phone. The Company shall pay all actual, maintenance and insurance expenses of the cellular phone.

3.9	The Consultant will have 24 business days for vacation per year.

3.10	The Consultant shall be granted options to purchase shares of Common Stock of Pluristem Life Systems Inc. pursuant to the allotment and vesting schedule set forth in Exhibit III hereto.

3.11

The Consultant shall be entitled to receive prompt reimbursement of all direct expenses reasonably incurred by him in connection with the performance of his duties hereunder; provided, however , that (a) such expenses have been previously approved in writing by the Chairman, according to the Company’s expense policy in effect at such time (the “Expense Policy”), (b) the Consultant has submitted, in writing, in the proper format, an expense report for the same, together with written receipts, which have been approved by the Chairman or his designee, in accordance with the Expense Policy (each, an “Expense Report”), and

(c) the Expense Report has been submitted within fifteen (15) days of the incurrence of the expenses. The company will issue a company credit card that will be used by the Consultant only for expenses approved as aforesaid. The Consultant hereby acknowledges that once reimbursement has been received for goods purchased by the Consultant on behalf of the Company, such goods shall become the sole property of the Company.

3.12	The Company undertakes to cause that the Consultant in its capacity as Office Holder of the Company, shall be covered by the Company's D&O insurance policy, as shall be in effect from time to time.

4.	Representations and Warranties of the Consultant .

The Consultant hereby represents and warrants to the Company as follows:

4.1.

4.2.

5.	Representations and Warranties of the Company

5.1.	The Company has the full right, power and legal capacity to enter and deliver this Agreement and to perform all its obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of the Company enforceable against it in accordance with its terms.

5.2.

6.	Term and Termination .

6.1.	This Agreement will be in full force and effect as of September 21, 2005 until its termination pursuant to the provisions of this Agreement:

6.2.

The Agreement shall be terminated upon the death or disability of the Consultant. For purposes of this Section “ disability ” shall be deemed to have occurred if Consultant is unable, due to his physical or mental disease or condition, of to perform his normal duties under this Agreement for one hundred and twenty (120) consecutive days ( “Disability Period” ). Consultant’s return to providing Consulting Services during the Disability Period, for any number of periods of less that seven (7) consecutive business days shall not prejudice the continuation of the Disability Period.

6.3.

Each party may terminate this Agreement, with or without cause, at any time upon ninety (90) days advance written notice to the other party (herein: the “ Notice Period ” and “ Termination Notice ”, respectively). Consultant shall, during the Notice Period, continue to provide the Consulting Services to Company. To avoid any doubt, the Consultant’s entitlement to any remuneration during (or upon the expiration of) the Notice Period, under this Section 6.3, shall be subject to the Consultant’s ongoing cooperation with the Company and fulfillment of any duty reasonably required of him during such period. Nevertheless, Company retains the right, at its sole discretion, at any time within the Notice Period, to terminate, immediately and unilaterally, its contractual relationship with the Consultant without cause by giving written notice to Consultant of the Company’s election to terminate. In such event, the Company agrees to continue the payment of Consultant’s Consulting Fees until the end of the Notice Period. In the end of the Notice Period the value of the unused vacation days will be paid to the Consultant. The value per day will be the monthly Consulting Fee divided by 22. Such payment shall be made against duly issued invoice. In the event of termination of this Agreement pursuant to this Section 6.3 the consultant will be entitled in addition to the termination notice to adjustment fees equal to three (3) months Consulting Fees ("Adjustment Fees"), including the payment for the car and cellular phone as aforesaid.. The Adjustment Fees shall be paid on a month by month basis and the provisions of Section 3.4 shall apply to such payments, mutatis mutandis. Upon termination of the second year of this Agreement and each consecutive year, a sum equal to one month of Consulting Fees will be added to the Adjustment Fees. The aggregate Adjustment fees will not exceed a sum equal to Consulting Fees for nine (9) consulting months.

6.4.

Notwithstanding anything else to the contrary herein, the Company may terminate the Consultant's employment for a Cause (as defined herein) without advance notice, without derogating from any other remedy to which the Company may be entitled. A termination for “Cause” is a termination due to: (i) the Consultant's conviction of a felony deemed by the court to be of disgraceful nature; (ii) the

Consultant's material breach of the terms and conditions of this Agreement including but not limited to willful breach of his confidentiality and/or non-competition duties; (iii) the Consultant's involvement with an act which constitutes a breach of the Company’s trust including but not limited to: fraud, misappropriation, embezzlement, theft from the Company, or other acts of material dishonesty against the Company; (iv) the Consultant's disregard to lawful instructions given by the Chairman with regard to the Consultant Services; or (v) the Consultant’s willful engagement in gross misconduct materially injurious to the Company.

6.5.	It is hereby agreed that in the event of termination for Cause, Consultant’s contractual relationship shall be terminated immediately and unilaterally, and as of the occurrence of such an event of termination, Consultant shall not be entitled to the Consulting fees as provided herein.

7.	Contractual Relationship

It is explicitly agreed by the Parties that the aggregate amounts of the Consulting Fees and the bonuses and other compensation paid to the Consultant under this Agreement (the "Compensation" ) have been agreed upon between the Parties based upon the fact that the Parties are independent contractors from each other and that the Consultant bears all payments in connection with any social rights (including without limitation, vacation rights, national insurance payments, recuperation, severance payments, study funds, reimbursement of expenses or any other compensation whatsoever to which employees are entitled) under the applicable law and/or under this Agreement and that the Compensation is the full and the exclusive compensation that the Consultant is entitled to in connection with this Agreement In accordance with the above, in the event that any court or tribunal of competent jurisdiction shall determine that the Consultant is employees of the Company regardless of the explicit agreement of the Parties and that as a result thereof either of them is entitled to rights or social rights to which employees are entitled, the Parties explicitly agree that the annual salary that the Consultant should have received collectively under this Agreement shall be sixty seven percent (67%) of the average annual amount of the Consulting Fees and the annual bonuses (pursuant to Sections 3.4 and 3.5) received by the Consultant under this Agreement (the "Agreed Salary" ). Therefore, upon the filing of any claim, by the Consultant, any of its shareholders, directors, officers, employees or any third party, alleging that the Consultant is employee of the Company, the Consultan t shall return to the Company forthwith the Company first demand any and all amount paid to the Consultant hereunder by the Company in excess of the Agreed Salary plus interest in the annual amount of five (5) percent (the "Excess Amount" ) per annum Furthermore, the Company shall be entitled to set-off the Excess

Amount from any amount that the Consultant , its shareholders, directors, officers and/or employees, shall be entitled to pursuant to a resolution of any court or tribunal in that regard.

8.	Non Disclosure

8.1.

For the purposes of this Agreement “ Confidential Information ” shall mean information that: (i) has been created, discovered, developed by, or otherwise become known to the Company (or to any of its present or future affiliates) (including, without limitation, information created, discovered, developed by, or made known to the Consultant during the period of, or arising out of the Consultant's services to the Company) or in which property rights have been assigned or otherwise conveyed to the Company, including, but not limited to, trade secrets, processes, formulas, data, know-how, improvements, inventions, techniques, marketing plans, strategies, forecasts, and customer lists (“ Proprietary Information ”), and (ii) that is disclosed in furtherance of the business of the Company including, without limitation, the scope of activity in which the Company is involved, the Company’s technical, business and financial information, documentation, records, files, memoranda, reports, drawings, plans, price lists, customer lists, and the like; and (iii) that contains financial projections and forecasts concerning developments of the Company’s future business. Confidential Information shall not include information which is in, or enters the public domain otherwise than by reason of a breach of this Agreement by Consultant.

8.2.

The Consultant undertakes that during the course of his contractual relationship with the Company or at any time after termination thereof, he will: (i) maintain and take the strictest precautions to maintain the confidentiality of the Confidential Information; and, (ii) refrain from copying or disclosing the Confidential Information to any third party and (iii) use the Confidential Information solely in furtherance of the business of the Company.

8.3.	In the event of the termination of Agreement by the Consultant or by the Company for any reason, the Consultant will deliver to the Company all documents and data of any nature pertaining to his services with the Company.

8.4.	The provisions of this Section 8 shall survive the termination of this Agreement indefinitely.

8.5	The consultant will sign a confidentiality agreement and non-competition agreement as customary in the Company.

9.	Ownership of Inventions and Intellectual Property

9.1.	Consultant agrees that all the improvements, inventions, formulas, processes, techniques, know-how, and data (the “ Inventions ”) that

Consultant conceives or first actually uses or reduces to practice, either solely or jointly with others, whether or not outside the Company's facilities or during non-business hours, during the period of Consultant's contractual relationship with the Company, with regards to the Consulting Services, shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents and rights in connection with such Inventions. The Consultant hereby assigns any rights the Consultant may have, or acquire, in such Inventions, to the Company.

10.	Non Competition

10.1.

The Consultant undertakes not to engage in competition with, establish, open, or in any manner whatsoever become involved, directly or indirectly, either as an employee, owner, partner, agent, shareholder, director, consultant or otherwise, in any business in competition with the business conducted by the Company or any of its affiliates (a) as currently being conducted, (b) as presently contemplated to be conducted and (c) in which the Company and/or any of its affiliates may engage in the future, in any part of the world in which such business of the Company and/or any of its affiliates is then being conducted (i) in which the Consultant is, has been, or will be directly or indirectly involved, or (ii) with respect to which the Consultant has or had any Confidential Information.

10.2	It is hereby agreed that holding of a minority interest in a publicly traded company by the Consultant shall not be deemed as engagement in competition with the Company.

10.2.

Consultant further undertakes not to:

10.2.1.

Induce any employees of or consultants to the Company to leave the employ of the Company for any reason.

10.2.2.

Solicit customers of the Company and or any suppliers thereof, for any business that is similar to or competitive with business of the Company as then being conducted.

10.3.

The undertakings in Sections 10.1 and 10.2 above shall apply to the Consultant during the term of this Agreement and twelve (12) months after the termination of the Agreement for any reason.

11.	Miscellaneous

11.1.

This Agreement shall be amended, only by a written instrument, executed by both parties.

11.2.

portions thereof shall nevertheless remain in full force and effect and enforceable and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein.

11.3.

11.4.

The respective addresses of the parties are as set forth on the preamble of this Agreement, or as last notified by each party to the other, by registered mail.

11.5.

It is hereby agreed between the parties that the laws of the State of Israel shall govern this Agreement, and that the competent court in Haifa shall have exclusive jurisdiction over any matter arising out of, or in connection with, this Agreement.

11.6.

This Agreement constitutes the entire Agreement between the parties hereto, and supersedes all prior agreements, understandings and arrangements, oral or written, if any, between the parties hereto with respect to the subject matter hereof.

11.7.

This Agreement and any amendment hereto may be executed in multiple counterparts, each of which shall be deemed an original agreement and all of which shall constitute one and the same agreement.

11.8	The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Company its successors and assignees and upon the Consultant.

11.9

IN WITNESS WHEREOF the parties have executed this Agreement

Company

By /s/ signed

Consultant

By /s/Zami Aberman

I, the undersigned, Zami Aberman, hereby acknowledge and consent to the aforesaid in this Agreement.

/s/ Zami Aberman

EXHIBIT I

During the first two years of the Term of the Consulting Agreement (the "Determining Period") the Consultant shall be entitled to receive Funding Bonuses calculated on the basis of the amounts actually raised by the Company through investments, debentures, loans or otherwise (collectively the "Financing" ) as follows:

1.1.

An aggregate Financing of more than U.S $5,000,000 -Funding Bonus of two percent (2%) of the total financing amount actually paid to the Company..

1.2.

An aggregate Financing of up to U.S $2,500,000 - Funding Bonus of one percent (1%) of the total financing amount actually paid to the Company

1.3.

An aggregate Financing of less than U.S $5,000,000 but greater than U.S $2,500,000 - the Funding Bonus shall be calculated as follows:

F/2,500,000

Where F= The amount actually raised in the Financing (S2,500,000<F<S5,000,000)

For example: if the aggregate Financing is equal to US$4,000,000 the Funding Bonus shall be equal to 1.6%.

1.4.

An aggregate Financing greater than U.S $5,000,000 - a Funding Bonus of two percent (2%) of the total financing amount actually paid to the Company plus a special bonus that shall be determined by the Board as it may deem fit in its sole discretion.

2. The Funding Bonuses shall be paid as follows:

2.1 1% of each Financing (the "Advance" ) shall be paid to the Consultant within 30 days of the Closing of the applicable transaction against a duly issued invoice. The special bonus mentioned in Section 1.4 above, if any, shall be paid within 30 days following the resolution of the Board.

2.2 Upon the earlier of: (i) the termination of the Determining Period and (ii) the raising of US$5,000,000 (the "Determining Date" ), the Company shall compute the amount of the Funding Bonus due to the Consultant pursuant to the formula promulgated in Section 1 above (the "Final Bonus Amount" ), and shall pay the Consultant the balance between the Final Bonus Amount and the Advance within 30 days of the Determining Date, against a duly issued invoice.

EXHIBIT II

Subaru Station B4 or an equivalent.

Exhibit III

Stock Options

[All terms not otherwise defined herein shall have the meaning ascribed to them in the Consultancy Agreement dated ______ (the "Consultancy Agreement" ]

Subject to Pluristem Life Systems Inc. (the "Company" ) being approved as an ""Employing Company" for the purposes of, and as defined in, the Income Tax Ordinance {New Version] 1980 (the "Ordinance" ) the Company undertakes to take all necessary actions in order to grant the Consultant options to purchase shares of Common Stock of the Company (the "Common Share" ) as follows:

As soon as practicable after the Consultant commences his permanent employment as CEO of Pluristem Life Systems Ltd. ( "Pluristem") pursuant to the Consultancy Agreement, tThe Company shall grant the Consultant options to purchase 4,500,000 Common Shares (the "First Options" ) at an exercise price of 0.12$ per share. The exercise period of the First Options shall be 10 years commencing at the grant date thereof and they shall be vested over three years on a Monthly basis. The vesting period shall continue during the Notice Period and shall be extended by the actual period for which Adjustment Fess will be paid.

If the Consultant shall continue to act as the CEO of Pluristem for a period of 2 years the Company shall, as soon as practicable after conclusion such period, and in any event not later than August 1, 2007, grant the Consultant additional options to purchase Common Shares (the "Additional Options" ) at an exercise price equal to the average close price of the Common Shares in the Over the Counter securities market in the United States during the ten trading dates prior to the date of grant thereof. The number of Common Shares purchasable pursuant to the Additional Options shall be determined by the Board based on the Consultant success in his position of CEO of the Company. The Board shall also determine the exercise period of the Additional Options and the vesting period and terms thereof.

The vesting period shall be fully accelerated in any event of merger of the Company into another corporation, Change of Control (as determined under the Securities Act of 1933, and/or regulations promulgated pursuant thereto), or consummation of a financing transaction in which the amount that shall be invested in the Company shall be equal to at least US$ 10,000,000 (Ten Million US Dolalrs).

4. All other terms of the Options shall be determined in the Company's Stock Option Plan and the Option Agreement.

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Zami Aberman, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Pluristem Life Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 9, 2006

/s/ Zami Aberman

Zami Aberman

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Yossi Keret, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Pluristem Life Systems, Inc.;

(a)

(b)

(c)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 9, 2006

/s/ Yossi Keret

Yossi Keret

Chief Financial Officer

(Principal Financial and Accounting Officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Zami Aberman, Chief Executive Officer, and Yossi Keret, Chief Financial Officer of Pluristem Life Systems, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-QSB of Pluristem Life Systems, Inc. for the quarterly period ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Pluristem Life Systems, Inc.

By: /s/ Zami Aberman

Zami Aberman

Chief Executive Officer

Dated: February 9, 2006

By: /s/ Yossi Keret

Yossi Keret

Chief Financial Officer

Dated: February 9, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Pluristem Life Systems, Inc. and will be retained by Pluristem Life Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.