EXHIBIT 99.1

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

U.S. DOLLARS IN THOUSANDS

INDEX

- - - - - - - - - - - - - - - - - - - -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

ROSETTA GENOMICS LTD.

We have audited the accompanying consolidated balance sheets of Rosetta Genomics Ltd. ("the Company") and its subsidiary as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders deficiency and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. We were not engaged to perform an audit of the Company's and its subsidiary internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's and its subsidiary internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2011 and 2010, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States.

Since the date of completion of our audit of the accompanying financial statements and initial issuance of our report thereon dated April 2, 2012, which report contained an explanatory paragraph regarding the Company's ability to continue as a going concern, the Entity, as discussed in Note 1d, has completed several rounds of issuances of its ordinary shares resulting in aggregate net proceeds of $37,945. Therefore, the conditions that raised substantial doubt about whether the Company will continue as a going concern no longer exist.

Except for Notes 1d, 10.b.9.2 and 14.b,

as to which the date is December 7, 2012

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

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

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

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

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share and per share data)

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

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

Accumulated other comprehensive income

(*) Represents an amount lower than $1

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

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

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

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

(*) Includes cash and cash equivalents of discontinued operations of $ 84, 92 at December 31, 2008 and 2010 respectively.

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

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL

On February 4, 2010, the Company established RG, as a controlled subsidiary. The principal business of RG is to leverage capabilities into the areas of cleantech and plant biotech by using the proprietary microRNA technologies to develop plants and algae more suitable for various applications such as improved feedstocks for biofuels and advanced agriculture.

RG was formed to translate Rosetta Genomics' proven successes with microRNAs in human healthcare into areas of cleantech and plant biotechnology.   RG is an Israeli agro-biotechnology company specializing in developing  improved agricultural crops through using proprietary methods to identify microRNA genes that enhance plant traits. RG has developed technological platforms for the identification and application of microRNAs. These microRNA genes possess the potential to improve key traits in important plants such as corn, wheat, rice, and soybean, among other crops.  RG's product development pipeline contains plants with improved traits that include drought tolerance, increased yield production, and disease resistance. RG also works on improving plants traits for the biofuel industry. The plants RG works on for the biofuel industry are corn, canola, castor bean, jatropha and algae.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

Upon RG establishment, and according to the agreement terms, the convertible notes in the amount of $1,500 were converted into RG Ordinary shares.

On November 18, 2010, the Company entered into a license agreement with RG according to which the Company assigned certain patents relating to microRNAs in plants. The Company further provided RG with a non exclusive license to some of the Company's patents and technologies. For this license the Company shall be entitled to certain consideration derived from RG's net sales as well as royalties from RG's license income.

On February 17, 2011, RG completed an initial public offering in Israel, and on February 23, 2011, RG’s ordinary shares started trading on the Tel Aviv Stock Exchange (TASE) under the ticker symbol RSTG. RG raised gross proceeds of $6,060 in the IPO. Following the IPO, RG held 9,905,000 shares outstanding and the Company held a 50.03% ownership position in RG and did not loss control. The net proceeds from RG's IPO after offering costs amounted to $5,078.

On December 16, 2011, the Company closed a transaction pursuant to which the Company sold its holding of the ordinary shares of RG to certain purchasers (the "Purchasers").  The transaction was effected pursuant to a Share Transfer Agreement, dated December 13, 2011.  

Under the terms of the share transfer agreement, the Company received an upfront payment of $897 for the RG ordinary shares.  In addition, the Company may receive in the future, an additional payment of $2,000 if RG is acquired within three years from the date of signing of the share transfer agreement at a price per share reflecting RG valuation of at least $90,000. As of December 31, 2011 the Company estimates that such contingent payment is remote.

Since RG was consolidated prior to the disposal it met the criteria for reporting as discontinued operations and, therefore, the results of operations of the business and the loss on the sale have been classified as discontinued operations loss in the statement of operations and prior periods results have been reclassified accordingly. In addition, the comparative data of the assets and liabilities have been reclassified as assets and liabilities attributed to discontinued operations in the balance sheets as described in more detail in Note 2i.

As a result of the sale of RG shares the Company had a loss from discontinued operations of $42. The current assets and liabilities of discontinued operations related to RG as of December 31, 2010 are as follows:

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

Net loss from discontinued operations related to RG for the years ended 2011, 2010 and 2009 are as follows:

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

Subsequent to the balance sheet date, the Company obtained additional financing in the amount of $1,750 in senior secured debentures, as described in more detail in Note 14a.

In addition, subsequent to the balance sheet date, the Company issued 8,068,000 ordinary shares, at prices between $2.55 and $11.50 per share for total aggregate consideration of $37,945, net of issuance expenses, as described in more detail in Note 14b. Therefore, the conditions that raised substantial doubt about whether the Company will continue as a going concern no longer exist.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

Parkway was a national, full-service Clinical Laboratories Improvement Amendments ("CLIA") certified clinical laboratory service that was owned by the Company. Parkway specializes in oral drug screening in the workplace environment and genetics testing services.

On May 18, 2009, the Company sold Parkway, in a management buy-out for up to a maximum amount of $2,500, to be paid as a fixed percentage of revenues (15%) over six years and minimum price of $750. According to ASC 810, "Consolidation", the Company calculated the fair value of future consideration by using discounted estimate of future cash receipt. As a result of the transaction, the controlling interests in Parkway were transferred to the buyer, as well as all the risks. Accordingly, the Company has no future liabilities or obligation related to Parkway. As of the transaction date, the fair value of the estimated future consideration was $759. During the years ended December 31, 2011, 2010 and 2009, the Company received an amount of $0, $148 and $49, respectively, in respect of this consideration.

As of December 31, 2011 and 2010, the Company revalued the fair value of the estimated future consideration to $125 and $171, respectively, out of which $17 and $30 is recorded as short-term other accounts receivable as of December 31, 2011 and 2010, respectively, and $108 and $141 is recorded as long-term other accounts receivable as of

December 31, 2011 and 2010, respectively.

The sale of Parkway met the criteria for reporting as discontinued operations and, therefore, the results of operations of the business and the loss on the sale have been classified as discontinued operations in the statement of operations and prior periods results have been reclassified accordingly. In addition, the comparative data of the assets and liabilities have been reclassified as assets and liabilities attributed to discontinued operations in the balance sheets, as described in more detail in Note 2i.

As a result of the fair value update of the estimated future consideration, the Company recorded a loss of $60, which was attributed to discontinued operations, and an amount of $14 was attributed to financial income in the year ended December 31, 2011.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

On April 10, 2009, the Company entered into a license and collaboration agreement ("the License Agreement") and a laboratory services agreement ("the Services Agreement") with Prometheus Laboratories Inc. ("PL" or "Prometheus") under which the Company agreed to exclusively license and sublicense to PL certain rights related to the Company's microRNA-based cancer diagnostic tests: miRview ^®mets, miRview^® squamous and miRview^® meso ("Cancer Diagnostics Products"), including the rights to certain software developed by the Company and related to the miRview ^® mets product. The Company also agreed to collaborate with Prometheus in order to further develop the Cancer Diagnostics Products and to develop two new microRNA-based gastroenterology tests ("GI Products"). Under the License Agreement, PL had the exclusive right to develop and commercialize the Cancer Diagnostics Products and the GI Products in the U.S. The License Agreement also gave PL a right of first negotiation to take a license for certain diagnostic tests or products that are under development by the Company.

Under the provisions of the License Agreement, PL was to contribute to a development fund that was to be used to further develop the Cancer Diagnostic Products and to develop the GI Products. In addition, PL was to pay the Company additional amounts upon reaching certain publication requirements for the Cancer Diagnostic Products and achieving certain product profiles for the GI Products. The Company was also entitled to receive certain payments upon the achievement of commercial milestones.

The Company was also entitled to royalties according to the License Agreement on the sale of the Cancer Diagnostic Products and the GI Products, subject to reductions in certain instances.

Under the provisions of the Services Agreement, from the fees that the Company received from PL, in consideration for performing the services, the Company deducted the COGS, royalties to third parties, and the remaining amounts were transferred to a separate account ("Development Fund"). The amounts in the Development Fund were then to be used by the Company to develop improvements to the Company's products, according to an agreed upon development plan, with PL. The Company classified these amounts as restricted cash in its balance sheet.

The License Agreement and the Services Agreement were terminated on November 22, 2010 as part of a settlement agreement reached between Prometheus and the Company, as described in more detail in Note 9m.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

On April 10, 2009, the Company entered into a stock purchase agreement with PL ("the Purchase Agreement"). Under the Purchase Agreement, on April 27, 2009 ("the closing date"), PL purchased 33,333 Ordinary shares of the Company ("the Shares") at a price of $240.00 per share in a private placement transaction. Under the terms of the Purchase Agreement, as long as PL or its affiliates continued to hold at least 50% of these Shares, PL was entitled to information rights, pre-emptive rights and board observer rights. Pursuant to the pre-emptive rights, PL had the right to participate in future offerings of the Company's securities to purchase up to its pro rata share in any such offering on the same terms and conditions as other investors.

Certain provisions of this Purchase Agreement were terminated on November 22, 2010 as part of a settlement agreement reached between Prometheus and the Company, as described in more detail in Note 9m.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

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

The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The Company's financing activities are incurred in U.S. dollars. A portion of the Company's costs is incurred in U.S. dollars. The Company's management believes that the U.S. dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars in accordance with ASC 830, "Foreign Currency Matters". All transaction gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.

The consolidated financial statements include the accounts of the Company and its subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.

Cash equivalents include short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less from time of deposit.

Short-term bank deposits are deposits with maturities of more than three months but less than one year. The short-term deposits are presented at their cost.

The Company accounts for investments in debt securities and trust fund in accordance with ASC 320, "Investments-Debt and Equity Securities". Management determines the appropriate classification of its investments in debt securities and trust fund at the time of purchase and reevaluates such determination at each balance sheet date.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Investments in marketable securities are accounted for at fair value, based on quoted market prices, and classified as either trading securities or available-for-sale securities. For investments classified as trading securities, unrealized and realized gains and losses related to the investment and are recorded in earnings. For investments classified as available-for-sale securities, unrealized gains and losses are recorded in accumulated other comprehensive income, a separate component of shareholders' equity, realized gains and losses on sales of available-for-sale securities, as determined on a specific identification basis, are included in the consolidated statement of operations.

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets.

The annual depreciation rates are as follows:

The long-lived assets of the Company and its subsidiary and all identifiable intangible assets that are subject to amortization are reviewed for impairment in accordance with ASC 360-10-35, "Property, Plant and Equipment - Subsequent Measurement"/ ASC 250, "Presentation of Financial Statements", 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 an asset 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. As of December 31, 2011 and 2010, no impairment losses have been identified.

According to ASC 360, "Property, Plant, and Equipment" and ASC 205, "Presentation of Financial Statements" when a component of an entity, as defined in ASC 360, has been disposed of, the results of its operations, including the gain or loss on its disposal should be classified as discontinued operations when the operations and cash flows of the component have been eliminated from the Company's consolidated operations and the Company will no longer have any significant continuing involvement in the operations of the component.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company generates revenues from sells diagnostic kits to its private patient or third-party distributor. The Company provides laboratory services of testing the results in its lab in the U.S.

Revenues from sales of the Company's products are recognized in accordance with "Revenue Recognition in Financial Statements" ("ASC 605") when delivery of tests result has occurred, persuasive evidence of an agreement exists, the vendor's fee is fixed or determinable and no further obligation exists and collectability is probable. In arrangements, primarily with private patients, in which prior to delivery the patient's third-party insurance provider has not contractually set the sale prices, the Company does not recognize revenue until the fees are fixed and determinable and collectability assured.

In addition, in prior years, the Company generated revenues from collaboration research agreements under which the Company delivers novel product candidates and professional services and may receive future milestones and royalties on successful products.

Revenues from collaborative agreements consist primarily of royalty payments, payments for research and developmental services, up-front fees and milestone payments. If an arrangement requires the delivery or performance of multiple deliverables or service elements, the Company determines whether the individual elements represent "separate units of accounting" under the requirements of ASC 605-25 "Multiple-Element Arrangements".

If the separate elements meet the requirements of ASC 605-25, the Company recognizes the revenue associated with each element separately and revenue is allocated among elements based on relative fair value. If the elements within a multiple deliverable arrangement are not considered separate units of accounting, the delivery of an individual element is considered not to have occurred if there are undelivered elements that are considered essential to the arrangement. Revenue resulting from the achievement of contingent milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a substantive element specified in the contract.

Royalties from licensing the right to use the Company's products are recognized when earned and when written sales confirmation from the licensee is received and no future obligation exists. Non-refundable, up front advancements of royalties from licensing the right to use the Company's products which are fully chargeable against royalties, are recorded as deferred revenue until the above mentioned criteria for recognizing revenue are met.

Deferred revenues represent payments received in advance, where revenue recognition criteria were not met. As of December 31, 2011, the Company has deferred revenue in an amount of $228.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Research and development expenses include costs of salaries and related expenses, activities related to intellectual property, research materials and supplies and equipment depreciation. All research and development costs are expensed as incurred. The Company has entered into several license agreements for rights to utilize certain technologies. The terms of the licenses may provide for upfront payments, annual maintenance payments and royalties on product sales. Costs to acquire and maintain licensed technology are charged to research and development expense as incurred. During the years ended December 31, 2011, 2010 and 2009, the Company charged to research and development expense $344, $123 and $135 of costs associated with license fees, respectively. (See also Note 9f-9k).

Royalty bearing grants from the Bi-national Industrial Research and Development Foundation ("BIRD") and from the Chief Scientist of Israel's Ministry of Industry, Trade and Labor ("the OCS") for funding approved research and development projects, are presented as a reduction from the research and development expenses (see also Note 9.l). The Company received grants in an amount of $206, $0 and $297, in the years 2011, 2010 and 2009, respectively.

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation". 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 value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements.

The Company recognizes compensation expenses for the value of its awards granted based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company selected the Black-Scholes option pricing model as the most appropriate fair value method for its stock-options awards and values restricted stock based on the market value of the underlying shares at the date of grant. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The weighted-average estimated fair value of employee stock options granted during the 12 months ended December 31, 2011, 2010 and 2009 was $7.35 $56.4 and $74.4, respectively per share using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages):

The Company is required to assume a dividend yield as an input in the Black-Scholes model. The dividend yield assumption is based on the Company's historical experience and expectation of future dividend payouts. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. The dividend yield used for the twelve months ended December 31, 2011 and 2010 was 0%.

The computation of expected volatility is based on realized historical stock price volatility of the Company's stock starting from the IPO date.

The risk-free interest rate assumption is the implied yield currently available on United States treasury zero-coupon issues with a remaining term equal to the expected life term of the Company's options.

The Company determined the expected life of the options according to the simplified method, average of vesting and the contractual term of the Company's stock options.

The Company applies ASC 718 and ASC 505-50, "Equity-Based Payments to Non-Employees" with respect to options and warrants issued to non-employees. ASC 718 requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date.

Basic earnings per share are computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted earnings per share are computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earnings per Share".

Basic and diluted net loss per share is computed using the weighted average number of Ordinary shares outstanding during the period.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

For the years ended December 31, 2011, 2010 and 2009, all outstanding options, warrants and Preferred shares, if any, have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.

The Company and its subsidiary account for income taxes and uncertain tax positions in accordance with ASC 740, "Income Taxes". ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company and its subsidiary provide a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.

The Company adopted ASC 740-10. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.

A majority of the employees are included under section 14 of the Israeli Severance Compensation Law ("Section 14"). Under Section 14, the company's monthly deposits, at a rate of 8.33% of such employees' monthly salary, are made on their behalf with insurance companies on account of severance pay. Payments in accordance with Section 14 release the Israeli companies from any future severance payments in respect of those employees. Deposits under Section 14 are not recorded as an asset in the Company's balance sheet.

For those Israeli employees who are not included under Section 14, the liability for severance pay is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The Israeli subsidiary'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.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.

Severance expenses for the years ended December 31, 2011, 2010 and 2009 were $173, $225 and $138, respectively.

The U.S. subsidiary has a 401(K) defined contribution plan covering certain employees in the U.S. All eligible employees may elect to contribute to the plan. The subsidiary matches the employee contributions to the plan up to a limit of 3% of their eligible compensation. In the years 2011, 2010 and 2009, the subsidiary recorded an expense for matching contributions in the amount of $30, $48 and $22, respectively.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and other accounts receivable.

Cash and cash equivalents are deposited with major banks in Israel and major banks in the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.

The carrying amounts of the Company's financial instruments, including cash and cash equivalents, short-term bank deposits, marketable securities, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their generally short-term maturities.

The Company adopted ASC 820, "Fair Value Measurements and Disclosures". ASC 820 clarifies that 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.

As 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:

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Level 1 - Observable input that reflects quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

The 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.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP. This pronouncement is an authoritative guidance to amend certain measurement and disclosure requirements related to fair value measurements to improve consistency with international reporting standards. This guidance is effective prospectively for public entities for interim and annual reporting periods beginning after December 15, 2011, with early adoption prohibited. The Company is currently evaluating the effect of ASU 2011-04, but does not expect its adoption will have a material effect on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which specifies that the total of comprehensive income, the components of net income and the components of other comprehensive income are to be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. No change has been made in the items to be reported in comprehensive income. ASU 2011-05 is effective for the interim and annual periods beginning after December 15, 2011, and should be applied retrospectively. The Company is currently evaluating the effect of ASU 2011-05, but does not expect its adoption will have a material effect on its consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update 2011-12, Comprehensive Income (Topic 220). The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the effect of this update on the consolidated financial statements.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 3: - FAIR VALUE MEASUREMENTS

In accordance with ASC 820, "Fair Value Measurements and Disclosures" (originally issued as SFAS 157), the Company measures its marketable securities at fair value based on quoted market price. The Company valued the level 3 other accounts receivable, which resulted from the fair value of Parkway's estimated future consideration based on a valuation using the discounted cash flow model. Unobservable inputs used in this model are significant to the fair value of the asset. The fair value of the liability for warrants related to share purchase agreement was calculated using the Black & Scholes Model and the Company classified this liability within Level 3.

The Company's financial assets (liabilities) measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of December 31, 2011:

For more details, refer to note 1e.

For more details, refer to note 10.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 4:- SHORT-TERM BANK DEPOSIT

As of December 31, 2011 and 2010, the Company's bank deposits are as follows:

NOTE 5:- MARKETABLE SECURITIES

The balance of these securities as of December 31, 2010 is stated at fair value.

Proceeds from maturity and sales of available-for-sale securities during 2011, 2010 and 2009 were $148, $3,398 and $2,291, respectively. Net realized gains from the sales of available-for-sale securities in the years 2011, 2010 and 2009 are $0, $123 and $16, respectively.

NOTE 6:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 7:- PROPERTY AND EQUIPMENT

Depreciation expenses for the years ended December 31, 2011, 2010 and 2009 were $458, $415 and $344, respectively. Those expenses include depreciation expenses of capital lease equipment for the years ended December 31, 2011, 2010 and 2009 of $52, $88 and $88, respectively.

NOTE 8:- OTHER ACCOUNTS PAYABLE AND ACCRUALS

During 2011 and 2010, the Company leased laboratory equipment and computer equipment under several capital and operating lease agreements in a total amount of $41 and $29, respectively, to be paid in 16 to 27 monthly payments.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9: - COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2011, restricted cash was primarily attributed to a bank guarantee to the landlord of the Israeli property. As of December 31, 2010, the Company did not have any restricted cash.

Total rent expenses for the years ended December 31, 2011, 2010 and 2009 were $630, $565 and $566, respectively.

Lease expenses for motor vehicles for the years ended December 31, 2011, 2010 and 2009, were $152, $139 and $140, respectively

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

As of December 31, 2011, the Company had received $500 from BIRD, which was offset against research and development expenses. As of December 31, 2011, no liability was recorded since the Company did not reach technological feasibility for this project.

On November 22, 2010, the Company and Prometheus entered into a Settlement Agreement and mutual release ("the Settlement Agreement") to resolve these disputes, including all claims relating to the Arbitration Proceeding.  

Under the Settlement Agreement, the License Agreement and the Services Agreement have been terminated and the Purchase Agreement has been amended such that, among other things, Prometheus' information rights, pre-emptive rights and board observer rights have been terminated.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

In consideration of the termination of the licenses and the return of the commercialization rights under the License Agreement, the Company has agreed to pay Prometheus $3,100 as follows: (a) $1,200 is to be paid on December 2, 2010, (b) $500 is to be paid on or before February 28, 2011, (c) $650 is to be paid on or before November 22, 2011, and (d) $750 is to be paid on or before May 22, 2012.  The Company has granted Prometheus a non-interest bearing note with respect to the $500 payment due on or before February 28, 2011 and a note bearing interest at 12% per year with respect to the $650 payment due on or before November, 22, 2011 and the $750 payment due on or before May 22, 2012.

The Company and Prometheus have agreed to mutually release and discharge all claims which were made or could have been made in the arbitration, under the License Agreement, the Services Agreement and the Purchase Agreement, up to the date of the Settlement Agreement, and have agreed to dismiss the arbitration with prejudice within two business days of the date the initial $1,200 payment is received by Prometheus. The Company paid the initial $1,200 payment in December 2010 and, therefore, as of December 31, 2010, all claims have been released.

In 2010, as a result of the Settlement Agreement, the Company reversed the $1,700, which had been classified in previous periods as deferred revenues, due to Prometheus' past payments to the Company and has released the restricted cash recorded for the Development Fund which amounted to $729 and recognized the accrued expenses recorded for this Development Fund in its statements of operations (see Note 1g). As of December 31, 2010, the accrued expenses for these future payments amounted to a total of $1,862, of which an amount of $727 was classified to long-term accrued expenses and $1,135 was classified to short-term accrued expenses. In addition, as of December 31, 2010 the Company has recorded a liability for settlement arrangement for its future payment obligations to Prometheus according to their fair values. The fair value of the payments due to Prometheus as of November 22, 2010, net of the $1,700 deferred revenues and the Development Fund recognized, amounted to $554 and was recorded as other operating expenses. In 2010, the Company recorded an amount of $79 as financial expenses relating to the settlement agreement

In 2011, the Company paid the $500 payment due on or before February 2011 in a timely manner. On November 22, 2011, the Company defaulted on $650 payment due to Prometheus according to the Settlement Agreement, but cured the default by paying $650 principal payment, plus accrued and unpaid interest on December 1, 2011. As of December 31, 2011, the accrued expenses for the future payment amounted to a total of $791, of which is classified to short-term. In 2011, the Company recorded an amount of $251 as financial expenses relating to the settlement agreement.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

In January 2011, the Company joined the Rimonim Consortium, which is supported by the Office of the Chief Scientist of Israel's Ministry of Industry, Trade and Labor ("the OCS"),of the State of Israel, or the OCS. The purpose of the consortium is to develop RNAi-based therapeutics. As of December 31, 2011 the Company received total grants of $190 from the OCS for its development under the consortium.

NOTE 10:- SHARE CAPITAL

Ordinary shares confer upon the holders the right to receive notice to participate and vote in the general meetings of the Company, the right to receive dividends, if declared.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

The exercise price of the warrants is $150 per Ordinary share. The warrants are exercisable for a period of five years.

The Company accounted for these warrants according to the provisions of ASC 815, "Derivatives and Hedging - Contracts in Entity's Own Equity" and based on certain terms of the warrants classified them as liabilities, measured at fair value each reporting period until they will be exercised or expired, with changes in the fair values being recognized in the Company's statement of operations as financial income or expense.

The fair value was measured using the Black & Scholes model. In estimating the warrants' fair value, the Company used the following assumptions:

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

On the issuance date, in January 2010, the warrants' fair value amounted to $1,352. As of December 31, 2011, the fair value of the warrants amounted to $1.

The Series A Warrants are exercisable immediately upon issuance, expire on December 1, 2015 and the exercise price is subject to potential future adjustment upon occurrence of various events, such as stock splits or dilutive issuances. On February 23, 2011, in connection with the financing transactions closed by the Company, the exercise price of the Series A Warrants was automatically adjusted thereof from $78 per share to $60.00 per share.

Each Series B Warrant were automatically exercised on a cashless basis on the 33rd trading day following December 23, 2010, to a number of Ordinary shares that was subject to adjustment as defined in the agreement.

On February 9, 2011, the Series B Warrants were automatically exercised on a cashless basis to 10,307 Ordinary shares. Upon the conversion of Series B Warrants, the fair value of Series B Warrants was classified as equity.

The Company accounted for the Series A and B Warrants according to the provisions of ASC 815, "Derivatives and Hedging - Contracts in Entity's Own Equity", and based on certain terms of the warrants, classified them as liabilities, measured at fair value in each reporting period until they are exercised or expired, with changes in the fair values being recognized in the Company's statement of operations as financial income or expense.

The fair value of the Series A Warrants was measured using Black & Scholes model. The fair value was estimated taking into consideration (a) the possibility of the Company becoming privately owned and/or a possibility in which there is an all-cash transaction in the Company's shares, (b) the possibility that the Company will issue additional shares for a share price of under $60 In estimating the warrants' fair value, the Company used the following assumptions:

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

The fair value of the Series B Warrants was measured using Monte Carlo simulation. In estimating the warrants fair value, the Company used the following assumptions:

On the issuance date, December 1, 2010, the fair value of the Series A Warrants and Series B Warrants amounted to $636 and $563, respectively. As of December 31, 2011, the fair value of the Series A Warrants amounted to $5.

Under the terms of the private placement, the Company has issued 75,694 Ordinary shares at a price of $36 per share. The purchasers in the private placement also received warrants to purchase up to an aggregate of 56,776 Ordinary shares at an exercise price of $48 per share ("the Private Placement Warrants"). The Private Placement Warrants are exercisable immediately upon issuance and have a term of five years. In addition, the Company granted additional warrants as finders' fee to purchase up to 1,895 Ordinary shares.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

Under the terms of the registered direct offering, the Company has issued 90,978 Ordinary shares at a price of $36 per share. The purchasers in the registered direct offering also received warrants to purchase up to an aggregate of 45,509 Ordinary shares at an exercise price of $48 per share ("the Registered Direct Warrants"). The Registered Direct Warrants are exercisable immediately upon issuance and have a term of five years. In addition, the Company granted additional warrants as finders' fee to purchase up to 2,276 Ordinary shares.

The Company accounted for the Private Placement Warrants according to the provisions of ASC 815, "Derivatives and Hedging - Contracts in Entity's Own Equity", and based on certain terms of the warrants, classified them as equity.

All Ordinary shares, warrants, options and per share amounts have been adjusted to give retroactive effect to this reverse split for all periods presented.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

purchase price of $11.25. In addition, the Company granted additional warrants as finders' fee to purchase up to 3,378 Ordinary shares. The Series A' Warrants expire on October 19, 2016.

According to Series B' Warrants agreement, each Series B' Warrant will be automatically exercised on a cashless basis on the 11th trading day following November 10, 2011, to a number of ordinary shares equal to the difference between (a) the quotient obtained by dividing (1) 200% of the maximum number of warrant Shares issuable under the Series B' warrant multiplied by $11.25 by (2) the greater of $7.5 and 80% of the average of the volume-weighted average price for the 10 trading days immediately following November 10, 2011 and (b) the maximum number of Warrant Shares issuable under the Series B' warrant multiplied by 2.

On November 28, 2011, the Series B' Warrants were automatically exercised on a cashless basis to 65,748 Ordinary shares. Upon the conversion of Series B' Warrants, the fair value of Series B' Warrants was classified as equity.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

The fair value of the Series B' Warrants was measured using Monte Carlo simulation. In estimating the warrants fair value, the Company used the following assumptions:

On October 19, 2011, the fair value of the Series A' Warrants and Series B' Warrants amounted to $677 and $378, respectively. As of December 31, 2011, the fair value of the Series A' Warrants amounted to $158.

Under finders' fee agreements, 10,175 warrants are outstanding as of December 31, 2011.

Pursuant to the 2001 Plan, the Company has reserved a total of 6,278 shares for this plan and for any other option plans, which may be adopted by the Company in the future.

In March 2003, the Company adopted the 2003 Israeli Share Option Plan ("the 2003 Plan"), pursuant to which options may be granted to the Company's officers, directors, employees and consultants. Pursuant to the 2003 Plan, the Company has reserved an additional 3,139 shares for the 2003 Plan and for any other share option plans that have previously been, or in the future may be, adopted by the Company.

In July 2006, the Company adopted the 2006 Israeli Share Option Plan ("the 2006 Plan"), pursuant to which options may be granted to the Company's directors, employees, consultants and service providers. Pursuant to the 2006 Plan, the Company has reserved an additional 7,534 shares for the 2006 Plan and for any other share option plans that have previously been, or in the future may be, adopted by the Company. In November 2007, the Company approved an additional 8,333 shares for the 2006 Plan.

In December 2009, the Company approved an additional 25,000 Ordinary shares for the 2006 Plan.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHARE CAPITAL (Cont.)

The total number of options authorized for grant under the plans amounted to 56,980. As of December 31, 2011, an aggregate of 4,791 options of the Company are available for future grants.

Options granted under the 2001 and 2003 Plans typically vest, as set forth in each optionee's option agreement, over three years. Options granted under the 2006 Plan typically vest, as set forth in each optionee's option agreement, over 4 years. All options are exercisable until ten years from the grant of the option. Any options which are forfeited or unexercised become available for future grants. The exercise price equals the share price on the grant date.

The weighted-average grant-date fair value of options granted during the twelve months ended December 31, 2011, 2010 and 2009 was $7.35, $56.4 and $74.4, respectively. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Company's Ordinary shares on December 31, 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2011. This amount changes based on the fair market value of the Company's shares.

During the year ended December 31, 2011, no options were exercised. As of December 31, 2011, there was $245 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's stock option plans. The cost is expected to be recognized over a weighted average period of 2.24 years.

ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY