Summary of PLURISTEM THERAPEUTICS INC

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 other 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 technology 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, but are not limited to, statements regarding the following:

· the expected development and potential benefits from our products in treating various medical conditions,

· the ability of our PLX cells locally to treat systemic diseases and potentially obviate the need to administer the drugs intravenously,

· our expectations regarding our short and long-term capital requirements and sufficiency of our capital resources,

· our plans to raise additional funding, including non-dilutive funding and governmental grants,

· the success of our plans to develop in house manufacturing capacity of clinical grade PLX cells in commercial quantities and control all of our proprietary manufacturing processes,

· the receipt of the MTM - Scientific Industries Center Haifa Ltd. contribution toward the cost of constructing our new facility,

· the expansion of our relationships with research and clinical institutions as well as collaboration and entering into out-licensing agreements with other companies, and

· information with respect to any other plans and strategies for our business.

Our business and operations 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 Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2012. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

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

Overview

We are a bio-therapeutics company developing standardized cell therapy products for the treatment of life threatening diseases. Our patented PLX (PLacental eXpanded) cells are a drug delivery platform that releases a number of therapeutic proteins in response to various local and systemic inflammatory and ischemic diseases. PLX cells are grown using our proprietary 3D micro-environmental technology that produces an "off-the-shelf" product that requires no tissue matching prior to administration. We are focusing on the development of PLX cells administered locally to potentially treat systemic diseases and potentially obviating the need to administer the drugs intravenously.

Our strategy is to develop and produce cell therapy products for the treatment of multiple disorders using several methods of administration. We plan to execute this strategy independently, using our own personnel, and through relationships with research and clinical institutions or in collaboration with other companies, such as United Therapeutics Corporation, or United. We are planning to have in-house production capacity to grow clinical grade PLX cells in commercial quantities and to control all of our proprietary manufacturing processes.

RESULTS OF OPERATIONS - SIX AND THREE MONTHS ENDED DECEMBER 31, 2012 COMPARED TO SIX AND THREE MONTHS ENDED DECEMBER 31, 2011.

Revenues

Revenues for the six months ended December 31, 2012 were $390,000 as compared to revenues of $385,000 for the six months ended December 31, 2011. All such revenues are derived from the United Agreement. The Company estimated the performance period of the development of approximately 6.5 years. The license fee will be recognized on a straight line basis as revenue over the estimated development period.

Revenues for the three months ended December 31, 2012 were $195,000 as compared to revenues $231,000 for three months ended December 31, 2011. All such revenues are derived from the United Agreement. The Company estimated the performance period of the development of approximately 6.5 years. The license fee will be recognized on a straight line basis as revenue over the estimated development period.

Research and Development

Research and development expenses, net of participation of the Office of Chief Scientist, or OCS, and other grants, for the six months ended December 31, 2012 increased by 62% from $3,911,000 for the six months ended December 31, 2011 to $6,351,000. This increase is attributed to the material increase in our in-house research and development activity, the increase in expenses related to the clinical and preclinical trials we are conducting and timing of approval of the OCS program as more fully explained below. The material increase in research and development expenses resulted from increase in our salaries and lab materials expenses due to, among other things, hiring 42 new employees since December 2011. In addition, the research and development expenses for the six months ended December 31, 2012 are net of participation of the OCS and other grants for six months in the amount of $1,543,000, compared to participation of the OCS for the six months ended December 31, 2011 which are $1,921,000.

Research and development expenses, net of participation of the OCS and other grants, for the three months ended December 31, 2012 increased by 242% from $1,067,000 for the three months ended December 31, 2011 to $3,653,000. This increase is attributed to a material increase in our in-house research and development activity and the increase in expenses related to the clinical and preclinical trials we are involved with and a decrease in the participation of the OCS and other grants. The increase in research and development expenses resulted from an increase in our salaries due to, among other things, hiring 42 new employees since December 2011, and increases in laboratory materials expenses. The decrease in participation of the OCS and other grants is attributable to the fact that due to a delay in the approval of the OCS grant for 2011, $1,896,000 of such annual grant was recognized in the quarter ending on December 31, 2011, compared to $484,000 recognized in the quarter ending on December 31, 2012.

General and Administrative

General and administrative expenses for the six months ended December 31, 2012 increased by 6% from $2,912,000 for the six months ended December 31, 2011 to $3,101,000 mainly due to an increase in stock-based compensation expenses related to our investor relations consultants and salaries due to, among other things, hiring 4 new employees since December 2011, offset by bonuses to our officers and directors granted in 2011 related to the United Agreement.

General and administrative expenses for the three months ended December 31, 2012 increased by 11% from $1,275,000 for the three months ended December 31, 2011 to $1,420,000 mainly due to an increase in expenses related to the public offering that took place in September 2012 and salaries due to, among other things, hiring 4 new employees during the three months ended December 2012, offset by a decrease in stock-based compensation expenses related to our employees and consultants.

Financial Income, net

Financial income increased from an expense of $35,000 for the six months ended December 31, 2011 to income of $589,000 for the six months ended December 31, 2012 due to exchange rate adjustments and hedging transactions, as described below.

Financial income increased from $126,000 for the three months ended December 31, 2011 to $394,000 for the three months ended December 31, 2012 due to exchange rate adjustments and hedging transactions, as described below.

Net Loss

Net loss for the six and three months ended December 31, 2012 was $8,485,000 and $4,490,000, respectively, as compared to net loss of $6,485,000 and $1,992,000 for the six and three months ended December 31, 2011, respectively. Net loss per share for the six and three months ended December 31, 2012 was $0.16 and $0.08, respectively, as compared to $0.15 and $0.05 for the six and three months ended December 31, 2011.

For the six months ended December 31, 2012 and December 31, 2011, we had weighted average shares of common stock outstanding of 52,659,430 and 43,225,017, respectively, which were used in the computations of net loss per share for the six months. The increase in weighted average common shares outstanding reflects mainly shares issued in an underwritten public offering in September 2012, as well as shares issued as a result of exercise of warrants and options and issuance of restricted stock units to employees and consultants.

Liquidity and Capital Resources

As of December 31, 2012, total current assets were $66,272,000 and total current liabilities were $6,126,000. On December 31, 2012, we had a working capital surplus of $60,146,000, stockholders' equity of $69,044,000 and an accumulated deficit of $74,232,000. We finance our operations and plan to continue doing so from our existing cash, licensing agreements, funds from grants from the OCS and issuances of our securities.

Cash and cash equivalents as of December 31, 2012 amounted to $23,548,000, compared to $6,672,000 as of December 31, 2011. Cash balances changed in the six months ended December 31, 2012 and December 31, 2011 for the reasons presented below.

Operating activities used cash of $6,890,000 in the six months ended December 31, 2012, compared to providing cash of $174,000 for the six months ended December 31, 2011. Cash used in operating activities in the six months ended December 31, 2012 primarily consisted of payments of salaries to our employees, and payments of fees to our consultants, subcontractors and professional services providers including costs of clinical studies, offset by an OCS grant. The cash provided in the six months ended December 31, 2011 also consisted of receiving the upfront payment related to the United Agreement in the amount of $7,000,000.

Investing activities used cash of $14,895,000 in the six months ended December 31, 2012, compared to $36,731,000 for the six months ended December 31, 2011. The investing activities in the six months ended December 31, 2012 consisted primarily of investing $10,646,000 in short term deposits and $2,204,000 in marketable securities and purchasing equipment and paying for the construction of our new facilities in the amount of $3,338,000. The investing activities in the six months ended December 31, 2011 consisted primarily of investing in short-term and long-term bank deposits and in marketable securities.

Financing activities generated cash of $35,944,000 during the six months ended December 31, 2012, compared to $400,000 for the six months ended December 31, 2011. Net proceeds from the public offering we closed in September 2012 were $34,106,000, as described below. The rest of the cash generated in the six months ended December 31, 2012 and the cash generated in the six months ended December 31, 2011, from financing activities, is from exercises of warrants by shareholders and exercises of options by employees and consultants.

On September 19, 2012, we closed a firm commitment underwritten public offering of 8,000,000 units, at a purchase price of $4.00 per unit, with each unit consisting of one share of our common stock and one warrant to purchase 0.35 shares of common stock, at a purchase price of $5.00 per share. The warrants sold in the offering will be exercisable starting on March 19, 2013 and will expire on September 19, 2017. We also granted the underwriters a 30-day option to purchase up to 1,200,000 shares of common stock and/or warrants to purchase up to 420,000 shares of common stock, which option was fully exercised. The aggregate net proceeds to our Company from the offering, including from the exercise in full of the option, were approximately $34 million, before the exercise of any warrants (which has not yet occurred) and after deducting underwriting commissions and discounts and offering expenses of the Company.

During the six months ended December 31, 2012, 1,027,247 warrants were exercised in consideration for $1,679,000, and 718,213 warrants were exercised on a cashless basis resulting in the net issuance of 446,423 shares of stock.

During the six months ended December 31, 2012, we received approximately $872,000 from the OCS towards our research and development expenses. According to the OCS grant terms, we are required to pay royalties at a rate of 3% - 5% on sales of products and services derived from technology developed using this and other OCS grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required. During the six months ended December 31, 2012, we paid royalties to the OCS in the aggregate amount of $12,000.

As of today, the currency of our financial portfolio is mainly in U.S. dollars and we use forward and options contracts in order to hedge our exposures to currencies other than the U.S. dollar.

We have accumulated a deficit of $74,232,000 since our inception in May 2001. We do not expect to generate any revenues from sales of products in the next twelve months. Our products will likely not be ready for sale for at least three years, if at all. Our cash needs will increase in the foreseeable future. We expect that in the coming years our research and development and general and administrative expenses will continue to grow We expect to generate revenues, which in the short and medium terms will unlikely exceed our costs of operations, from the sale of licenses to use our technology or products, as we have in the United Agreement. Our management believes that we may need to raise additional funds before we have cash flow from operations that can materially decrease our dependence on our existing cash and other liquidity resources. We are continually looking for sources of funding, including non-diluting sources such as the OCS grants. For instance, in January 2013, MTM - Scientific Industries Center Haifa Ltd. ("MTM"), our landlord, agreed to contribute NIS 2,990,000 (equals approximately $800,000) toward the cost of constructing our new facility. Such contribution is being made pursuant to our lease agreement with MTM.

In December 2012, we entered into an At Market Issuance Sales Agreement, or the Sales Agreement, with MLV & Co. LLC, or MLV, which provides that, upon the terms and subject to the conditions and limitations set forth in the Sales Agreement, we may elect to issue and sell shares of our common stock having an aggregate offering price of up to $95 million from time to time through MLV as our sales agent. We are not obligated to make any sales of common stock under the Sales Agreement. To date, we have not sold any common stock pursuant to the Sales Agreement.

We believe that we have sufficient cash to fund our operations for at least the next 12 months.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.