Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward - Looking Statements

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Federal securities laws, and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and service developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. Such forward-looking statements appear in this Item
2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," and include statements regarding our expectations regarding our short - and long-term capital requirements, progress in our efforts to begin clinical trials and achieve regulatory approvals, our expected milestones in the next twelve months and our outlook for the coming months. The business and operations of Pluristem Therapeutics Inc. are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading "Risk Related to Our Business" in Part I, Item 1, "Description of Business" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

Our financial statements are stated in thousands 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.

As used in this quarterly report, the terms "we", "us", "our", and "Pluristem" mean Pluristem Therapeutics Inc. and our wholly owned subsidiary, unless otherwise indicated or as otherwise required by the context.

Overview

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

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

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

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

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

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Going Concern

We have not generated revenues since inception. Historically we have relied on private placement issuances of equity and debt.

It is likely that we will need to raise additional working capital to fund our ongoing operations and growth. The amount of our future capital requirements depends primarily on the rate at which we increase our revenues and correspondingly decrease our use of cash to fund operations. Cash used for operations will be affected by numerous known and unknown risks and uncertainties including, but not limited to, our ability to successfully develop and commercialize our products and the degree to which competitive products and services are introduced to the market. As long as our cash flow from operations remains insufficient to completely fund operations, we will continue depleting our financial resources and seeking additional capital through equity and/or debt financing. If we raise additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing stockholders will be reduced and those stockholders may experience significant dilution. In addition, new securities may contain rights, preferences or privileges that are senior to those of our common stock.

There can be no assurance that acceptable financing to fund our ongoing operations can be obtained on suitable terms, if at all. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. In that event, we may be forced to cease operations and our stockholders could lose their entire investment in our company.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007.

We have not generated any revenues, and we have negative cash flow from operations of $15,273,000 and have accumulated a deficit of $28,258,000 since our inception in May 2001. This negative cash flow is mostly attributable to research and development and general and administrative expenses. We anticipate that our operating expenses will increase as we intend to conduct detailed development of our products through animal pre-clinical trials and experiments and clinical trials. We estimate our operating cash expenses in the next twelve months to be approximately $6,000,000.

Research and Development

Research and development expenses net for the three months ended September 30, 2008 increased by 43% to $1,193,000 from $837,000 for the three months ended September 30, 2007. The increase is due to the increase in salary expenses and subcontractor expenses attributed to an increase in the number of employees and research activity as part of our progress towards clinical trials, and decrease in the participation by the Israeli Office of the Chief Scientist, deducted with the decrease in stock-based compensation to employees and consultants in the amount of $504,000 as a result of a decrease in our stock price.

General and Administrative

General and administrative expenses for the three months ended September 30, 2008 decreased by 36% to $1,003,000 from $1,557,000 for the three months ended September 30, 2007. The decrease in general and administrative expenses is primarily attributable to the decrease in stock-based compensation to employees and consultants which decreased from $938,000 to $381,000.

Financial Income, net

The decrease in financial income from $114,000 for the three months ended September 30, 2007 to an expense of $46,000 for the three months ended September 30, 2008, was mainly as a result of the loss from sale of marketable securities.

Net Loss

Net loss for the three months ended September 30, 2008 was $2,242,000, as compared to net loss of $2,280,000 for the three months ended September 30, 2007. Net loss per share for the three months ended September 30, 2008 was $0.29 as compared to $0.39 for the three months ended September 30, 2007. The net loss per share decreased as a result of the increase in our weighted average number of shares due to the issuance of additional shares in pursuant to a shelf registration statement, as discussed further below.

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Liquidity and Capital Resources

As of September 30, 2008, total current assets were $2,661,000 and total current liabilities were $853,000. On September 30, 2008, we had a working capital surplus of $1,808,000 and an accumulated deficit of $28,258,000. We finance our operations and plan to continue doing so with stock issuances and with the participation of the Office of the Chief Scientist.

Cash and cash equivalents as of September 30, 2008 amounted to $1,978,000. This is an increase of $1,655,000 from the $323,000 reported as of June 30, 2008. We had no marketable securities on September 30, 2008 as opposed to marketable securities in the amount of $1,185,000 that we had as of June 30, 2008 and sold afterwards in light of volatile market conditions and the need for cash in the short-term. Cash balances increased in the three months ended September 30, 2008 for the reasons presented below:

Operating activities used cash of $1,805,000 in the three months ended September 30, 2008. Cash used by operating activities in the three months ended September 30, 2008 primarily consisted of payments of salaries to our employees, and payments of fees to our consultants, subcontractors and professional services providers.

Investing activities provided cash of $953,000 in the three months ended September 30, 2008. This resulted primarily from proceeds from sale of marketable securities in the amount of $1,113,000 deducted by costs associated with upgrading our facilities to Good Manufacturing Practice, or GMP, standard facilities in the amount of $183,000.

Financing activities generated cash amount of $2,507,000 during the three months ended September 30, 2008 resulting primarily from receiving cash from investors related to the August and September 2008 offerings described below.

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

On September 22, 2008, we sold 900,000 shares of our common stock and warrants to purchase 675,000 shares of Common Stock to an investor in consideration for $1,035,000 pursuant to terms of a securities purchase agreement. The price per share of Common Stock is $1.15, and the exercise price of the Warrants is $1.90. The Warrants will be exercisable for a period of five years. The offering was made pursuant to our effective shelf registration statement on Form S-3 (File No. 333-151761). As part of this transaction, we are obligated to pay a transaction fee to finders equal to 6% of the actual Purchase Price and 41,400 warrants exercisable for five-years at an exercise price of $1.50 per share to purchase 41,400 of our company's shares of Common Stock.

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

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

- Filing the IND (Investigation New Drug) package with the U.S. Food and Drug Administration, or FDA.

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

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

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Outlook

We believe that the funds we have together with expected funds from the OCS will be sufficient for operating for at least two fiscal quarters. Management believes that we will need to raise additional funds before we have any cash flow from operations. To cut our expenses, effective on November 1, 2008 we have reduced the cash compensation of all management and directors by 10% for a period of six months. We plan to issue restricted stock to the management and directors to make up for such reduction. We believe that it will take several years for us to complete the approval process for our products in the United States or any other jurisdiction. In addition, future decisions regarding any acquisitions that we may choose to make or expanded product development, as to which there can be no assurance of success, will require additional capital, which must be raised through the issuance of additional securities and/or incurring debt. There can be no assurance, however, that acceptable financing to fund our ongoing operations can be obtained on suitable terms, if at all. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. In that event, we may be forced to cease operations and our stockholders could lose their entire investment in our company.

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. Critical and significant accounting policies are described in our latest audited financial statements and such policies have not changed materially.

Off Balance Sheet Arrangements

Our company has no off balance sheet arrangements that are not disclosed in our annual report on Form 10-K as filed with the U.S. Securities and Exchange Commission on September 29, 2008.