What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-09-10 compared with 2019-09-12 · 1043 added, 1088 removed, 437 unchanged (83% of the section changed)

Financial Statements and Supplementary Data.

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

following audited consolidated financial statements are filed as part of this Annual Report:

of Independent Registered Public Accounting Firm, dated September 12, 2019.

Our financial statements are stated in thousands

United States dollars (US$) and are prepared in accordance with U.S.

The following audited consolidated financial

statements are filed as part of this Annual Report:

Report of Independent Registered Public Accounting Firm, dated September 10, 2020.

Consolidated Balance Sheets.

4 unchanged sentences

Notes to the Consolidated Financial Statements.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

THERAPEUTICS INC.

AND ITS SUBSIDIARIES

FINANCIAL STATEMENTS

of June 30, 2020

PLURISTEM THERAPEUTICS

THERAPEUTICS INC.

AND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL

As of June 30,

FINANCIAL STATEMENTS

of June 30, 2020

DOLLARS IN THOUSANDS

Reports of Independent Registered Public Accounting Firm

6 unchanged sentences

Kost Forer Gabbay & Kasierer

2 Pal-Yam Ave.

Haifa 330905, Israel

144 Menachem Begin Road, Building A,

Tel-Aviv 6492102, Israel

+972-3-6232525

+972-3-5622555

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders

PLURISTEM THERAPEUTICS INC.

Opinion on the Financial Statements

We have audited the

accompanying consolidated balance sheets of Pluristem Therapeutics Inc.

and its subsidiary (the “Company”) as of June

30, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’

and cash flows for each of the three years in the period ended June 30, 2019 and the related notes (collectively referred to as

the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in

all material respects, the financial position of the Company at June 30, 2019 and 2018, and the results of its operations and

its cash flows for each of the three years in the period ended June 30, 2019, in conformity with U.S.

generally accepted accounting

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Stockholders and Board of Directors Of

THERAPEUTICS INC.

on the Financial Statements

have audited the accompanying consolidated balance sheets of Pluristem Therapeutics Inc.

and its subsidiaries (the

“Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes

in stockholders’

equity and cash flows for each of the three years in the period ended June 30, 2020 and the related notes

(collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements

present fairly, in all material respects, the financial position of the Company at June 30, 2020 and 2019, and the results of its

operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with U.S.

accepted accounting principles.

We also have audited,

3 unchanged sentences

12, 2019 expressed an unqualified opinion thereon.

The Company’s

Ability to Continue as a Going Concern

The accompanying consolidated

financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1b to

the consolidated financial statements, the Company has suffered recurring losses from operations, has limited liquidity resources

and has stated that substantial doubt exists about its ability to continue as a going concern.

Management’s evaluation of

the events and conditions and management’s plans in regard to these matters are also described in Note 1b.

The consolidated

financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements

are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial

statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with

respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

We conducted our audits

in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

/s/ KOST FORER GABBAY

2 unchanged sentences

Company’s auditor since 2003.

Haifa, Israel

September 12, 2019

Kost Forer Gabbay & Kasierer

2 Pal-Yam Ave.

Haifa 330905, Israel

972(4)8654021

972(3)5633439

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of

Directors and Stockholders Of

PLURISTEM THERAPEUTICS

Opinion on Internal

Control over Financial Reporting

We have audited Pluristem

Therapeutics Inc.

and its subsidiary’s (the “Company”) internal control over financial reporting as of June 30, 2019,

based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission (2013 framework) (the “COSO criteria”).

In our opinion, the Company maintained, in all material

respects, effective internal control over financial reporting as of June 30, 2019, based on the COSO criteria.

We also have audited,

in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance

sheets of Pluristem Therapeutics Inc.

and its subsidiary as of June 30, 2019 and 2018, the related consolidated statements of

operations, comprehensive loss, changes in stockholders’

equity and cash flows for each of the three years in the period

ended June 30, 2019, and the related notes and our report dated September 12, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s

management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness

of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control

over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting

based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect

to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

We conducted our audit

in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included

obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing

and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other

procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial

A company’s

internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial

reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s

internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records

that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance

with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on

the financial statements.

Because of its inherent

limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KOST FORER GABBAY

A Member of Ernst &

Haifa, Israel

Tel Aviv, Israel

September 10, 2020

THERAPEUTICS INC.

AND ITS SUBSIDIARY

BALANCE SHEETS

in thousands (except share and per share data)

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands (except share and per

CURRENT ASSETS:

1 unchanged sentence

Short-term bank deposits

Restricted cash and short-term bank deposits

Restricted cash

Other current assets

Total current

Total current assets

LONG-TERM ASSETS:

2 unchanged sentences

Property and equipment, net

Operating lease right-of-use asset

Other long-term assets

Total long-term

The accompanying

notes are an integral part of the consolidated financial statements.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

BALANCE SHEETS

Dollars in thousands (except

share and per share data)

Total long-term assets

The accompanying notes are an integral part of the consolidated

financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands (except share and per

LIABILITIES AND STOCKHOLDERS’

2 unchanged sentences

Accrued expenses

Operating lease liability, current

Other accounts payable

Total current

Total current liabilities

LONG-TERM LIABILITIES

Accrued severance pay

Operating lease liability

Other long-term liabilities

9 unchanged sentences

Additional paid-in capital

Accumulated deficit

Total stockholders’

1 unchanged sentence

and stockholders’

The accompanying

notes are an integral part of the consolidated financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARY

STATEMENTS OF OPERATIONS

Dollars in thousands (except share and per share data)

ended June 30,

The accompanying notes are an integral part of the consolidated

financial statements.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in thousands (except share and per

Year ended June 30,

Cost of revenues

1 unchanged sentence

Research and development expenses

participation grants by the IIA, Horizon 2020 and other parties

participation grants by the Israel Innovation Authority, Horizon 2020 and other parties

Research and development expenses, net

and administrative expenses, net

General and administrative expenses, net

Total operating loss

2 unchanged sentences

Loss per share:

Basic and diluted net loss per

average number of shares used in computing basic and diluted net loss per share

The accompanying

notes are an integral part of the consolidated financial statements.

Basic and diluted net loss per share

Weighted average number of shares used in computing basic and diluted net loss per share

The accompanying notes are an integral part of the consolidated

financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARY

AND ITS SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE LOSS

in thousands (except share and per share data)

ended June 30,

Other comprehensive income (loss), net:

Unrealized gain (loss) on available-for-sale marketable

securities, net

Reclassification

adjustment of available-for-sale marketable securities losses (gains) realized in net loss, net

Other comprehensive income (loss)

Dollars in thousands (except share and per share data)

Year ended June 30,

Other comprehensive loss, net:

Unrealized gain on available-for-sale marketable securities, net

Reclassification adjustment of available-for-sale marketable securities gains realized in net loss, net

Other comprehensive loss

Total comprehensive loss

The accompanying notes are an integral

part of the consolidated financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARY

OF CHANGES IN STOCKHOLDERS’

Dollars in thousands (except

share and per share data)

The accompanying notes are an integral part of the consolidated

financial statements.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES

IN STOCKHOLDERS’

Dollars in thousands (except share and per

Additional Paid-in

Accumulated Other

Comprehensive

Accumulated Other Comprehensive

Total Stockholders’

Balance as of

of options by employees and non-employee consultants

compensation to employees, directors and non-employee consultants

of common stock and warrants related to January 2017 offering, net of issuance costs of $1,532 (Note 9b)

comprehensive income, net

as of June 30, 2017

Income (Loss)

Balance as of July 1, 2017

Exercise of options by employees

Stock-based compensation to employees, directors and non-employee consultants

Issuance of common stock under At-The Market Agreement, net of issuance costs of $174 (Note 9c)

Issuance of common stock, net of issuance costs of $1,405 (Note 9d)

Exercise of warrants by investors (Note 9b)

Other comprehensive loss, net

Balance as of June 30, 2018

(*) Less than $1

(**) See note 1c for reverse stock split

The accompanying notes are an integral

part of the consolidated financial statements.

(**) See note 9a for reverse stock split

The accompanying notes are an integral part of the consolidated

financial statements.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

OF CHANGES IN STOCKHOLDERS’

Dollars in thousands (except share and per share data)

AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES

IN STOCKHOLDERS’

Dollars in thousands (except share and per

Additional Paid-in

Accumulated Other

Comprehensive

Total Stockholders’

Balance as of

Exercise of options by employees

compensation to employees, directors and non-employee consultants

of common stock under At-The Market (“ATM”) Agreement, net of issuance costs of $174 (Note 9d)

of common stock, net of issuance costs of $1,405 (Note 9e)

of warrants by investors

comprehensive loss, net

as of June 30, 2018

Balance as of July 1, 2018

Stock-based compensation to employees, directors and non-employee consultants

Issuance of common stock under At Market Issuance Sales Agreement, and Open Market Sales Agreement, net of aggregate issuance costs of $403 (Note 9c, 9e)

Issuance of common stock and warrants related to April 2019 offering, net of issuance costs of $1,536 (Note 9f)

Exercise of options by employees and non-employee consultants

Balance as of June 30, 2019

(*) Less than $1

(**) See note 1c for reverse stock split

The accompanying notes are an integral

part of the consolidated financial statements.

(**) See note 9a for reverse stock split

The accompanying notes are an integral part of the consolidated

financial statements.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

OF CHANGES IN STOCKHOLDERS’

Dollars in thousands (except share and per share data)

AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES

IN STOCKHOLDERS’

Dollars in thousands (except share and per

Additional Paid-in

Total Stockholders’

Balance as of

compensation to employees, directors and non-employee consultants

of common stock under At Market Issuance Sales Agreement, and Open Market Sales Agreement, net of aggregate issuance

costs of $403 (Note 9d, 9f)

of common stock and warrants related to April 2019 offering, net of issuance costs of $1,536 (Note 9g)

of options by employees and non-employee consultants

as of June 30, 2019

Balance as of July 1, 2019

Stock-based compensation to employees, directors and non-employee consultants

Issuance of common stock under Open Market Sales Agreement, net of aggregate issuance costs of $3,573 (Note 9e)

Issuance of common stock related to May 2020 registered direct offering, net of issuance costs of $99 (Note 9h)

Exercise of options by employees and non-employee consultants

Exercise of warrants by investors (Note 9g)

Round up of shares due to reverse stock split effectuated on July 25, 2019 (see Note 9a)

Balance as of June 30, 2020

(*) Less than $1

(**) See note 1c for reverse stock split

The accompanying notes are an integral

part of the consolidated financial statements.

(**) See note 9a for reverse stock split

The accompanying notes are an integral part of the consolidated

financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARY

AND ITS SUBSIDIARIES

STATEMENTS OF CASH FLOWS

Dollars in thousands (except

share and per share data)

ended June 30,

FROM OPERATING ACTIVITIES:

to reconcile net loss to net cash used in operating activities:

sale of property and equipment, net

of discount, amortization of premium and changes in accrued interest of marketable securities

sale of investments of available-for-sale marketable securities

Other-than-temporary

loss of available-for-sale marketable securities

compensation to employees, directors and non-employees consultants

(increase) in accounts receivable from the IIA

in other current and other long-term assets

(decrease) in trade payables

in other accounts payable, accrued expenses, other long-term liabilities and other current liabilities

(increase) in interest receivable on short-term deposits

differences and interest on short and long-term deposits and restricted bank deposits

severance pay, net

cash used in operating activities

FROM INVESTING ACTIVITIES:

of property and equipment

from sale of property and equipment

from (investment in) short-term deposits

in Long-term deposits and restricted bank deposits

from sale of available-for-sale marketable securities

from redemption of available-for-sale marketable securities

in available-for-sale marketable securities

cash provided by investing activities

The accompanying notes are an integral

part of the consolidated financial statements.

PLURISTEM THERAPEUTICS

AND ITS SUBSIDIARY

Dollars in thousands

Year ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating activities:

Loss from sale of property and equipment, net

Accretion of discount, amortization of premium and changes in accrued interest of marketable securities

Gain from sale of investments of available-for-sale marketable securities

Other-than-temporary loss of available-for-sale marketable securities

Stock-based compensation to employees, directors and non-employee consultants

Decrease (increase) in accounts receivable from the IIA

Increase in other current and other long-term assets

Increase (decrease) in trade payables

Decrease in operating lease right-of-use asset and liability, net and effect of exchange rate differences

Increase (decrease) in other accounts payable, accrued expenses, other long-term liabilities and other current liabilities

Decrease (increase) in interest receivable on short-term deposits

Linkage differences and interest on short and

long-term deposits and restricted bank deposits

Accrued severance pay, net

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Proceeds from (investment in) short-term deposits

Investment in long-term deposits

Proceeds from sale of available-for-sale marketable securities

Proceeds from redemption of available-for-sale marketable securities

Investment in available-for-sale marketable securities

Net cash provided by investing activities

The accompanying notes are an integral part of the consolidated

financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARIES

STATEMENTS OF CASH FLOWS

Dollars in thousands (except

share and per share data)

ended June 30,

FLOWS FROM FINANCING ACTIVITIES:

related to issuance of common stock and warrants, net of issuance costs

with respect to Israel-United States Binational Industrial Research and Development Foundation

of options and warrants

provided by financing activities

(decrease) in cash, cash equivalents and restricted cash

Dollars in thousands

Year ended June 30,

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds related to issuance of common stock, net of issuance costs

Proceeds with respect to Israel-United States Binational Industrial Research and Development Foundation

Exercise of options and warrants

Net cash provided by financing activities

Increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at the beginning of the period

Cash, cash equivalents and restricted cash at the end of the period

(a) Supplemental

disclosure of cash flow activities:

during the period for:

paid due to non-deductible expenses

(b) Supplemental

disclosure of non-cash activities:

of property and equipment on credit

The accompanying notes are an integral

part of the consolidated financial statements.

(a) Supplemental disclosure of cash flow activities:

Cash paid during the period for:

Taxes paid due to non-deductible expenses

(b) Supplemental disclosure of non-cash activities:

Purchase of property and equipment on credit

The accompanying notes are an integral part of the consolidated

financial statements.

THERAPEUTICS INC.

AND ITS SUBSIDIARY

AND ITS SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

Dollars in thousands (except share and per share amounts)

Therapeutics Inc., a Nevada corporation (“Pluristem Therapeutics”), was incorporated on May 11, 2001.

Therapeutics has a wholly owned subsidiary, Pluristem Ltd.

(the “Subsidiary”),

which is incorporated under the laws of the State of Israel.

Pluristem Therapeutics and the Subsidiary are referred to as the “Company”

(the “Subsidiary”), which is incorporated under the

laws of the State of Israel.

In January 2020, the Subsidiary established a wholly owned subsidiary, Pluristem GmbH (the

“German Subsidiary”) which is incorporated under the laws of Germany.

Pluristem Therapeutics, the Subsidiary and

the German Subsidiary are referred to as the “Company”

or “Pluristem”.

Company’s shares of common stock are traded on the Nasdaq Capital Market under the symbol “PSTI”

Tel-Aviv Stock Exchange under the symbol “PLTR”.

Company is a bio-therapeutics company developing placenta-based cell therapy product

candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions.

The Company has incurred an accumulated deficit of approximately $251,004 and incurred

recurring operating losses and negative cash flows from operating activities since inception.

The Company’s

shares of common stock are traded on the Nasdaq Capital Market and on the Tel-Aviv Stock Exchange under the symbol “PSTI”.

Company is a bio-therapeutics company developing placenta-based cell therapy product candidates for the treatment of multiple

ischemic, inflammatory and hematologic conditions.

The Company has also initiated a compassionate use programs in the United States

and Israel and commenced enrollment in its Phase II study of PLX cells for the treatment of severe COVID-19 complicated by Acute

Respiratory Distress Syndrome (“ARDS”).

Company has incurred an accumulated deficit of approximately $280,156 and incurred recurring operating losses and negative cash

flows from operating activities since inception.

As of June 30, 2020, the Company’s total stockholders’

equity amounted to

the year ended June 30, 2019, the Company incurred operating losses of $35,532 and its negative cash flow from operating activities

The Company will be required to identify additional liquidity resources in the near term in order to support the

commercialization of its products and maintain its research and development and clinical trials activities.

June 30, 2019, the Company’s cash position (cash and cash equivalents, short-term bank deposits and restricted cash and long-term

bank deposits) totaled approximately $24,795.

The Company is addressing its liquidity issues by implementing initiatives to allow

the continuation of its activities.

The Company’s current operating plan includes various assumptions concerning the level and

timing of cash outflows for operating activities and capital expenditures.

The Company’s ability to successfully carry out its

business plan, which includes a cost-reduction plan should it be unable to raise sufficient additional capital, is primarily dependent

upon its ability to (1) obtain sufficient additional capital, (2) enter into license agreements to use or commercialize the Company’s

products and (3) receive other sources of funding, including non-diluting sources such as the Israeli Innovation Authority (the

“IIA”) grants, the European Union’s Horizon 2020 program (“Horizon 2020”) grants and other grants.

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 products.

to management estimates, liquidity resources as of June 30, 2019, together with the funds received under the Open Market Sales

Agreement SM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”), as agent, during July

and August 2019, will be sufficient to maintain the Company’s operations into the first quarter of the Company’s fiscal year 2021.

The Company’s inability to raise funds to carry out its business plan will have a severe negative impact on its ability to remain

a viable company.

conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The audited consolidated financial

statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might

be necessary should the Company be unable to continue as a going concern.

CHA Agreement

On June 26, 2013,

Pluristem entered into an exclusive license and commercialization agreement (the “CHA Agreement”) with CHA Biotech

(“CHA”), for conducting clinical trials and commercialization of Pluristem’s PLX-PAD product in South Korea

in connection with two indications:

the treatment of Critical Limb Ischemia (“CLI”), and Intermediate Claudication

equity amounted

During the year ended June 30, 2020, the Company incurred operating

losses of $29,476 and its negative cash flow from operating activities was $26,369.

of June 30, 2020, the Company’s cash position (cash and cash equivalents, short-term bank deposits and restricted cash and

long-term bank deposits) totaled approximately $58,992.

The Company plans to continue to finance its operations with the current

resources and potential funds it will obtain from the European Investment Bank (the “EIB”) finance contract (the “Finance

Contract”) (See note 1c) once certain milestones are reached, and also by entering into licensing or other commercial agreements,

grants to support its research and development activities and with sales of equity securities.

Management believes that these

funds, together with its existing operating plan, are sufficient for the Company to meet its obligations as they come due at least

for a period of twelve months from the date of the issuance of these consolidated financial statements.

There are no assurances,

however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term

development and commercialization of its product.

Finance contract

April 30, 2020, Pluristem entered into a Finance Contract with the EIB, pursuant to which the German Subsidiary can obtain a loan

in the amount of up to €50 million, subject to certain milestones being reached (the “Loan”), payable in three

tranches, with the first tranche consisting of €20 million, second of €18 million and third of €12 million for

a period of 36 months from the signing of the Finance Contract.

The Tranches will be treated

independently, each with its own interest rate and maturity period.

The fixed interest rate is 0% per year for the First Tranche

and 1% for each of the Second Tranche and Third Tranche.

The deferred interest rate is 4% per year for the First Tranche, 3% for

the Second Tranche and 2% for the Third Tranche.

addition to any interest payable on the Loan, EIB is entitled to receive royalties from future revenues, if any, of Pluristem

for a period of seven years starting in 2024, in an amount equal to between 0.2% to 2.3% of the Company’s consolidated revenues,

pro-rated to the amount disbursed from the Loan to Pluristem beginning in the fiscal year 2024 and continuing up to and including

its fiscal year 2030.

of June 30, 2020 Pluristem has not yet disbursed any tranche of the Finance Contract.

THERAPEUTICS INC.

AND ITS SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

1:- GENERAL (CONT.)

June 26, 2013, Pluristem entered into an exclusive license and commercialization agreement (the “CHA Agreement”) with

CHA Biotech Co.

(“CHA”), for conducting clinical trials and commercialization of Pluristem’s PLX-PAD product

in South Korea in connection with two indications:

the treatment of Critical Limb Ischemia (“CLI”), and IntermittentClaudication

(collectively with CLI, the “Indications”).

2 unchanged sentences

to its proprietary manufacturing technology and cell-related intellectual property.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

NOTE 1:- GENERAL (CONT.)

The first clinical

study as part of the CHA Agreement was a Phase II trial in Intermittent Claudication.

Upon the first regulatory

approval for a PLX product in South Korea, for the specified Indications, Pluristem and CHA will establish an equally owned joint

venture to commercialize PLX cell products in South Korea.

The CHA Agreement

contains customary termination provisions, including in the event the parties do not reach an agreement upon development plan

for conducting the clinical trials.

Upon termination of the CHA Agreement, the license granted thereunder will terminate and all

rights included therein will revert to the Company, and the Company will be free to enter into agreements with any other third

parties for the granting of a license in or outside South Korea or to deal in any other manner with such rights as it shall see

fit at its sole discretion.

In addition, and as

contemplated by the CHA Agreement, in December 2013, Pluristem and CHA executed the mutual investment pursuant to which Pluristem

issued 250,000 shares of its common stock in consideration for 1,011,504 shares of CHA, which reflects total consideration to

each of Pluristem and CHA of approximately $10,414.

The parties also agreed to give an irrevocable proxy to the other party’s

management with respect to the voting power of the shares issued.

In March 2015, the

Company sold a portion of the CHA shares received in December 2013.

In January 2018, the

Company sold its remaining investment in the CHA shares, for aggregate net proceeds of approximately $10,500, representing a net

gain of $6,200, which is recorded in “Financial income, net”

for the year ended June 30, 2018, and reclassified from

other comprehensive income (loss).

Chart Industries

In November 2018,

the Company entered into a license agreement with a subsidiary of Chart Industries, Inc.

(“Chart”), regarding the Company’s

thawing device for cell-based therapies.

Pursuant to the terms of the agreement, Chart obtained the exclusive rights to manufacture

and market the thawing device in all territories worldwide, excluding Greater China, and the Company is entitled to receive royalties

from sales of the product and supply of an agreed upon number of thawing devices.

Royalties shall commence on the date of Chart’s

first commercial sale of the thawing device.

As of June 30, 2019, commercial sale of the thawing device by Chart has not yet begun.

July 2019, subsequent to the balance sheet date, the Board of Directors approved a 1-for-10 reverse stock split of the Company’s

(a) authorized shares of common stock;

(b) issued and outstanding shares of common stock and (c) authorized shares of preferred

The reverse stock split became effective on July 25, 2019.

All shares of common stock, options, warrants and securities

convertible or exercisable into shares of common stock, as well as loss per share, have been adjusted to give retroactive effect

to this reverse stock split for all periods presented.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

CHA participated in the Phase II trial in

Intermittent Claudication.

the first regulatory approval for a PLX product in South Korea, for the specified Indications, Pluristem and CHA will establish

an equally owned joint venture to commercialize PLX cell products in South Korea.

Pluristem will be able to use the data generated

by CHA to pursue the development of PLX product candidates outside of South Korea.

CHA Agreement contains customary termination provisions, including in the event the parties do not reach an agreement upon development

plan for conducting the clinical trials.

Upon termination of the CHA Agreement, the license granted thereunder will terminate

and all rights included therein will revert to the Company, and the Company will be free to enter into agreements with any other

third parties for the granting of a license in or outside South Korea or to deal in any other manner with such rights as it shall

see fit at its sole discretion.

Industries Agreement

November 2018, the Company entered into a license agreement with a subsidiary of Chart Industries, Inc.

(“Chart”),

regarding the Company’s thawing device for cell-based therapies.

Pursuant to the terms of the agreement, Chart obtained

the exclusive rights to manufacture and market the thawing device in all territories worldwide, excluding Greater China, and the

Company is entitled to receive royalties from sales of the product and supply of an agreed upon number of thawing devices.

shall commence on the date of Chart’s first commercial sale of the thawing device.

As of June 30, 2020, commercial sale

of the thawing device by Chart has not yet begun.

THERAPEUTICS INC.

AND ITS SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

Dollars in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial

statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.

applied on consistent basis.

consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles

GAAP”) applied on consistent basis.

preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates,

4 unchanged sentences

from those estimates.

Most of Pluristem

Therapeutics’

of Pluristem Therapeutics’

costs and assets are denominated in United States dollars (“dollar”).

The Company’s management

believes that the dollar is the primary currency of the economic environment in which the Company operates.

Thus, the dollar is

the Company’s functional and reporting currency.

Accordingly, non-dollar denominated transactions and balances have been

re-measured into the functional currency in accordance with Accounting Standards Codification (“ASC”) 830, “Foreign

Currency Matters”.

All transaction gains and losses from the re-measured monetary balance sheet items are reflected in the

statements of income as financial income or expenses, as appropriate.

The Company’s

management believes that the dollar is the primary currency of the economic environment in which the Company operates.

dollar is the Company’s functional and reporting currency.

Accordingly, non-dollar denominated transactions and balances

have been re-measured into the functional currency in accordance with Accounting Standards Codification (“ASC”) 830,

“Foreign Currency Matters”.

All transaction gains and losses from the re-measured monetary balance sheet items are

reflected in the statements of income as financial income or expenses, as appropriate.

of consolidation

The consolidated

financial statements include the accounts of Pluristem Therapeutics and the Subsidiary.

Intercompany transactions and balances

have been eliminated upon consolidation.

cash equivalents

consolidated financial statements include the accounts of Pluristem Therapeutics and the Subsidiaries.

Intercompany transactions

and balances have been eliminated upon consolidation.

and cash equivalents

equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less

5 unchanged sentences

cash and short-term bank deposits

Short-term restricted

bank deposits and restricted cash used to secure derivative and hedging transactions and the Company’s credit line.

restricted cash and short-term bank deposits are presented at cost which approximates market values including accrued interest.

restricted bank deposits and restricted cash used to secure derivative and hedging transactions and the Company’s credit

The restricted cash and short-term bank deposits are presented at cost which approximates market values including accrued

restricted bank deposits

8 unchanged sentences

The Company classifies all of its marketable securities as available-for-sale.

Available-for-sale marketable securities are carried at fair value, with the unrealized gain and loss reported at “a ccumulated other comprehensive

income (loss) ”

Available-for-sale marketable securities are carried at fair value, with the unrealized gain and loss reported at “accumulated

other comprehensive income (loss)”

in the statement of changes in stockholders’

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

THERAPEUTICS INC.

AND ITS SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

Dollars in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

20 unchanged sentences

in “other comprehensive income (loss)”.

the years ended June 30, 2018 and 2017, the Company recognized other-than-temporary impairment loss of $850 and $767, respectively

(see Note 3).

During the year ended June 30, 2019, the Company did not recognize any other-than-temporary impairment loss.

On July 1, 2017,

the Company adopted ASC 606, “Revenue from Contracts with Customers”

the year ended June 30, 2018, the Company recognized other-than-temporary impairment loss of $850 (see Note 3).

During the years

ended June 30, 2020 and 2019, the Company did not recognize any other-than-temporary impairment loss.

On July 1, 2017, the Company

adopted ASC 606, “Revenue from Contracts with Customers”

using the modified retrospective method.

for reporting periods beginning after July 1, 2017 are presented under ASC 606, while prior period amounts are not adjusted

and continue to be reported in accordance with the Company’s historic accounting under ASC 605.

Revenue Recognition from sales of products:

Revenues are recognized when control of the

promised goods is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled

to in exchange for those goods.

The Company determines revenue recognition

through the following steps:

● identification

of the contract with a customer;

● identification

of the performance obligations in the contract;

● determination

of the transaction price;

of the transaction price to the performance obligations in the contract;

● recognition

of revenue when, or as, the Company satisfies a performance obligation.

Results for reporting

periods beginning after July 1, 2017 are presented under ASC 606, while prior period amounts are not adjusted and continue

to be reported in accordance with the Company’s historic accounting under ASC 605.

Revenue Recognition from sales

Revenues are recognized when

control of the promised goods is transferred to the customer, in an amount that reflects the consideration the Company expects

to be entitled to in exchange for those goods.

The Company determines revenue

recognition through the following steps:

● identification of the contract with a customer;

● identification of the performance obligations in the

● determination of the transaction price;

● allocation of the transaction price to the performance

obligations in the contract;

● recognition of revenue when, or as, the Company satisfies

a performance obligation.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT

ACCOUNTING POLICIES (CONT.)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

The Company’s contracts

9 unchanged sentences

Royalties shall commence on the date of Chart’s first commercial sale of the thawing device.

As of June 30, 2019,

commercial sales of the thawing device by Chart have not begun.

Based on the Company’s assessment, it is not probable that

a significant reversal in the amount of cumulative revenue recognized will not occur, and therefore the Company is unable to recognize

revenues with respect to the Chart agreement before the uncertainty associated with the variable consideration is subsequently resolved.

and Equipment

and equipment are stated at cost, net of accumulated depreciation.

Depreciation is calculated by the straight-line method over

the estimated useful lives of the assets, at the following annual rates:

As of June 30, 2020, commercial

sales of the thawing device by Chart have not begun.

Based on the Company’s assessment, it is not probable that a significant

reversal in the amount of cumulative revenue recognized will not occur, and therefore the Company is unable to recognize revenues

with respect to the Chart agreement before the uncertainty associated with the variable consideration is subsequently resolved.

Property and equipment

equipment are stated at cost, net of accumulated depreciation.

Depreciation is calculated by the straight-line method over the

estimated useful lives of the assets, at the following annual rates:

Laboratory equipment

2 unchanged sentences

Leasehold improvements

The shorter of the expected useful life or the reasonable

assumed term of the lease.

of long-lived assets

Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”,

whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability

of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash

flows expected to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is

measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

During fiscal years 2019,

2018 and 2017, no impairment losses have been identified.

for stock-based compensation

The shorter of the expected useful life or the reasonable assumed term of the lease.

Impairment of long-lived assets

The Company’s

long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever

events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets

to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected

to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the

amount by which the carrying amount of the assets exceeds the fair value of the assets.

During fiscal years 2020, 2019 and 2018,

no impairment losses have been identified.

Accounting for stock-based compensation

accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”

(“ASC 718”).

and ASC 505-50, “Equity-Based Payments to Non-Employees”

(“ASC 505-50”).

ASC 718 requires companies to

estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model.

The Company estimates

the fair value of stock options granted using the Black-Scholes-Merton option-pricing model.

The Company accounts for employee’s

share-based payment awards classified as equity awards (restricted stocks (“RS”) or restricted stock units (“RSUs”))

using the grant-date fair value method.

The fair value of share-based payment transactions is recognized as an expense over the

requisite service period, net of estimated forfeitures.

The Company estimates forfeitures based on historical experience and anticipated

future conditions.

The Company elected to recognize compensation cost for an award with service conditions and goals achievement

that has a graded vesting schedule using the accelerated method based on the multiple-option award approach.

ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model.

accounts for employee’s share-based payment awards classified as equity awards (restricted stock (“RS”) or restricted

stock units (“RSUs”)) using the grant-date fair value method.

The fair value of share-based payment transactions is

recognized as an expense over the requisite service period, net of estimated forfeitures.

The Company estimates forfeitures based

on historical experience and anticipated future conditions.

The Company recognized compensation cost for an award with service

conditions and goals achievement that has a graded vesting schedule using the accelerated method based on the multiple-option award

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT

ACCOUNTING POLICIES (CONT.)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

The assumptions below are relevant

8 unchanged sentences

respectively.

fiscal years 2019, 2018 and 2017, there were no options granted to employees or directors.

and Development expenses and royalty bearing grants

During fiscal

years 2020, 2019 and 2018, there were no options granted to employees or directors.

Research and Development expenses and royalty bearing

and development expenses, net of participations grants, are charged to the statement of operations as incurred.

Pluristem receives

grants from the IIA in the Ministry of Economy and Industry (formerly the Office of Chief Scientist’s) for the purpose of partially

grants from the Israel Innovation Authority (“IIA”) in the Ministry of Economy and Industry for the purpose of partially

funding approved research and development projects.

5 unchanged sentences

Since the payment of royalties is not probable when the grants are received, the Company records a liability in

the amount of the estimated royalties for each individual contract, when the related revenues are recognized, as part of Cost

the amount of the estimated royalties for each individual contract, when the related revenues are recognized, as part of Cost of

For more information regarding such royalties commitments and regarding grants and participation received, see Note 8.

bearing grant

Company participates in European Union research and development consortiums under Horizon 2020.

In August 2016, the CLI program

consortium was awarded a Euro 7,600 thousands (approximately $8,700) non-royalty bearing grant, of which, an amount of Euro 1,900

thousands (approximately $2,200) is a direct grant allocated to the Company.

In July 2017, the consortium amended the consortium

agreement, pursuant to which the original grant allocation was amended such that the Company received an additional direct grant

of Euro 1,000 thousands (approximately $1,100).

The additional direct grant was allocated to the Company from the total amount

of the original grant.

In September 2017, the Company’s Phase III study of PLX-PAD cell therapy in the treatment of muscle

injury following surgery for hip fracture was awarded a Euro 7,400 thousands (approximately $8,400) grant, of which, an amount

of Euro 2,550 thousands (approximately $2,900) is a direct grant allocated to the Company.

In October 2017, the “nTRACK”,

a collaborative project carried out by an international consortium led by LEITAT, was awarded a Euro 6,800 thousands (approximately

$7,700) non-royalty bearing grant, of which, an amount of Euro 500 thousands (approximately $570) is a direct grant allocated

to the Company.

non-royalty bearing grants for funding the projects are recognized at the time the Company is entitled to each such grant on the

basis of the related costs incurred and recorded as a deduction from research and development expenses.

diluted net loss per share is computed based on the weighted average number of shares of common stock outstanding during each year.

All outstanding stock options and unvested RSUs have been excluded from the calculation of the diluted loss per common share because

all such securities are anti-dilutive for each of the periods presented.

Non-royalty bearing grant

participates in European Union research and development consortiums under Horizon 2020.

In August 2016, the CLI program consortium

was awarded a Euro 7,600 thousands (approximately $8,500) non-royalty bearing grant, of which, an amount of Euro 1,900 thousands

(approximately $2,100) is a direct grant allocated to the Company.

In July 2017, the consortium amended the consortium agreement,

pursuant to which the original grant allocation was amended such that the Company received an additional direct grant of Euro 1,000

thousands (approximately $1,100).

The additional direct grant was allocated to the Company from the total amount of the original

In September 2017, the Company’s Phase III study of PLX-PAD cell therapy in the treatment of muscle injury following

surgery for hip fracture was awarded a Euro 7,400 thousands (approximately $8,300) grant, of which, an amount of Euro 2,550 thousands

(approximately $2,900) is a direct grant allocated to the Company.

In October 2017, the “nTRACK”, a collaborative project

carried out by an international consortium led by LEITAT, was awarded a Euro 6,800 thousands (approximately $7,600) non-royalty

bearing grant, of which, an amount of Euro 500 thousands (approximately $560) is a direct grant allocated to the Company.

In May 2020, the Company was

selected as a member of the CRISPR-IL consortium, a group funded by the IIA.

CRISPR-IL brings together the leading experts in life

science and computer science from academia, medicine, and industry, to develop artificial intelligence (AI) based end-to-end genome-editing

CRISPR-IL is funded by the IIA with a total budget of approximately $10,000, of which, an amount of approximately $480

is a direct grant allocated to the Company, for a period of 18 months, with a potential for extension of an additional 18 months

and additional budget from the IIA.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Company accounts for income taxes in accordance with ASC 740, “Income Taxes”

The non-royalty

bearing grants for funding the projects are recognized at the time the Company is entitled to each such grant on the basis of the

related costs incurred and recorded as a deduction from research and development expenses.

Loss per share

Basic and diluted net loss

per share is computed based on the weighted average number of shares of common stock outstanding during each year.

All outstanding

stock options and unvested RSUs have been excluded from the calculation of the diluted loss per common share because all such

securities are anti-dilutive for each of the periods presented.

The total weighted average number of shares related to the outstanding

options, warrants and RSU’s excluded from the calculations of diluted net earnings per share due to their anti-dilutive effect

was 3,708,807, 4,942,491 and 1,900,905 for the years ended June 30, 2020, 2019 and 2018, respectively.

accounts for income taxes in accordance with ASC 740, “Income Taxes”

(“ASC 740”).

3 unchanged sentences

will be in effect when the differences are expected to reverse.

The Company provides

a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

740 establishes a single model to address accounting for uncertain tax positions.

ASC 740 clarified the accounting for income

taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial

Concentration

of credit risk

The Company provides a valuation

allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

ASC 740 establishes a single model

to address accounting for uncertain tax positions.

ASC 740 clarified the accounting for income taxes by prescribing the minimum

recognition threshold a tax position is required to meet before being recognized in the financial statements.

Concentration of credit risk

instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,

restricted cash, short-term deposits, long-term deposits and restricted deposits.

of the Company’s cash and cash equivalents, restricted cash and short-term and long-term deposits are mainly invested in

dollar instruments of major banks in Israel and in the United States.

Deposits in the United States may be in excess of insured

limits and are not insured in other jurisdictions.

Generally, these deposits may be redeemed upon demand and therefore bear minimal

The Company invests its surplus cash in cash deposits in financial institutions and has established guidelines, approved

by the Company’s Investment Committee, relating to diversification and maturities to maintain safety and liquidity of the

Company utilizes options and forward contracts to protect against the risk of overall changes in exchange rates.

The derivative

instruments hedge a portion of the Company’s non-dollar currency exposure.

Counterparties to the Company’s derivative

instruments are all major financial institutions.

majority of the Company’s agreements with employees in Israel are subject to Section 14 of the Israeli Severance Pay Law,

1963 (“Severance Pay Law”).

The majority of the Company’s

cash and cash equivalents, restricted cash and short-term and long-term deposits are mainly invested in dollar instruments of

major banks in Israel and in the United States.

Deposits in the United States may be in excess of insured limits and are not insured

in other jurisdictions.

Generally, these deposits may be redeemed upon demand and therefore bear minimal risk.

The Company invests

its surplus cash in cash deposits in financial institutions and has established guidelines, approved by the Company’s Investment

Committee, relating to diversification and maturities to maintain safety and liquidity of the investments.

The Company utilizes

options and forward contracts to protect against the risk of overall changes in exchange rates.

The derivative instruments hedge

a portion of the Company’s non-dollar currency exposure.

Counterparties to the Company’s derivative instruments are

all major financial institutions.

Severance pay

of the Company’s agreements with employees in Israel are subject to Section 14 of the Israeli Severance Pay Law, 1963 (“Severance

Pay Law”).

The Company’s contributions for severance pay have replaced its severance obligation.

Upon contribution of the full amount of the employee’s monthly salary for each year of employment, no additional calculations

are conducted between the parties regarding the matter of severance pay and no additional payments are made by the Company to

the employee.

Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated

on the balance sheet, as the Company is legally released from the obligation to employees once the deposit amounts have been paid.

some employees, which their agreement is not subject to Section 14 of the Severance Pay Law, the Subsidiary’s liability for severance

Upon contribution

of the full amount of the employee’s monthly salary for each year of employment, no additional calculations are conducted

between the parties regarding the matter of severance pay and no additional payments are made by the Company to the employee.

the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the balance sheet,

as the Company is legally released from the obligation to employees once the deposit amounts have been paid.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

employees, which their agreement is not subject to Section 14 of the Severance Pay Law, the Subsidiary’s liability for severance

pay is calculated pursuant to Israeli Severance Pay Law, based on the most recent salary of the employees multiplied by the number

2 unchanged sentences

or a portion thereof.

Company’s liability for all of its employees is fully provided by monthly deposits with insurance policies and by an accrual.

The Company’s liability for all of its employees is fully provided by monthly deposits with insurance

policies and by an accrual.

The value of these policies is recorded as an asset in the Company’s balance sheet.

The deposited funds include profits or losses

accumulated up to the balance sheet date.

The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant

to the Severance Pay Law or labor agreements.

The value of the deposited funds is based on the cash surrendered value of these

policies, and includes immaterial profits or losses.

Severance expenses for

the years ended June 30, 2019, 2018 and 2017 were $632, $822 and $524, respectively.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

value of financial instruments

carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, short-term and

restricted bank deposits, accounts receivable and other current assets, trade payable and other accounts payable and accrued liabilities,

The deposited funds

include profits or losses accumulated up to the balance sheet date.

The deposited funds may be withdrawn only upon the fulfillment

of the obligation pursuant to the Severance Pay Law or labor agreements.

The value of the deposited funds is based on the cash

surrendered value of these policies, and includes immaterial profits or losses.

Severance expenses for the years

ended June 30, 2020, 2019 and 2018 were $604, $632 and $822, respectively.

Fair value of financial instruments

amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, short-term and restricted

bank deposits, accounts receivable and other current assets, trade payable and other accounts payable and accrued liabilities,

approximate fair value because of their generally short term maturities.

Company measures its investments in marketable securities and derivative instruments at fair value under ASC 820.

Fair value is

an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction

measures its investments in marketable securities and derivative instruments at fair value under ASC 820.

Fair value is an exit

price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants.

such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use

in pricing an asset or a liability.

As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy,

which prioritizes the inputs used in the valuation methodologies in measuring fair value:

fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing

an asset or a liability.

As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes

the inputs used in the valuation methodologies in measuring fair value:

1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

1 unchanged sentence

3 - Unobservable inputs for the asset or liability.

fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs

when measuring fair value.

The Company categorized each of its fair value measurements in one of these three levels of hierarchy

(see Note 4).

financial instruments

Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related interpretations.

value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when

measuring fair value.

The Company categorized each of its fair value measurements in one of these three levels of hierarchy (see

Derivative financial instruments

accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related interpretations.

ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value.

4 unchanged sentences

flow hedge transactions).

ineffective portion of a derivative’s change in fair value is recognized in earnings.

If a derivative does not meet the definition

of a hedge, the changes in the fair value are included in earnings.

Cash flows related to such hedges are classified as operating

The Company enters into option contracts in order to limit the exposure to exchange rate fluctuation associated with

expenses mainly incurred in New Israeli Shekels (“NIS”).

Since the derivative instruments that the Company holds do

not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately

as “financial income, net”.

Company measured the fair value of the contracts in accordance with ASC 820.

Foreign currency derivative contracts are classified

within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

If a derivative

does not meet the definition of a hedge, the changes in the fair value are included in earnings.

Cash flows related to such hedges

are classified as operating activities.

The Company enters into option contracts in order to limit the exposure to exchange rate

fluctuation associated with expenses mainly incurred in New Israeli Shekels (“NIS”).

Since the derivative instruments

that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments

is recognized immediately as “financial income, net”.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT ACCOUNTING

POLICIES (CONT.)

measured the fair value of the contracts in accordance with ASC 820.

Foreign currency derivative contracts are classified within

Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

As of June 30, 2020,

the fair value of the options contracts was approximately $67 and is presented in “other current assets”

(see Note 4).

The net gains (losses) recognized in “Financial income, net”

during the years ended June 30, 2019, 2018

and 2017, were $(105), ($264) and $481, respectively.

Comprehensive

income (loss):

The Company accounts

for comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income”.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT

ACCOUNTING POLICIES (CONT.)

Comprehensive income

generally represents all changes in stockholders’

equity during the period except those resulting from investments by, or

distributions to, stockholders’.

The Company determined that its items of other comprehensive income (loss) relate to unrealized

gains and losses on available for sale marketable securities.

during the years ended June 30, 2020, 2019 and 2018,

were $13, $(105) and $(264), respectively.

Comprehensive loss:

The Company accounts for comprehensive

income (loss) in accordance with ASC 220, “Comprehensive Income”.

Comprehensive income generally represents all changes

in stockholders’

equity during the period except those resulting from investments by, or distributions to, stockholders’.

The Company determined that its items of other comprehensive income (loss) relate to unrealized gains and losses on available for

sale marketable securities.

Reclassifications:

1 unchanged sentence

data for prior years have been reclassified to conform to current year financial statement presentation.

Adopted Accounting Pronouncement

2016-18 –

“Statement of Cash Flows”

(Topic 230) (“ASU No.

2016-18”):

In November 2016, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18.

ASU 2016-18 requires

that the consolidated statement of cash flows include the change in total cash and cash equivalents and amounts generally described

as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts.

2016-18 also requires a reconciliation between the total of cash and cash equivalents and restricted cash presented on the

consolidated statement of cash flows and the cash and cash equivalents balance presented on the consolidated balance sheet.

2016-18 was effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

standard requires application using a retrospective transition method.

The Company adopted this standard effective July 1, 2018

using the retrospective transition method, as required by ASU 2016-18.

The following table

provides a reconciliation of cash and cash equivalents, and long term restricted cash reported within the consolidated balance

sheets that sum to the total of such amounts in the consolidated statements of cash flows:

ended June 30,

Cash and cash equivalents

Restricted cash included in restricted

cash and short-term bank deposits

cash equivalents and restricted cash shown in the consolidated statement of cash flows

Recently Issued Accounting

Pronouncements

Recently Adopted Accounting Pronouncement

Standards Update (“ASU”) No.

2016-02 - “Leases”

(Topic 842) (“ASU No.

2016-02”):

In February 2016, the FASB issued

2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for leases with lease terms of

more than 12 months.

Consistent with current U.S.

GAAP, the recognition, measurement, and presentation of expenses and cash flows

arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.

However, unlike current

GAAP, which requires only capital leases to be recognized on the balance sheet, the new guidance will require both types of

leases to be recognized on the balance sheet.

2016-02 is effective for interim and annual periods beginning after December

15, 2018, with early adoption permitted.

(“Topic 842”) and ASU No.

2018-11, “Targeted

Improvements - Leases”

In February 2016 and July 2018, the Financial Accounting

Standards Board (“FASB”) issued guidance on the recognition, measurement, presentation and disclosure of leases for

both parties to a contract (i.e., lessees and lessors).

The new standard requires lessees to apply a dual approach, classifying

leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase

by the lessee.

This classification will determine whether a lease expense is recognized based on an effective interest method or

on a straight-line basis over the term of the lease, respectively.

A lessee is also required to record a right-of-use asset and

a lease liability for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of

12 months or less will be accounted for in a manner similar to the accounting treatment requirements under existing guidance for

operating leases today.

The new standard requires lessors to account for leases using an approach that is substantially equivalent

to existing guidance for sales-type leases, direct financing leases and operating leases.

Topic 842 supersedes the previous leases

standard, ASC 840, “Leases”.

The guidance is effective for annual periods beginning on or after December 15, 2018,

or July 1, 2019 for the Company, and interim periods within those fiscal years with early adoption permitted.

The provisions of

ASU 2016-02 are to be applied using a modified retrospective approach.

The Company adopted the

new standard as of July 1, 2019, using the modified retrospective approach.

Consequently, prior period balances and

disclosures have not been restated.

The Company has elected to utilize the available package of practical expedients

permitted under the transition guidance within the new standard which does not require it to reassess the prior conclusions

about lease identification, lease classification and initial direct costs.

The adoption of Topic 842 resulted in the

elimination of deferred participation payments of $240 and $381 in current and long-term liabilities in the Company’s

consolidated balance sheets, respectively.

Additionally, the Company included in its balance sheet, at adoption, operating

right-of-use assets, short-term operating lease liabilities and long-term operating lease liabilities of $1,631, $964 and

$1,261, respectively.

The standard had no material impact on the Company’s net loss or its cash flows.

For additional

information regarding the Company’s accounting for leases, please refer to Note 7.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT

ACCOUNTING POLICIES (CONT.)

A modified retrospective

transition approach is required, applying the new standard to all leases existing at the date of initial application.

entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in

the financial statements as its date of initial application.

If an entity chooses the second option, the entity must recast

its comparative period financial statements and provide disclosures required by the new standard for the comparative periods.

The Company adopted the new standard on July 1, 2019 using the effective date as its date of initial application.

Consequently, financial information will not be updated and disclosures required under the new standard will not be provided

for dates and periods before July 1, 2019.

2016-02 provides a number of optional practical expedients in transition.

The Company elected to adopt the ‘package of practical expedients’, which, under the new standard, permits it not

to reassess its prior conclusions about lease identification, lease classification and initial direct costs.

The adoption of

this new standard will materially affect the Company’s consolidated balance sheets by recognizing new right-of-use

(“ROU”) assets and lease liabilities for operating leases.

The impact on the Company’s results of

operations and cash flows is not expected to be material.

Adoption of the standard will result in the recognition of

additional lease liabilities for operating leases of approximately $2,250 - $2,450 and additional ROU which will be adjusted

for the remaining balance of the deferred participation payments in the amounts of approximately $1,650 - $1,850.

1, 2019, the ROU and lease liabilities estimate includes non-cancelable operating lease agreements (see Note 8a and 8b).

Compensation—Stock Compensation (Topic 718) (“ASU No.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT ACCOUNTING

POLICIES (CONT.)

2018-07 - “Compensation—Stock Compensation”

(Topic 718) (“ASU No.

2018-07”):

In June 2018, the FASB

issued ASU 2018-07.

In June 2018, the FASB issued

The ASU expands the scope of ASU No.

2018-07 to include share-based payment transactions for acquiring goods

and services from nonemployees.

An entity should apply the requirements of ASU No.

2018-07 to nonemployee awards except for specific

guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based

payment awards vest and the pattern of cost recognition over that period).

2018-07 to include share-based payment transactions for acquiring goods and

services from nonemployees.

An entity should apply ASU No.

2018-07 to nonemployee awards except with respect to option pricing

models and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost

recognition over that period).

The amendments specify that ASU No.

2018-07 applies

to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s

own operations by issuing share-based payment awards.

2018-07 is effective for fiscal years beginning after December 15,

2018 and interim periods within those fiscal years with early adoption permitted.

While the Company continues to assess the potential

impact of ASU No.

2018-07, the Company does not expect the adoption of this standard to have a material impact on its consolidated

financial statements.

2018-07 applies to all share-based payment transactions in which

a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment

2018-07 is effective for fiscal years beginning after December 15, 2018, or July 1, 2019 for the Company, and interim

periods within those fiscal years with early adoption permitted.

The Company adopted the new standard as of July 1, 2019, and the

new standard had no material impact on its consolidated financial statements.

2017-12 - “Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities”

(“ASU No.

2017-12”):

In August 2017, the FASB issued

2017-12, which is intended to simplify and amend the application of hedge accounting to more clearly portray the economics

of an entity’s risk management strategies in its financial statements.

The ASU will make more financial and nonfinancial

hedging strategies eligible for hedge accounting, reduce complexity in fair value hedges of interest rate risk and ease certain

documentation and assessment requirements of hedge effectiveness.

It also changes how companies assess effectiveness of the hedge

and amends the presentation and disclosure requirements relating to hedging activities.

ASU 2017-12 is effective for

fiscal years beginning after December 15, 2018, or July 1, 2019, for the Company.

The Company adopted the new standard as of July

1, 2019 and the standard had no impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

2018-18 - “Collaborative Arrangements (Topic 808) - Clarifying the Interaction between Topic 808 and Topic 606”

1 unchanged sentence

2018-18”):

2018, the FASB issued ASU No.

2018-18, which clarifies the interaction between Topic 808 and Topic 606 by (1) clarifying that

certain transactions between collaborative arrangement participants should be accounted for under Topic 606, (2) adding unit-of-account

guidance in Topic 808 to align with the guidance in Topic 606 and (3) clarifying presentation guidance for transactions with

a collaborative arrangement participant that are not accounted for under Topic 606.

ASU 2018-18 is effective for fiscal years

beginning after December 15, 2019, or July 1, 2020 for the Company.

The Company is currently evaluating the impact of adopting

the ASU on its consolidated financial statements.

In November 2018, the FASB

issued ASU No.

2018-18, which clarifies the interaction between Topic 808 and Topic 606 by (1) clarifying that certain transactions

between collaborative arrangement participants should be accounted for under Topic 606, (2) adding unit-of-account guidance in

Topic 808 to align with the guidance in Topic 606, and (3) clarifying presentation guidance for transactions with a collaborative

arrangement participant that are not accounted for under Topic 606.

ASU 2018-18 is effective for fiscal years beginning after December

15, 2019, or July 1, 2020 for the Company.

The Company is currently evaluating the impact of adopting the ASU on its consolidated

financial statements.

2016-13 -, “Financial Instruments - Credit Losses (Topic 326)

In September 2016, the FASB

issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”

(“ASU 2016-13”).

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use

a new forward-looking “expected loss”

model that generally will result in the earlier recognition of allowances for

The guidance also requires increased disclosures.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 2:- SIGNIFICANT ACCOUNTING

POLICIES (CONT.)

For the Company, the amendments

in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those

fiscal years.

The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements.

2019-10 -, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)

In November 2019, the FASB issued ASU No.

2019-10 which delayed

the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S.

Securities and Exchange Commission (the

“SEC”)) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, or July 1, 2023 for

the Company, including interim periods within those fiscal periods.

Early adoption is permitted.

The Company is currently evaluating

the impact of adopting the ASU on its consolidated financial statements.

NOTE 3:- MARKETABLE SECURITIES

As of June 30, 2019

and 2018, all of the Company’s marketable securities were classified as available-for-sale.

ended June 30,

Other-than-temporary

Available-for-sale

- matures within one year:

and index linked notes

The Company typically

invests in highly-rated securities.

When evaluating the investments for other-than-temporary impairment, the Company reviews factors

such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and

any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment

before recovery of the investment’s amortized cost basis.

The Company recognized

other-than-temporary impairment loss on outstanding securities during the year ended June 30, 2018 and 2017, of $850 and $767,

respectively.

The Company did not recognize any other-than-temporary impairment loss on outstanding securities during the year

ended June 30, 2019.

During the year ended

June 30, 2018, the Company sold marketable securities for aggregate net proceeds (including redemptions) of approximately $21,890,

representing a net gain of $8,440.

The proceeds from the sale of such marketable securities are included in “Financial income,

net”, for the year ended June 30, 2018.

NOTE 4:- FAIR VALUE OF FINANCIAL INSTRUMENTS

currency derivative instruments not designated as hedge instruments

Total financial assets (liabilities)

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

NOTE 5:- OTHER

CURRENT ASSETS

The Company has invested in highly-rated

When evaluating the investments for other-than-temporary impairment, the Company has reviewed factors such as the length

of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto,

and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before

recovery of the investment’s amortized cost basis.

The Company recognized other-than-temporary

impairment loss on outstanding securities during the year ended June 30, 2018 of $850.

The Company did not recognize any other-than-temporary

impairment loss on outstanding securities during the year ended June 30, 2020 and 2019.

During the year ended June 30, 2018, the Company sold marketable

securities for aggregate net proceeds (including redemptions) of approximately $21,890, representing a net gain of $8,440.

proceeds from the sale of such marketable securities are included in “Financial income, net”, for the year ended June

NOTE 4:- OTHER CURRENT ASSETS

Accounts receivable from the Horizon 2020 grants

1 unchanged sentence

Accounts receivable from the IIA

VAT receivables

Value Added Tax (VAT) receivables

Accounts receivable from the Ministry of Economy and Industry

1 unchanged sentence

Other receivables

NOTE 6:- PROPERTY

AND EQUIPMENT, NET

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 5:- PROPERTY AND EQUIPMENT,

Laboratory equipment

1 unchanged sentence

Office furniture and equipment

Leasehold improvements

Accumulated depreciation:

2 unchanged sentences

Office furniture and equipment

Total accumulated

equipment, net

Depreciation expenses

amounted to $1,962, $2,018 and $2,177, for the years ended June 30, 2019, 2018 and 2017, respectively.

NOTE 7:- OTHER

ACCOUNTS PAYABLE

Leasehold improvements

Total accumulated depreciation

Property and equipment, net

Depreciation expenses amounted to $1,570, $1,962 and

$2,018, for the years ended June 30, 2020, 2019 and 2018, respectively.

During the fiscal years ended

June 30, 2020 and 2019, the Company recorded a reduction of $ 74 and $9, respectively, to the cost accumulated depreciation of

fully depreciated equipment no longer in use.

NOTE 6:- OTHER ACCOUNTS

Accrued vacation

Deferred income from the Horizon 2020 grant

Deferred income from the nTRACK Horizon 2020 grant

Accrued payroll

Payroll institutions

Derivatives not designated as hedge instruments

Other payables

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

COMMITMENTS AND CONTINGENCIES

In February 2015,

the Company signed an addendum to its facility operating lease agreement (the “Addendum”)

with the lessor, which extended the lease period to December 2021.

The lessor paid a non-refundable

leasehold improvement participation payment, of approximately $947 in October 2015, in addition to the non-refundable payment

of approximately $816 received in January 2013.

The payments are deductible

against lease expenses as they are incurred.

The lessor upfront payment is included in the balance sheet as advance payment and

recognized as a deduction from lease expenses over the lease term.

The Company recognizes

lease expense, net of lessor participation, under such arrangements, on a straight-line basis over the lease term.

As of June 30, 2019,

aggregate minimum lease commitments under the active operating lease agreements are as follows:

Fiscal year ending June 30,

expenses, net of lessor participation, amounted to $615, $638 and $781, for the years ended June 30, 2019, 2018 and 2017, respectively.

Subsidiary issued a bank guarantee in favor of the lessors in the amount of approximately $388.

The Subsidiary leases

several motor vehicles under operating lease agreements, which expire in various dates

during the years 2020 through 2022.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 7:- LEASES

The right-of-use asset and

lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit

in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate based on the information

available at the date of adoption in determining the present value of the lease payments.

The Company’s incremental borrowing

rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased

asset is located.

The Company has various operating leases for office

space and vehicles that expire through 2023.

Below is a summary of our operating right-of-use assets and operating lease liabilities

as of June 30, 2020:

future aggregate minimum lease commitments under operating lease agreements are as follows:

Fiscal year ending June 30,

Lease expenses amounted

to $301, $294 and $233, for the years ended June 30, 2019, 2018 and 2017, respectively.

An amount of $692

of cash and deposits was pledged by the Subsidiary to secure certain derivatives and

hedging transactions, a credit line and bank guarantees as of June 30, 2019.

Operating right-of-use assets

Operating lease liabilities, current

Operating lease liabilities long-term

Total operating lease liabilities

The operating lease right-of-use assets are presented

in long term assets net after elimination of deferred participation payments from Matam High-Tech and Business Park of $240 and

$381 in current and long-term liabilities in the Company’s consolidated balance sheets, respectively.

Minimum lease payments for the Company’s right-of-use

(“ROU”) assets over the remaining lease periods as of June 30, 2020 are as follows:

Total undiscounted lease payments

Present value of lease liabilities

The components of lease expense and supplemental cash

flow information related to leases for the year ended June 30, 2020 were as follows:

Year ended June 30,

Components of lease expense

Operating lease cost

Sublease income

Supplemental cash flow information

Cash paid for amounts included in the measurement of lease liabilities

Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 7:- LEASES (CONT.)

As of June 30, 2020, the weighted average

remaining lease term is 1.7 years, and the weighted average discount rate is 10 percent.

The discount rate was determined based

on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.

As of June 30, 2020, the aggregate minimum

lease commitments under the active operating lease agreements are $ 1,706.

As of June 30, 2019, the aggregate minimum

lease commitments under the active operating lease agreements are $2,641.

NOTE 8:- COMMITMENTS AND

CONTINGENCIES (CONT.)

Under the Law for

the Encouragement of Industrial Research and Development, 1984, (the “Research

Law”), research and development programs that meet specified criteria and are approved

by the IIA are eligible for grants of up to 50% of the project’s expenditures,

as determined by the research committee, in exchange for the payment of royalties from

the sale of products developed under the program.

Regulations under the Research Law

generally provide for the payment of royalties to the IIA of 3% on sales of products

and services derived from a technology developed using these grants until 100% of the

dollar-linked grant is repaid.

CONTINGENCIES

An amount of $555 of cash and deposits was pledged by the

Subsidiary to secure certain derivatives and hedging transactions, a credit line and bank guarantees as of June 30, 2020.

Under the Law for the Encouragement of Industrial Research

and Development, 1984, (the “Research Law”), research and development programs that meet specified criteria and are

approved by the IIA are eligible for grants of up to 50% of the project’s expenditures, as determined by the research committee,

in exchange for the payment of royalties from the sale of products developed under the program.

Regulations under the Research

Law generally provide for the payment of royalties to the IIA of 3% on sales of products and services derived from a technology

developed using these grants until 100% of the dollar-linked grant is repaid.

The Company’s obligation to pay these royalties

is contingent on its actual sale of such products and services.

In the absence of such

sales, no payment is required.

Outstanding balance of the grants will be subject to interest

at a rate equal to the 12 month LIBOR applicable to dollar deposits that is published

on the first business day of each calendar year.

Following the full repayment of the

grant, there is no further liability for royalties.

Through June 30, 2019,

total grants obtained aggregated to approximately $27,353 and total royalties paid and accrued amounted to $169.

In the absence of such sales, no payment is required.

balance of the grants will be subject to interest at a rate equal to the 12 month LIBOR applicable to dollar deposits that is

published on the first business day of each calendar year.

Following the full repayment of the grant, there is no further liability

for royalties.

Through June 30, 2020, total

grants obtained aggregated to approximately $27,685 and total royalties paid and accrued amounted to $169.

As of June 30, 2020,

the Company’s liability in respect to royalties to the IIA amounted to $27,516, not including LIBOR interest as described

The Company has been

awarded a marketing grant under the “Smart Money”

program of the Israeli Ministry

of Economy and Industry.

The program’s aim is to assist companies to extend their

activities in international markets.

The Company has been awarded a marketing grant under the

“Smart Money”

program of the Israeli Ministry of Economy and Industry.

The program’s aim is to assist companies

to extend their activities in international markets.

The goal market that was chosen was Japan.

government granted the Company budget resources that are intended to be used to advance

the Company’s product candidate towards marketing in Japan and for regulatory activities

The Israeli government granted

the Company budget resources that are intended to be used to advance the Company’s product candidate towards marketing in

Japan and for regulatory activities there.

As part of the program, the Company will repay royalties of 5% from the Company’s

income in Japan during five years, starting the year in which the Company will not be

entitled to reimbursement of expenses under the program and will be spread for a period

of up to 5 years or until the amount of the grant is fully paid.

As of June 30, 2019,

total grants obtained under this Smart Money program amounted to approximately $112.

income in Japan during five years, starting the year in which the Company will not be entitled to reimbursement of expenses under

the program and will be spread for a period of up to 5 years or until the amount of the grant is fully paid.

As of June 30, 2020, total

grants obtained under this Smart Money program amounted to approximately $112.

As of June 30, 2020, the Company’s contingent

1 unchanged sentence

program was $112 and no royalties were paid or accrued.

The Company was awarded

an additional Smart Money grant of approximately $229 from Israel’s Ministry of

Economy and Industry to facilitate certain marketing and business development activities

with respect to its advanced cell therapy products in the Chinese market, including Hong

The Israeli government granted the Company budget resources that are intended to

be used to advance the Company’s product candidate towards marketing in the China-Hong

Kong markets.

The Company will also receive close support from Israel’s trade representatives

stationed in China, including Hong Kong, along with experts appointed by the Smart Money

As part of the program, the Company will repay royalties of 5% from the Company’s

revenues in the region for a five year period, beginning the year in which the Company

will not be entitled to reimbursement of expenses under the program and will be spread

for a period of up to 5 years or until the amount of the grant is fully paid.

As of June 30, 2019,

the aggregate amount of grant obtained from this Smart Money program was approximately $26.

As of June 30, 2019, the Company’s

contingent liability with respect to royalties for this “Smart Money”

program is $26 and no royalties were paid or

In December, 2016,

the Company announced that it will collaborate with the New York Blood Center (“NYBC”)

on pre-clinical studies of its placental expanded R-18 cells (“PLX-R18”)

to enhance the efficacy of umbilical cord blood transplantation.

The project has been

selected to receive a conditional award of $900 from Israel-United States Binational

Industrial Research and Development Foundation (“BIRD Foundation”), of which

an amount of $585 is a direct grant allocated to the Company.

Per the terms of the project,

the Company provided the PLX-R18 cells and the NYBC were responsible for conducting and

supporting the studies.

Amounts received in connection with this award were presented

in “Other long-term liabilities”.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

COMMITMENTS AND CONTINGENCIES (CONT.)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 8:- COMMITMENTS AND

CONTINGENCIES (CONT.)

The Company was awarded an additional Smart Money grant

of approximately $229 from Israel’s Ministry of Economy and Industry to facilitate certain marketing and business development

activities with respect to its advanced cell therapy products in the Chinese market, including Hong Kong.

The Israeli government

granted the Company budget resources that are intended to be used to advance the Company’s product candidate towards marketing

in the China-Hong Kong markets.

The Company will also receive close support from Israel’s trade representatives stationed

in China, including Hong Kong, along with experts appointed by the Smart Money program.

As part of the program, the Company will

repay royalties of 5% from the Company’s revenues in the region for a five year period, beginning the year in which the

Company will not be entitled to reimbursement of expenses under the program and will be spread for a period of up to 5 years or

until the amount of the grant is fully paid.

As of June 30, 2020, the aggregate

amount of grant obtained from the BIRD Foundation was approximately $264.

During the year ended June 30, 2019, the Company and

NYBC mutually agreed to terminate the project and therefore, pursuant to the terms of the agreement with the BIRD Foundation and

NYBC, the Company derecognized the BIRD Foundation liability.

The total amounts received in connection with this award were recognized

as a deduction from research and development costs, and an amount to be received of $14 is presented in “other current assets”

as of June 30, 2019.

In September 2017,

the Company signed an agreement with the Tel-Aviv Sourasky Medical Center (Ichilov Hospital)

to conduct a Phase I/II trial of PLX-PAD cell therapy for the treatment of Steroid-Refractory

Chronic Graft-Versus-Host-Disease (“GvHD”).

As part of the agreement with the Tel-Aviv

Sourasky Medical Center (Ichilov Hospital), the Company will pay royalties of 1% from its net sales of the PLX-PAD product relating

to GvHD, with a maximum aggregate royalty amount of approximately $250.

In July, 2018, the

Company was awarded a marketing grant of approximately $52 under the “Shalav”

amount of grant obtained from this Smart Money program was approximately $129.

As of June 30, 2020, the Company’s contingent

liability with respect to royalties for this “Smart Money”

program is $129 and no royalties were paid or accrued.

In September 2017, the Company

signed an agreement with the Tel-Aviv Sourasky Medical Center (Ichilov Hospital) to conduct a Phase I/II trial of PLX-PAD cell

therapy for the treatment of Steroid-Refractory Chronic Graft-Versus-Host-Disease (“

cGVHD ”).

As part of the agreement

with the Tel-Aviv Sourasky Medical Center (Ichilov Hospital), the Company will pay royalties of 1% from its net sales of the PLX-PAD

product relating to cGVHD , with a maximum aggregate royalty amount of approximately $250.

In July 2018, the Company was awarded a marketing grant

of approximately $52 under the “Shalav”

program of the Israeli Ministry of Economy and Industry.

The grant is intended to facilitate

certain marketing and business development activities with respect to the Company’s

advanced cell therapy products in the U.S.

As part of the program, the Company

will repay royalties of 3%, but only with respect to the Company’s revenues in

market in excess of $250 of its revenues in fiscal year 2018, upon the earlier

of the five year period beginning the year in which the Company will not be entitled

to reimbursement of expenses under the program and/or until the amount of the grant,

which is linked to the Consumer Price Index, is fully paid.

As of June 30, 2019,

total grants obtained under the “Shalav”

The grant is intended

to facilitate certain marketing and business development activities with respect to the Company’s advanced cell therapy

products in the U.S.

As part of the program, the Company will repay royalties of 3%, but only with respect to the Company’s

revenues in the U.S.

market in excess of $250 of its revenues in fiscal year 2018, upon the earlier of the five year period beginning

the year in which the Company will not be entitled to reimbursement of expenses under the program and/or until the amount of the

grant, which is linked to the Consumer Price Index, is fully paid.

As of June 30, 2020, total

grants obtained under the “Shalav”

program amounted to approximately $49.

2 unchanged sentences

program was $49 and no royalties were paid or accrued.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 9:- STOCKHOLDERS’

The Company’s

authorized common stock consists of 30,000,000 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 Company’s authorized preferred stock consists of 1,000,000 shares of preferred

stock, par value $0.00001 per share, with series, rights, preferences, privileges and restrictions as may be designated from time

to time by the Company’s Board of Directors.

The Company’s authorized

common stock consists of 60,000,000 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 Company’s authorized preferred stock consists of 1,000,000 shares of preferred stock,

par value $0.00001 per share, with series, rights, preferences, privileges and restrictions as may be designated from time to time

by the Company’s Board of Directors.

No shares of preferred stock have been issued.

In July, 2019, subsequent

to the balance sheet date, the Board of Directors approved a 1-for-10 reverse stock split of the Company’s (a) authorized shares

of common stock;

(b) issued and outstanding shares of common stock and (c) authorized shares of preferred stock.

The reverse split

became effective on July 25, 2019.

The reverse stock split will not have any effect on the stated par value of the common stock.

All shares of common stock, options, warrants and securities convertible or exercisable into shares of common stock, as well as

loss per share, have been adjusted to give retroactive effect to this reverse stock split for all periods presented.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

9:- STOCKHOLDERS’

EQUITY (CONT.)

On January 25, 2017,

the Company issued, pursuant to an underwriting agreement relating to a firm commitment

public offering, an aggregate of 1,408,163 shares of common stock and warrants to purchase

up to an aggregate of 844,898 shares of common stock, inclusive of the underwriter’s

over-allotment option, which was exercised in full, for aggregate gross proceeds of $17,250.

The net proceeds, after deducting underwriting commissions, discounts and other expenses

related to the offering were approximately $15,718.

In the year ended

June 30, 2018, a total of 828,703 warrants from the January 2017 offering were exercised

by investors at an exercise price of $14.00 per share, resulting in the issuance of 82,871

shares of common stock for net proceeds of approximately $1,160.

In July 2017, pursuant

to a shelf registration statement on Form S-3, declared effective by the Securities and

Exchange Commission (the “SEC”) on June 23, 2017, the Company entered into an At Market Issuance

Sales Agreement (the “ATM Agreement”) with FBR Capital Markets & Co.,

Reverse stock split:

In July 2019, the Board of Directors

approved a 1-for-10 reverse stock split of the Company’s (a) authorized shares of common stock;

(b) issued and outstanding

shares of common stock and (c) authorized shares of preferred stock.

The reverse split became effective on July 25, 2019.

stock split will not have any effect on the stated par value of the common stock.

All shares of common stock, options, warrants

and securities convertible or exercisable into shares of common stock, as well as loss per share, have been adjusted to give retroactive

effect to this reverse stock split for all periods presented.

In the year ended June 30, 2018, a total of 828,703 warrants from a January 2017 offering were

exercised by investors at an exercise price of $14.00 per share, resulting in the issuance of 82,871 shares of common stock for

net proceeds of approximately $1,160.

In July 2017, pursuant to a shelf registration statement on Form S-3, declared effective by the

SEC on June 23, 2017, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with FBR

Capital Markets & Co., MLV & Co.

LLC and Oppenheimer & Co.

(collectively, the “Agents”),

which provides that, upon the terms and subject to the conditions and limitations in

the ATM Agreement, the Company may elect, from time to time, to offer and sell shares

of common stock having an aggregate offering price of up to $80,000 through the Agents

acting as sales agent.

During the year ended June 30, 2018, the Company sold 359,941

shares of common stock under the ATM Agreement at an average price of $14.30 per share

(collectively, the “Agents”), which provides

that, upon the terms and subject to the conditions and limitations in the ATM Agreement, the Company may elect, from time to time,

to offer and sell shares of common stock having an aggregate offering price of up to $80,000 through the Agents acting as sales

During the year ended June 30, 2018, the Company sold 359,941 shares of common stock under the ATM Agreement at an average

price of $14.30 per share for aggregate proceeds of approximately $4,985, net of issuance expenses of $174.

During the year ended

June 30, 2019, the Company sold 170,600 shares of common stock under the ATM Agreement at an average price of $12.30 per share

for aggregate proceeds of approximately $1,952, net of issuance expenses of $148.

the year ended June 30, 2019, the Company sold 170,600 shares of common stock under the

ATM Agreement at an average price of $12.30 per share for aggregate proceeds of approximately

On February 4, 2019, the Company

notified the Agents of the termination of the ATM Agreement.

On October 31, 2017, the Company completed a public offering in Israel, pursuant to the Company’s

existing shelf registration statement on Form S-3 in the United States and a shelf registration statement filed in Israel, pursuant

to which the Company raised aggregate gross proceeds of $15,051 through the sale of 900,000 shares of the Company’s common

stock at a purchase price of NIS 59 (approximately $16.70) per share.

The net proceeds, after deducting fees and expenses related

to the offering, were approximately $13,646.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 9:- STOCKHOLDERS’

EQUITY (CONT.)

Pursuant to a shelf registration on Form S-3 declared effective by the SEC on June 23, 2017, on

February 6, 2019, the Company entered into the Open Market Sale Agreement SM (the “Sales Agreement”) with

Jefferies LLC (“Jefferies”) which provides that, upon the terms and subject to the conditions and limitations in the

sales agreement, the Company may elect, from time to time, to offer and sell shares of common stock having an aggregate offering

price of up to $50,000 through Jefferies acting as sales agent.

During the year ended June 30, 2019, the Company sold 236,800 shares

of common stock under the Sales Agreement at an average price of $9.70 per share for aggregate net proceeds of approximately $2,051,

net of issuance expenses of $255.

On February 4, 2019,

the Company notified the Agents of the termination of the ATM Agreement.

On October 31, 2017,

the Company completed a public offering in Israel, pursuant to the Company’s existing

shelf registration statement on Form S-3 in the United States and a shelf registration

statement filed in Israel, pursuant to which the Company raised aggregate gross proceeds

of $15,051 through the sale of 900,000 shares of the Company’s common stock at

a purchase price of NIS 59 (approximately $16.70) per share.

The net proceeds, after

deducting fees and expenses related to the offering, were approximately $13,646.

Pursuant to a shelf

registration on Form S-3 declared effective by the SEC

on June 23, 2017, on February 6, 2019, the Company entered into the Sales Agreement with

Jefferies which provides that, upon the terms and subject to the conditions and limitations

in the sales agreement, the Company may elect, from time to time, to offer and sell shares

of common stock having an aggregate offering price of up to $50,000 through Jefferies

acting as sales agent.

During the year ended June 30, 2019, the Company sold 236,800

shares of common stock under the Sales Agreement at an average price of $9.70 per share

for aggregate net proceeds of approximately $2,051, net of issuance expenses of $255.

On April 8, 2019,

the Company sold, pursuant to an underwriting agreement relating to a firm commitment

public offering (the “Public Offering”), an aggregate of 2,857,143 shares

of common stock and warrants to purchase 2,857,143 shares of common stock, inclusive

of the underwriter’s over-allotment option which was exercised in full, for aggregate

During the year ended June 30,

2020, the Company sold 8,060,950 shares of common stock under the Sales Agreement at an average price of $5.81 per share for aggregate

net proceeds of approximately $43,262, net of issuance expenses of $3,573.

On June 30, 2020, the shelf registration

statement on Form S-3 declared effective by the SEC on June 23, 2017expired , and as a result thereof, the Sales Agreement was

On April 8, 2019, the Company sold, pursuant to an underwriting agreement relating to a firm commitment

public offering (the “Public Offering”), an aggregate of 2,857,143 shares of common stock and warrants to purchase

2,857,143 shares of common stock, inclusive of the underwriter’s over-allotment option which was exercised in full, for aggregate

gross proceeds of $20,000.

The warrants issued in the Public Offering are exercisable

for a period of five years from issuance and have an exercise price of $7.00 per share.

In addition, on April 8, 2019, the Company sold, pursuant to a subscription agreement

with a certain investor in a registered direct offering (the “Registered Direct

Offering”), 142,857 shares of common stock, for aggregate gross proceeds of $1,000.

The net proceeds from the Public Offering and the Registered Direct Offering, after deducting

underwriting commissions and discounts and other expenses related to the offerings, were

The warrants issued in the Public

Offering are exercisable for a period of five years from issuance and have an exercise price of $7.00 per share.

In addition, on

April 8, 2019, the Company sold, pursuant to a subscription agreement with a certain investor in a registered direct offering (the

“Registered Direct Offering”), 142,857 shares of common stock, for aggregate gross proceeds of $1,000.

The net proceeds

from the Public Offering and the Registered Direct Offering, after deducting underwriting commissions and discounts and other expenses

related to the offerings, were $19,464.

As of June 30, 2020, 2,470,465

warrants to purchase share of our common stock are outstanding.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

9:- STOCKHOLDERS’

EQUITY (CONT.)

In the year ended June 30, 2020, a total of 386,678 warrants to purchase shares from the April

2019 offering were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 386,678 shares

of common stock for net proceeds of approximately $2,707.

On May 5, 2020, the Company entered into a securities purchase agreement with two institutional

investors (the “Investors”) pursuant to which the Company sold, in a registered public offering directly to the Investors,

1,587,302 shares of common stock for net proceeds of approximately $14,901.

Stock options, RS and RSUs to employees, directors and consultants:

6 unchanged sentences

Under the 2016 Plan, stock options, RS and RSUs may be granted to the Company’s officers, directors, employees and consultants

or the officers, directors, employees and consultants of our Subsidiary.

or the officers, directors, employees and consultants of our Subsidiaries.

In addition, at the Company’s annual meeting of

1 unchanged sentence

Plan”).

Under the 2019 Plan, stock options, RS and RSUs may be granted to the Company’s officers, directors, employees

and consultants or the officers, directors, employees and consultants of the Subsidiary.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 9:- STOCKHOLDERS’

EQUITY (CONT.)

Under the 2019 Plan, stock

options, RS and RSUs may be granted to the Company’s officers, directors, employees and consultants or the officers, directors,

employees and consultants of the Subsidiary.

As of June 30, 2020, the number

of shares of common stock authorized for issuance under the 2016 Plan amounted to 595,694 for calendar year 2020, of which 584,144

are available for future grant under the 2016 Plan.

As of June 30, 2019, the number of shares of common stock authorized for issuance

under the 2019 Plan amounted to 3,204,055, all of which are available for future grant under the 2019 Plan.

Options to employees and directors:

The Company accounts for its

stock options to employees and directors under the fair value method in accordance with ASC 718, “Compensation—Stock

Compensation”.

A summary of the Company’s activity for stock options granted to employees and directors under the 2005

Plan is as follows:

ended June 30, 2019

Weighted Average Exercise

Options outstanding at beginning of period

Options forfeited

Options exercised

Options outstanding at end of the period

are available for future grant during calendar year 2020 under the 2016 Plan.

As of June 30, 2020, the number of shares of common

stock authorized for issuance under the 2019 Plan amounted to 4,672,243, all of which are available for future grant under the

Options to non-employees:

3 unchanged sentences

Weighted Average Exercise Price

Weighted Average Remaining Contractual Terms (in years)

Weighted Average Remaining Contractual Terms

Aggregate Intrinsic Value Price

6 unchanged sentences

Stock options vested and expected to vest at the end of the period

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

9:- STOCKHOLDERS’

EQUITY (CONT.)

expenses related to stock options granted to consultants were recorded as follows:

ended June 30,

Year ended June 30,

Research and development expenses

General and administrative expenses

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 9:- STOCKHOLDERS’

EQUITY (CONT.)

RS and RSUs to employees and directors:

following table summarizes the activity related to unvested RS and RSUs granted to employees and directors under the 2005 Plan

and 2016 Plan for the year ended June 30, 2019:

The following

table summarizes the activity related to unvested RS and RSUs granted to employees and directors under the 2005 Plan and 2016 Plan

for the year ended June 30, 2020:

Unvested at the beginning of period

2 unchanged sentences

expenses related to RS and RSUs granted to employees and directors were recorded as follows:

ended June 30,

Year ended June 30,

Research and development expenses

General and administrative expenses

compensation expenses related to RS and RSUs granted to employees and directors to be recognized over an average time of approximately

3.75 years are approximately $4,180.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

9:- STOCKHOLDERS’

EQUITY (CONT.)

Unamortized compensation expenses

related to RS and RSUs granted to employees and directors to be recognized over an average time of approximately 2.75 years are

approximately $1,194.

RS and RSUs to consultants:

following table summarizes the activity related to unvested RS and RSUs granted to consultants for the year ended June 30, 2019:

The following

table summarizes the activity related to unvested RS and RSUs granted to consultants for the year ended June 30, 2020:

Unvested at the beginning of period

Unvested at the end of the period

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

9:- STOCKHOLDERS’

EQUITY (CONT.)

expenses related to RS and RSUs granted to consultants were recorded as follows:

ended June 30,

Year ended June 30,

Research and development expenses

General and administrative expenses

Summary of warrants

Warrants / Options

Summary of warrants and options:

Exercise Price per Share

Options and Warrants for Common

Options and Warrants Exercisable

for Common Stock

Weighted Average Remaining

Contractual Terms (in years)

Options and Warrants for Common Stock

Options and Warrants Exercisable for Common Stock

Weighted Average Remaining Contractual Terms

Total warrants

1 unchanged sentence

Total warrants and options

This summary does not include

825,740 RS and RSUs that are not vested as of June 30, 2019.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

This summary does not include 421,444 RS and

RSUs that are not vested as of June 30, 2020.

NOTE 10:- OTHER INCOME

December 2017, the Subsidiary was awarded approximately $43 (NIS 150 thousand) by the Israeli Ministry of Labor, Social Affairs

and Social Services related to its “Equal Employment”

program which aims to reward and honor Israeli employers who

demonstrate and promote gender equality in employment.

FINANCIAL INCOME, NET

ended June 30,

Foreign currency translation differences,

In December 2017, the Subsidiary

was awarded approximately $43 (NIS 150 thousand) by the Israeli Ministry of Labor, Social Affairs and Social Services related to

its “Equal Employment”

program which aims to reward and honor Israeli employers who demonstrate and promote gender

equality in employment.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 11:- FINANCIAL

Year ended June 30,

Foreign currency translation differences, net

Bank and broker commissions

Interest income on deposits

Gain (loss) related to marketable securities, net

Interest expenses due to implementation of new accounting standards “Leases”

Gain related to marketable securities, net

Other than temporary impairment loss

Gain (loss) from derivatives and fair value

hedge derivatives

Gain (loss) from derivatives and fair value hedge derivatives

Other financial expense

NOTE 12:- TAXES

Tax assessments:

Subsidiary has not received final tax assessments since its incorporation;

however, the assessments of the Subsidiary are deemed

final through 2013.

Tax rates applicable

to the Company:

NOTE 12:- TAXES ON INCOME

Tax rates applicable to the Company:

Pluristem Therapeutics:

16 unchanged sentences

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

12:- TAXES ON INCOME (CONT.)

Company recognized the income tax effects of the Tax Act in its 2018 annual consolidated financial statements in accordance with

Staff Accounting Bulletin No.

118 (“SAB 118”), which provides SEC staff guidance for the application of ASC 740, “Income

Taxes”, in the reporting period in which the 2017 Tax Act was enacted.

In accordance with SAB 118, deferred tax assets and

liabilities were re-measured to reflect the revised corporate income tax rate of 21% .

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 12:- TAXES ON INCOME

re-measurement was fully offset by a valuation allowance, resulting in no impact to the Company’s income tax expense for

14 unchanged sentences

Taxable income of Israeli companies

is subject to tax at the rate of 23% in 2019, 23% in 2018 and 24% in 2017.

is subject to tax at the rate of 23% in 2020, 2019 and 2018.

The Subsidiary is filing its

5 unchanged sentences

30 of each year.

Law for the Encouragement of Capital Investments, 1959 (the “Law”):

The Subsidiary has not received

final tax assessments since its incorporation, however the assessments of the Subsidiary are deemed final through 2014.

for the Encouragement of Capital Investments, 1959 (the “Law”):

The Subsidiary

3 unchanged sentences

program (the “2012 Program”).

the 2007 Program “Alternative Track”, the Subsidiary, which was located in a National Priority Zone “B”

respect to the year 2007, is tax exempt in the first six years of the benefit period and subject to tax at the reduced rate of

10%-25% for a period of one to four years for the remaining benefit period (dependent on the level of foreign investments).

the 2012 Program, the Subsidiary, which was located in the “Other National Priority Zone”

2012 Program, the Subsidiary, which was located in the “Other National Priority Zone”

with respect to the year 2012,

2 unchanged sentences

of expansion programs pursuant to Amendment No.

60 to the Encouragement Law, the duration of the benefit period has been amended,

such that it starts at the later of the election year and the first year the Company earns taxable income provided that 12 years

have not passed since the beginning of the election year and for companies in National Priority Zone A - 14 years have not passed

since the beginning of the election year.

60 to the Law, the duration of the benefit period has been amended, such that it

starts at the later of the election year and the first year the Company earns taxable income provided that 12 years have not passed

since the beginning of the election year and for companies in National Priority Zone A - 14 years have not passed since the beginning

of the election year.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

TAXES ON INCOME (CONT.)

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 12:- TAXES

ON INCOME (CONT.)

period for the Subsidiary’s 2007 Program expired in 2018 (12 years since the beginning of the election year–

6 unchanged sentences

depreciation:

Subsidiary is eligible for deduction of accelerated depreciation on buildings, machinery and equipment used by the “Beneficiary

Enterprise”

at a rate of 200% (or 400% for buildings but not more than 20% depreciation per year) from the first year of

the assets operation.

The Subsidiary

is eligible for deduction of accelerated depreciation on buildings, machinery and equipment used by the “Beneficiary Enterprise”

at a rate of 200% (or 400% for buildings but not more than 20% depreciation per year) from the first year of the assets operation.

for the entitlement to the benefits:

6 unchanged sentences

(Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation),

2011 (the “Amendment”), which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments,

1959 (the “Amendment No.

2011, which prescribes, among others, amendments in the Law ( “Amendment No.

Amendment No.

68 became effective as of January 1, 2011.

68 became effective

as of January 1, 2011.

According to Amendment No.

68, the benefit tracks in the Law were modified and a flat tax rate became applicable to a company for all preferred income under

its status as a preferred company with a preferred enterprise.

68, the benefit tracks in the Law were modified and a flat tax rate became applicable

to a company for all preferred income under its status as a preferred company with a preferred enterprise.

5, 2013, the Knesset issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013

and 2014), 2013 which consists of Amendment No.

71 to the Law for the Encouragement of Capital Investments, 1959 (the “Amendment

71 to the Law ( “Amendment No.

According to Amendment No.

71, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter

will be 16% (in development area A it will be 9%).

the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16% (in development area A it will

71 also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise’s

3 unchanged sentences

71 with respect to the preferred enterprise status, but may choose to apply Amendment No.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 12:- TAXES

ON INCOME (CONT.)

Box Regime “Technological Preferred Enterprise”:

2 unchanged sentences

corporate tax rate and certain withholding rates starting in 2017.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

TAXES ON INCOME (CONT.)

The Innovation

Box Regime was tailored by the Israeli government to a post-base erosion and profit shifting (“BEPS”) world, encouraging

multinationals to consolidate IP ownership and profits in Israel along with existing Israeli research and development (“R&D”)

Box Regime was tailored by the Israeli government to a post-base erosion and profit shifting world, encouraging multinationals

to consolidate IP ownership and profits in Israel along with existing Israeli research and development (“R&D”)

Tax benefits created to achieve this goal include a reduced corporate income tax rate of 6% on IP-based income and on

capital gains from future sale of IP.

6% rate would apply to qualifying Israeli companies that are part of a group with global consolidated revenue of over NIS 10 billion

(approximately US $2.9 billion).

Other qualifying companies with global consolidated revenue below NIS 10 billion, would be subject

to a 12% tax rate.

However, if the Israeli company is located in Jerusalem or in certain northern or southern parts of Israel,

the tax rate is further reduced to 7.5%.

Additionally, withholding tax on dividends for foreign investors would be subject to

a reduced rate of 4% for all qualifying companies (unless further reduced by a treaty).

would apply to qualifying Israeli companies that are part of a group with global consolidated revenue of over NIS 10 billion (approximately

$2.9 billion).

Other qualifying companies with global consolidated revenue below NIS 10 billion, would be subject to a 12% tax

However, if the Israeli company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate

is further reduced to 7.5%.

Additionally, withholding tax on dividends for foreign investors would be subject to a reduced rate

of 4% for all qualifying companies (unless further reduced by a treaty).

the regime is not conditioned on making additional investments in Israel, and a company could qualify if it invested at least 7%

2 unchanged sentences

of the following three conditions:

20% of its employees are R&D employees engaged in R&D (or employs, in total, more than 200 R&D employees);

capital investments in the aggregate of NIS 8 million were previously made in the company;

annual growth over three years of 25% in sales or employees.

not meeting the above conditions may still be considered as a qualified company at the discretion of the Israeli Innovation Authority

of the Ministry of Economy and Industry (formerly, the “Office of the Chief Scientist”).

Companies wishing to exit

from the regime in the future will not be subject to clawback of tax benefits.

The Knesset also approved a stability clause in

order to encourage multinationals to invest in Israel.

At least 20% of its employees are R&D employees engaged

in R&D (or employs, in total, more than 200 R&D employees);

Venture capital investments in the aggregate of NIS 8 million

were previously made in the company;

Average annual growth over three years of 25% in sales

or employees.

not meeting the above conditions may still be considered as a qualified company at the discretion of the IIA.

Companies wishing

to exit from the regime in the future will not be subject to claw back of tax benefits.

The Knesset also approved a stability clause

in order to encourage multinationals to invest in Israel.

Accordingly, companies will be able to confirm the applicability of tax

2 unchanged sentences

and Development Nexus Approach, the Israeli Finance Minister will promulgate regulations to ensure companies are benefiting from

the regime to the extent qualifying R&D expenditures are incurred.

The regulations were set to be finalized by March 31, 2017,

with new amendments to the Law coming into effect after the regulations have been finalized.

income which is not produced as part of “Preferred Enterprise”

the regime to the extent qualifying research and development expenditures are incurred.

The regulations were set to be finalized

by March 31, 2017, with new amendments to the Law coming into effect after the regulations have been finalized.

Taxable income

which is not produced as part of “Preferred Enterprise”

income will be taxed at the regular tax rate (23% in 2020).

of December 31, 2018, the Company’s management believes that the Company meets the conditions mentioned above to be considered

as a Technological Preferred Enterprise.

losses for tax purposes

30, 2019, Pluristem Therapeutics had U.S.

30, 2020, the Company’s management believes that the Company meets the conditions mentioned above to be considered as a Technological

Preferred Enterprise.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 12:- TAXES

ON INCOME (CONT.)

Pluristem GmbH:

The tax rate applicable to the

German Subsidiary is the corporate tax rate of 15%, which is derived from the German Corporation Tax Act and Solidarity surcharge

of 5.5% from the 15% corporate tax rate.

This corporate tax rate excludes trade tax, which rate depends on the municipality in

which the German Subsidiary conducts its business.

Trade tax is calculated on the basis of the trade income, to which the tax rate

of 3.5% is applied.

The measured amount is then multiplied by the applicable rate of assessment, the registered office of the German

Subsidiary is in Potsdam, and in Potsdam, the applicable rate of assessment is 455%.

Carryforward losses for tax purposes

30, 2020, Pluristem Therapeutics had a U.S.

federal net operating loss carryforward for income tax purposes in the amount of approximately

5 unchanged sentences

losses before utilization.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

TAXES ON INCOME (CONT.)

In January 2018, Pluristem

Therapeutics registered as an Israeli resident with the ITA and the Israeli Value Added Tax Authorities.

As of June 30, 2020, Pluristem

Therapeutics and the Subsidiary consolidated accumulated losses, for tax purposes, are approximately $51,888, which may be carried

forward and offset against taxable business income and business capital gain in the future for an indefinite period.

The Subsidiary

1 unchanged sentence

and offset against taxable business income and business capital gain in the future for an indefinite period.

Subsidiary has accumulated losses, for tax purposes, as of June 30, 2020, in the amount of approximately $151, which may be carried

forward and offset against taxable business income and business capital gain in the future for an indefinite period.

PLURISTEM THERAPEUTICS INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Dollars in thousands (except share and per share amounts)

NOTE 12:- TAXES

ON INCOME (CONT.)

income taxes:

1 unchanged sentence

reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets are

Significant components of the Company’s deferred tax assets

are as follows:

Deferred tax assets:

net operating loss carryforward

net operating loss and research and development expenses carryforward

Total deferred

tax assets before valuation allowance

deferred tax asset

of June 30, 2019 and 2018, the Company has provided full valuation allowances in respect of deferred tax assets resulting from

tax loss carryforward and other temporary differences, since they have a history of operating losses and current uncertainty concerning

its ability to realize these deferred tax assets in the future.

Company accounts for its income tax uncertainties in accordance with ASC 740 which clarifies the accounting for uncertainties

in income taxes recognized in a Company’s financial statements and prescribes a recognition threshold and measurement attribute

for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

of June 30, 2019 and 2018, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate.

Israeli net operating loss and research and development expenses carryforward

Consolidated net operating loss carryforward

German subsidiary net operating loss carryforward

Allowances and reserves

Total deferred tax assets before valuation allowance

Valuation allowance

Net deferred tax asset

30, 2020 and 2019, the Company has provided full valuation allowances in respect of deferred tax assets resulting from tax loss

carryforward and other temporary differences, since it has a history of operating losses and current uncertainty concerning its

ability to realize these deferred tax assets in the future.

accounts for its income tax uncertainties in accordance with ASC 740 which clarifies the accounting for uncertainties in income

taxes recognized in a Company’s financial statements and prescribes a recognition threshold and measurement attribute for

the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

30, 2020 and 2019, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate.

Reconciliation

of the theoretical tax expense (benefit) to the actual tax expense (benefit):

2019, 2018 and 2017, the main reconciling item of the statutory tax rate of the Company (21% to 35% in 2019, 2018 and 2017) to

the effective tax rate (0%) is tax loss carryforwards, stock-based compensation and other deferred tax assets for which a full

valuation allowance was provided.

PLURISTEM THERAPEUTICS INC.

ITS SUBSIDIARY

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands (except share and per share amounts)

2019 and 2018, the main reconciling item of the statutory tax rate of the Company (21% to 35% in 2020, 2019 and 2018) to the effective

tax rate (0%) is tax loss carryforwards, stock-based compensation and other deferred tax assets for which a full valuation allowance

was provided.

NOTE 13:- SUBSEQUENT EVENTS

As of September 12, 2019, the Company had sold 439,900

shares of common stock at an average price of $4.95 per share under the Sales Agreement (see Note 9f).

Pursuant to a shelf registration on Form S-3 declared effective

by the SEC on July 23, 2020, in July 2020 the Company entered into a new Open Market Sale Agreement SM (“New ATM

Agreement”) with Jefferies, which provides that, upon the terms and subject to the conditions and limitations in the New

ATM Agreement, the Company may elect, from time to time, to offer and sell shares of common stock having an aggregate offering

price of up to $75,000 through Jefferies acting as sales agent.

As of September 5, 2020, no shares had been sold pursuant to the

New ATM Agreement.

Subsequent to year-end,

warrants to purchase shares of common stock were exercised by investors at an exercise price of $7.00 per share, resulting in

the issuance of 35,000 shares of common stock for net proceeds of approximately $245.

Subsequent to year-end, the Board of Directors approved (i) a grant of

1,000,000 RSUs to each of Mr.

Yanay, and Mr.

Aberman of which 500,000 shares vest over a term of 4 years from the date of the grant

and 500,000 shares shall vest pursuant to certain performance metrics, (ii) a grant of 100,000 RSUs to Mrs.

Franco-Yehuda, which

vest over a term of 4 years from the date of grant;

and (iii) 20,000 RSUs to each of the Company’s non-executive directors,

which vest over a term of 4 years from the date of the grant.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data