INSIGHTEC LTD. · Balance - December 31, 2012 14,016,462 14,037,888 32,201,524 27,519,391 $ 35 $ 34...

INSIGHTEC LTD.

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012

INSIGHTEC LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

Page

Report of Independent Registered Public Accounting Firm 1

Consolidated Balance Sheets 2 Consolidated Statements of Operations 3

Statements of Shareholders’ Equity (Deficiency) 4 Consolidated Statements of Cash Flows 5

Notes to the Consolidated Financial Statements 6-26

1

INSIGHTEC LTD.

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

2

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

December 31, Note 2 0 1 2 2 0 1 1ASSETS Current assets Cash and cash equivalents 21,838 $ $ 1,228 Restricted cash - 48 Trade accounts receivables, net of allowance for doubtful accounts of $43

at December 31, 2012 and 2011. 1,923 1,631Inventories 3 2,849 1,969Other receivables and current assets 4 2,109 716 28,719 5,592 Fixed assets, net 5 384 697 Other long-term assets Prepaid expenses and restricted cash 135 304 $ 29,238 $ 6,593 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities Trade accounts payables 2,967 $ 2,307 $Other payables and current liabilities 6 9,769 19,615 12,736 21,922 Long-term liabilities Long-term loans from related parties and other 7 1,305 33,985 Commitments and contingent liabilities 8 Shareholders' equity (deficiency) Ordinary shares, NIS 0.01 par value;

authorized 100,000,000; shares issued and outstanding 14,016,462 and 14,008,962 at December 31, 2012 and 2011, respectively 9 35 35

Preferred B shares, NIS 0.01 par value; Authorized 15,000,000; shares issued and outstanding 14,037,888 at December 31, 2012 and 2011, 34 34

Preferred B1 shares, NIS 0.01 par value; Authorized 33,000,000; shares issued and outstanding 32,201,524 at December 31, 2012. 85 0

Preferred C shares, NIS 0.01 par value; Authorized 29,000,000; shares issued and outstanding 27,519,391 at December 31, 2012, 72 0

Additional paid-in capital 233,033 155,397cumulated deficit (218,062) (204,780) 15,197 (49,314) 29,238 $ $ 6,593

INSIGHTEC LTD.


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CONSOLIDATED STATEMENTS OF OPERATIONS


Year ended December 31, Note 2 0 1 2 2 0 1 1 2 0 10 Revenues 18,002$ 14,704 $ 9,001 $ Cost of revenues 9,160 8,486 6,569 Gross profit 8,842 6,218 2,432 Research and development expenses, net of participations of $1,102, $1,381 and $2,781, at December

31, 2012, 2011 and 2010, respectively (8C and 8D) 10,811 16,376 15,108

Sales and marketing expenses 5,198 5,715 6,561 General and administrative expenses 3,718 13,334 4,169 Operating loss 10,885 29,207 23,406 Financing (income) expenses, net 2,337 )258( 1,997 Loss before taxes on income 13,222 28,949 25,403 Taxes on income 60 208 140 Loss for the year $ 13,282 29,157 $ 25,543 $

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STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

(Dollars in thousands, except share and per share data) Number of Number of Number of Number of Additional Ordinary Preferred B Preferred B1 Preferred C Ordinary Preferred B Preferred B1 Preferred C Accumulated paid-in Shares Shares Shares Shares Shares Shares Shares Shares deficit capital Total

Balance – January 1, 2010 11,888,962 14,037,888 $ - $ - $ 29 $ 34 - - $ (150,080) $ 153,692 $ 3,675

Stock-based compensation - - - - - - - - - 808 808

Exercise of share options 97,500 - - - (*) - - - - - - (*) - Extension of options’ expiration date - - - - - - - - - 559 559

Loss for the period - - - - - - - - (25,543) - (25,543)

Balance – December 31, 2010 11,986,462 14,037,888 $ - $ - $ 29 $ 34 - - $ (175,623) $ 155,059 (20,501) $

Exercise of share options 2,022,500 - - - 6 - - - - - 6


Loss for the period - - - - - - - - (29,157) - (29,157)

Balance - December 31, 2011 14,008,962 14,037,888 - $ - $ 35 $ 34 $ - $ - $ $ (204,780) $ 155,397 $ (49,314)

Issuance of Preferred Shares C - - - 27,519,391 - - - 72 - 30,747 30,819

Conversion of 2011 Note to Preferred Shares B1 32,201,524 - - - 85 - - 46,472 46,557

Exercise of share options 7,500 - - - (*)- - - - - (*)- 0

Fees paid by shareholders on behalf of the Company

- - - - - - - - - 37 37


Loss for the period - - - - - - - - -13,282 - -13,282

Balance - December 31, 2012 14,016,462 14,037,888 32,201,524 27,519,391 35 $ $ 34 $ 85 $ 72 $ (218,062) $ 233,033 $ 15,197

(*) Less than $1.

INSIGHTEC LTD.


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CONSOLIDATED STATEMENTS OF CASH FLOWS


Year ended December 31, 2 0 1 2 2 0 1 1 2 0 10 Cash flows - Operating Activities: Loss for the year $ (13,282) $(29,157) $(25,543)Adjustments to reconcile loss to net cash used in operating activities: Depreciation and amortization 377 631 720Gain on sell of fixed assets (9) 11 -Fees paid by Share Holder on behalf of the company 36 - - Stock-based compensation 380 339 1,367Interest and linkage difference on long-term loans from related parties 2,063 82 769

Decrease (Increase) in trade accounts receivable (292) (1,376) 767Decrease (Increase) in other receivables (1,224) 891 (638)Decrease (increase) in inventories (880) 1,384 (197)Increase (decrease) in trade accounts payable, other payables and current liabilities (1,556) 14,802 (1,067)Net cash used in operating activities (14,387) (12,394) (23,822) Cash flows - Investing Activities: Restricted cash 48 36 34Purchase of fixed assets (64) (16) (691)Proceed from selling of fixed assets - 6 -Net cash used in investing activities (16) 26 (657) Cash flows - Financing Activities: Issuance of Preferred B1 and C Shares, net 25,783 5 -Long-term loans from related parties 9,230 12,810 17,610Net cash provided by financing activities 35,013 12,815 17,610 Increase (decrease) in cash and cash equivalents 20,610 449 (6,869) Cash and cash equivalents at beginning of the year 1,228 779 7,648 Cash and cash equivalents at end of the year $ 21,838 $ 1,228 $ 779 Non-cash transaction: Issuance of convertible notes in consideration for fees paid by

shareholders on behalf of the Company. $ 7,707 $ - $ - Transfer of Demo systems and other from inventory to fixed

assets, net 0 $ 0 $ $ 182Purchase of fixed asset in finance lease 0 $ 0 $ $ 81 Supplemental information: Income tax paid $ 101 180 $ 140 $ Interest received (paid) in cash $ (93) $ 0 $ 3

INSIGHTEC LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share data)

6

NOTE 1 - GENERAL Business Description

(1) Insightec Ltd. (the “Company”) was incorporated in the State of Israel in March 1999

and commenced operations in the development, production and marketing of magnetic resonance imaging guided focused ultrasound treatment equipment shortly thereafter. The Company operates in one operating segment.

The current main shareholders of the Company are as follows: Elbit Medical Technologies Ltd. (formerly Enter Holdings 1 Ltd.) (“EMT” and together with EI (as defined hereinafter) “Elbit Group"), which has received its holdings in the Company on November 24, 2010 from its current parent company, Elbit Imaging Ltd. (“EI”) ; General Electric Company (through its Healthcare division) (“GE Company”), GE Capital Equity Holdings Inc. the financial arm of General Electric Company (“GE Capital”, and together with GE Company: “GE” ); and MediTech Advisors LLC (”MTA”). The Company has a wholly owned subsidiary in the United States of America, InSightec Inc. (formerly InSightec- TxSonics Inc.) (the “Subsidiary”) which was incorporated in the State of Delaware, U.S.A. in November 1998 and a wholly owned subsidiary in Japan, Insightec Japan Y.K. (together the “Subsidiaries”) which was incorporated in Tokyo, Japan, in March 2005. The Subsidiaries engaged in pre-sale activities, in managing clinical trials under the FDA regulatory approval process and in providing technical support to the Company’s customers.

(2) The actual research and development activities undertaken by the Company are based, amongst other factors, on funding being received from the Company’s Share Holders. EMT and GE have undertaken, subject to the Company’s positive performance against its business plan, to support the Company in its efforts to obtain additional necessary funding, at the time and amounts defined by the Company’s then current Business Plan, as approved by GE and the Company’s Board of Directors, which funding may be obtained through one or more of the following: a Qualified IPO, adding one or more strategic investors or other new investors or a pro rata investment by the current shareholders of the Company, on terms acceptable to each of GE and Elbit.

(3) The industry in which the Company operates is characterized by rapid technological development. Substantially all of the Company's current sales are derived from a few applications of the Company’s product line. Many of the Company's development applications are in the early stages and there can be no assurance that these applications will be successful. The Company is continuing research and development for additional applications for such products.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.

A. Functional currency and translation of foreign currencies The currency of the primary economic environment in which the Company and its Subsidiary operate is the U.S. dollar (also “dollar”, “$US” or $). Accordingly, the Company and its Subsidiary use the dollar as their functional and reporting currency. Transactions and balances denominated in dollars are presented at their dollar amounts. Non-dollar transactions and balances are re-measured into dollars in accordance with the principles set forth in ACS 830-10 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”) of the Financial Accounting Standards Board (“FASB”).

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

A. Functional currency and translation of foreign currencies (cont.) All exchange gains and losses from re-measurement of monetary balance sheet items resulting from transactions in non-dollar currencies are included in net financing income (expense) as they arise.

B. Principles of Consolidation

The Company’s financial statements include the financial statements of the Company and its Subsidiaries (the “Group”) after elimination of material inter-company transactions and balances.

C. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates

D. Cash and cash equivalents

Cash and cash equivalents are comprised of cash and demand deposits in banks with maturity dates not exceeding three months from the date of deposit.

E. Allowance for doubtful accounts The allowance for doubtful accounts is computed for specific accounts, which, in management opinion are doubtful of collection.

F. Inventories Inventories are stated at the lower of cost or net realizable value. Inventory write–offs are provided for slow–moving items or technological obsolescence for which recoverability is not probable. Cost is determined for raw materials on the basis of moving average cost per unit. Cost is determined for finished products on the basis of standard cost, which approximates actual production cost (materials, labor and indirect manufacturing costs).

G. Unites under Demo Units assembled that are used for demonstration are classified out of inventory to fixed assets and depreciated over the estimated useful life of 2 years.

H. Fixed assets Fixed assets are presented at cost less accumulated depreciation. Depreciation is calculated based on the straight-line method over the estimated economic lives of the assets, as follows: Years Electronic (including medical) equipment 3-7Demo systems 2Office furniture and equipment 7-14Motor vehicles 7Leasehold improvements 5

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Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining term of the lease (including the period of renewal options that the Company intends to exercise).

I. Impairment of long–lived assets

The Company's long-lived assets are reviewed for impairment in accordance with ACS 360-10 (formerly SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"), 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2012, no impairment losses have been identified.

J. Revenue Recognition

In accordance with ASC Topic 605 “Revenue Recognition”, the Company recognizes revenues from sale of products when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable; and (iv) collection of the resulting receivable is reasonably assured. These criteria are usually met at the time of product shipment. Revenues are recognized when the acceptance criteria are satisfied. In instances in which the Company enters into transactions that represent multiple deliverables arrangements, with elements including system sales, installation at the customer’s site and technical service, the Company apply ASU No. 2009-13, ”Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements”. ASU No. 2009-13, requires allocation of arrangement consideration among the separate units of accounting based on their relative selling prices. The selling price for each unit of accounting is determined based on a selling price hierarchy using either vendor specific objective evidence (“VSOE”) of selling price, third party evidence of selling price (“TPE”) or the vendor’s best estimate of estimated selling price (“ESP”) for that deliverable. Use of the residual method is prohibited. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Products are typically considered delivered upon shipment. In instances where final acceptance of the system is specified by the customer, revenue is deferred until all acceptance criteria have been met. Technical support services revenue is deferred and recognized ratably over the period during which the services are performed, which is typically from one to two years. The Company’s arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.

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J. Revenue Recognition (Cont.)

Technical support services are sold separately through renewals of annual contracts. As a result, for substantially all of the arrangements with multiple deliverables, the Company has used and intends to continue using VSOE to allocate the selling price to each deliverable In certain limited instances, the Company is not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to the Company infrequently selling each element separately or only having a limited sales history. When VSOE cannot be established, the Company attempts to establish selling price of each element based on ESP. ESP is generally used for new product or service and it applies to a small proportion of the Company’s arrangements with multiple deliverables. The Company determines ESP for a product or service by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. The determination of ESP is made through consultation with and formal approval by the Company’s management. The Company regularly reviews VSOE and ESP and maintains internal controls over the establishment and updates of these estimates

K. Research and Development Research and development costs are charged to operations as incurred. Grants received (mainly royalty-bearing) from the Government of Israel through the Office of the Chief Scientist (“OCS”) and from other sources, as participation in certain research and development projects. The accrual for grant receivable is determined based on the terms of the projects, provided that the criteria for entitlement have been met. The grants are not to be repaid, but instead the Company is obliged to pay royalties as a percentage of future sales if and when sales from the funded projects will be generated. These grants are recognized as a deduction from research and development costs at the time the applicable entity is entitled to such grants on the basis of the research and development costs incurred. 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 of revenues. For more information regarding OCS royalties’ commitment, see Note 8C.

L. Finance lease Lease payments under finance lease are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss.

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M. Severance Pay

Israeli law and labor agreements determine the obligations of the Company to make severance payments to retiring employees and to employees leaving employment under certain other circumstances. The Company reached an agreement with its employees, according to which they would accept the provisions of Section No.14 of the Severance Compensation Law, 1963 ("Section 14"). Section 14 allows the Company to make deposits in severance pay funds according to the employees' current salary. Such deposits release the Company from any further obligation with this regard. The deposits made are available to the employee at the time when the employer-employee relationship ends, regardless of cause of termination. Severance expenses for the years ended December 31, 2010, 2011 and 2012 amounted to approximately $716, $661 and $641, respectively.

N. Income taxes The Company accounts for income taxes utilizing the asset and liability method in accordance with ACS 740-10 (formerly SFAS No. 109, “Accounting for Income Taxes”) of the FASB. Accordingly current tax liabilities are recognized for the estimated taxes payable on tax returns for the current year. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences between the income tax bases of assets and liabilities and their reported amounts in the financial statements and for tax loss carry forwards. Measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws, and deferred tax assets are reduced, if necessary, by a valuation allowance for the amount of tax benefits, the realization of which is not considered more-likely-then-not based on available evidence.

O. Concentration of credit risk

Financial instruments that potentially subject the Company’s to concentrations of credit risk consist principally of cash and cash equivalents, short and long-term deposits. Cash and cash equivalents, short and long-term deposits are invested in major banks in Israel and in the United States. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. The Company has no significant off-balance sheet concentration of financial instruments subject to credit risk such as foreign exchange contracts, option contracts or other hedging arrangements.

P. Stock-based compensation The Company applies the provisions of ASC Topic 718 (SFAS 123R) under which, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period.

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P. Stock-based compensation (Cont.)

Fair value is determined on the basis of private placements or other transactions in the Company's equity securities and on the basis of other available evidence and management's estimates, with the following weighted-average assumptions (annualized percentages): Year ended December 31, 2 0 1 2 2 0 1 1 2 0 10

Risk-free interest rate 0.61% 0.63% 1.52%Expected life of options 4-5 4 – 4.5 4Forfeiture rate 3.5% 3.5% 3.5% Expected volatility 69% 79% 78%Expected dividend yield None None None

Q. Fair value of financial instruments

The financial instruments of the Company consist mainly of cash and cash equivalents, short and long-term interest-bearing bank deposits, current and non-current accounts receivable and trade accounts payable. In view of their nature, the fair value of the financial instruments is usually identical or close to their carrying amounts.

NOTE 3 - INVENTORIES December 31, 2 0 1 2 2 0 1 1 Raw materials 2,656 $ 1,909 $ Finished products 193 60

$ 2,849 $ 1,969

NOTE 4 - OTHER RECEIVABLES AND CURRENT ASSETS December 31, 2 0 1 2 2 0 1 1 Prepaid expenses 388 $ 499 $ Advances to account payables 97 55 Office of the Chief Scientist 594 66

Governmental authorities (Mainly V.A.T.) 999 49 Others 31 47 2,109 $ 716 $

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NOTE 5 - FIXED ASSETS, NET

December 31, 2 0 1 2 2 0 1 1 Cost:

Electronic and medical equipment 5,799 $ 5,680 $ Demo systems 555 555 Office furniture and equipment 422 482Motor vehicles - -Leasehold improvements 1,739 1,739

$ 8,515 $ 8, 456 Accumulated depreciation:

Electronic and medical equipment 5,592 5,456 Demo systems 555 413 Office furniture and equipment 316 304 Motor vehicles - - Leasehold improvements 1,668 1,586

8,131 7,759 Net book value 384 $ 697 $

Depreciation expense amounted to $377 and $631 and $720 for the years ended December 31, 2012, 2011 and 2010, respectively.

NOTE 6 - OTHER PAYABLES AND CURRENT LIABILITIES

December 31, 2 0 1 2 2 0 1 1 Payroll and related amounts 2,188 $ 2,131 $ Advances and deferred income 3,387 4,159Accrued expenses to clinical researches 1,350 2,198Accrued for royalties 643 385Advance from the EU (Note 8D) 97 87Accrued commission 191 199Other accrued expenses 1,913 10,456 9,769 $ 19,615 $

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NOTE 7 - LONG –TERM LOANS FROM RELATED PARTIES AND OTHER

A. Long-term Loans from related parties and other (1) On March 9, 2010 the Company signed on Credit Facility Agreement (the "EI Credit

Agreement") with EI. According to EI Credit Agreement, as amended from time to time, the maximum credit amount that the Company was able to draw was NIS 58,900,000, and the actual amount of draw down as of balance sheet date is NIS 58,228,000.

On April 27, 2010 the Company signed on additional Credit Facility Agreement with EMT (the "EMT Credit Agreement" and together with the EI Credit Agreement: the "Credit Agreements"). According to EMT Credit Agreement, as amended from time to time, the maximum credit amount that the Company was able to draw was NIS 58,000,000, and the actual amount of draw down as of balance sheet date is NIS 58,000,000. According to the Credit Agreements, all draw downs, as and from the date of actual payment, shall bear interest at the interest rate of 6.7% per annum. All payments either on account of principal or interest shall be linked to the Israeli Consumer Price Index (CPI). All the loans granted to the Company by EMT and EI under the Credit Agreements were changed and converted as specified in Note 9B.

(2) On January 17, 2012 and February 23, 2012, the Company, InSightec Inc. and GE signed Convertible Loan Agreements ("GE Loan Agreements"), pursuant to which the Company granted GE Convertible Notes (the "GE Notes") at a total amount of approximately US$ 11.2 million dollars. Under the terms of GE Notes, GE Notes may be convertible into Series B-1 Shares, at GE’s option, would bear interest at 6% and would be subject to Events of Default as specified in the GE Loan Agreement.

Pursuant to GE Loan Agreement, the Company granted GE a floating charge (the "GE Charge") over the Company’s assets (except for exceptions agreed between the parties), pari passu with the EMT Charge and the EI Charge (as defined below), to secure the Company’s obligations to GE under the GE Loan Agreement. In parallel, InSightec Inc. granted GE a security interest (the "GE Security") over InSightec Inc.’s assets (except for exceptions agreed between the parties), pari passu with the EMT Security and the EI Security (as defined below), to secure InSightec Inc.’s obligations to GE under the GE Loan Agreement. At the closing of GE New Investment (as defined in Note 9B below), all GE notes were converted into Series B-1 Shares at a purchase price of $1.446 per share and GE Charge and GE Security were removed.

(3) In parallel to the execution of the GE Loan Agreements, on January 17, 2012, the Company, InSightec Inc. and EMT signed a Convertible Loan Agreement (the "EMT Loan Agreement"), as amended, pursuant to which all the loans granted to the Company by EMT under EMT Credit Agreements (specified in Note 9B1 above) (the "EMT Loans") will be convertible on the same terms as the GE Notes, as specified above, and would be secured by a floating charge (the "EMT Charge") over the Company’s assets (except for exceptions agreed between the parties), pari passu with the GE Charge and

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NOTE 7 - LONG –TERM LOANS FROM RELATED PARTIES AND OTHER (Con.)

A. Long-term Loans from related parties and other (Cont.) (3) (Cont.)

the EI Charge (as defined below) and would be subject to Events of Default as specified in EI Loan Agreement. In parallel, InSightec Inc. granted EMT a security interest (the "EMT Security") over InSightec Inc.’s assets (except for exceptions agreed between the parties), pari passu with the GE Security and the EI Security (as defined below), to secure InSightec Inc.’s obligations to EMT under the EMT Loan Agreement. At the Closing of GE New Investment (as defined in Note 9B below), all EMT Loans were converted into Series B-1 Shares at a purchase price of $1.446 per share and EMT Charge and EMT Security were removed.

(4) In addition, on January 17, 2012, the Company and EI signed a Convertible Loan Agreement (the "EI Loan Agreement"), as amended, which replaced EI Credit Agreement (as specified in Note 7A1). Pursuant to EI Loan Agreement, all loans granted by EI under the EI Credit Agreement (the "EI Loans") would contain substantially the same provisions as GE Loan Agreement, including conversions Maturity date and interest. EI Loans would be secured by a floating charge (the "EI Charge"), pari passu with EMT Charge and GE Charge, and would be subject to Events of Default as specified in EI Loan Agreement. In parallel, InSightec Inc. granted EI a security interest (the "EI Security") over InSightec Inc.’s assets (except for exceptions agreed between the parties), pari passu with EMT Security and GE Security, to secure the InSightec Inc.’s obligations to EI under EI Loan Agreement. On July 2012, all EI's outstanding loans were assigned to EMT. As specified below, at the Closing of GE New Investment, all EMT Loans were converted to Series B-1 Shares at a purchase price of $1.446 per share and the EI Charege and EI Security were removed.

(5) On June 1 2012, the Company and GE signed a Convertible Loan Agreement ("Series C Loan Agreement"), pursuant to which the Company granted GE Convertible Note at an amount of $5,000,000 ("Series C Note"). The Series C Note born interest at rate of 6% and was subject to Events of Default as specified in the Series C Loan Agreement. Pursuant to the Series C Loan Agreement, the Company granted GE a floating charge (the "GE Charge") over the Company’s assets (except for exceptions agreed between the parties), senior to the charges granted pursuant to the Series B-1 loans. In parallel, InSightec Inc. granted GE a security interest over InSightec Inc.’s assets (except for exceptions agreed between the parties), senior to interests pursuant to the Series B-1 Loans. In parallel to the execution of the Series C Loan Agreement, the Company executed a letter to EMT, pursuant to which, the Company released EMT from its previous undertakings to provide financial support to the Company effective upon the closing of GE New Investment. At the closing of GE New Investment (as defined in Note 9B below), the Series C Note was converted into Series C Shares at a purchase price of $1.12 per share and GE Charge and GE Security were removed. .

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NOTE 7 - LONG –TERM LOANS FROM RELATED PARTIES AND OTHER (Con.)

A. Long-term Loans from related parties and other (Cont.)

(6) On October 10, 2012, the Company, GE, EMT, MTA and a director in the Company

signed a Series B1 & Series C Share Purchase Agreement ("SPA"), pursuant to which GE obliged to invest in the Company, an amount of $22,500,000, and MTA and a director obliged to invest an amount of approximately $3,300,000 ("GE New Investment'), in consideration for the issuance of Series C Preferred Shares, at a purchase price of $1.12 per share, subject to the adjustments specified in the SPA. At the closing of the GE New Investment, all outstanding loans were converted into Series B-1 (at a conversion price per Series B-1 Share of $1.446) and Series C shares of the Company (at a conversion price per Series C Share of $1.12). In parallel to the execution of the SPA, EMT was granted option (which may be exercised by EMT or third party) to buy all series C Preferred Shares purchased by GE under the SPA and the Series C Loan Agreement until 90 days after the closing of GE New Investment .

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES

A. On March 17, 2010, a lawsuit was filed in the US against the Company and its US Subsidiary

(InSightec Inc.). This lawsuit was filed by a former employee, who was employed as a salesman by InSightec Inc. (the Company, its US Subsidiary and the former employee together: the “Parties”). The lawsuit is based on claims regarding the Company's alleged liability towards the plaintiff, in regard to various payments, including future payments for salary, and commission for future sales. On July 28, 2011, the Parties agreed to settle the matter, and the former employee agreed to fully release the Company and its US Subsidiary from any claims. According to the settlement agreement, the former employee was compensated by a certain amount (cash amount and options). The full affect of the settlement has been reflected in the company’s financial reports as of December 31, 2011. On November 2, 2011 the court dismissed the case in its entirety

B. On April 7, 2010, a lawsuit was filed in the US ("Litigation") by past customers of the Company

(the "Plaintiffs") who in 2005 and 2006 purchased systems from the Company. This lawsuit was filed against the Company, its US Subsidiary (InSightec Inc), two Company's officers , the Company's shareholders as well as against a number of bodies which are not associated with the Company (the "Defendants"). The lawsuit asserted claims based on alleged representations by the Defendants in connection with, and following, the sale of the systems to the Plaintiffs. (On January 18, 2012, the parties participated in mediation and reached a confidential settlement in principle to resolve the case in its entirety and dismiss all claims and prejudice. On January 20, 2012, the mediator filed an ADR Memorandum of settlement with the court. On January 25, 2012, the court entered an administrative order closing the case, which was subject to the entry of final dismissal orders upon completion of the settlement. The parties finalized and executed formal settlement documents, and the lawsuit was dismissed with prejudice by the court on May 10, 2012. The full affect of the settlement has been reflected in the company’s financial reports as of December 31, 2011.

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NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

C. As of December 31, 2012, the Company has received or was entitled to receive, grants in the

aggregate amount of $25,725 from the OCS. In consideration for such grants, the Company has undertaken to pay royalties amounting to 3.5% of the revenues until the entire amount is repaid. The royalties will be paid up to the amount of the grants provided by the OCS, linked to the dollar and for grants received after January 1, 1999, also bearing annual interest at a rate based on LIBOR. Refund of the grants thereon is contingent on future revenues and the Company has no obligation to refund grants if sufficient revenues are not generated. The Company provides for such royalties based on its total revenues. The technology developed with OCS funding is subject to transfer restrictions. These restrictions may impair the Company’s ability to sell its technology assets or to outsource manufacturing and the restrictions continue to apply even after the Company has paid the full amount of royalties, payable for the grants. In addition, the restrictions may impair the Company’s ability to consummate a merger or similar transaction in which the surviving entity is not an Israeli company. The total amounts of grants received or were entitled to receive net of royalties paid or accrued including interest as of December 31, 2012 was approximately $ 29,552. Royalty expenses to the OCS in the year ended December 31, 2010, 2011 and 2012, amounted to $315, $515 and $630, respectively and included in cost of revenues.

D. In December 2008, the Company joined the Ultrasonic Poration of Drug Nanocapsules “NANOPORATION” Consortium, a consortium of University of Dundee, CapsuTech Ltd. and the Company to explore specific solutions for drug delivery to cancer cells using MRI-guided Focused Ultrasound (‘MRgFUS”) and drug nano-capsules. The consortium is funded by the European Union (“EU”), in a project set to run for 48 months. Under the agreement with the EU, the Company’s R&D expenses within the framework of the project will be refunded by the EU, up to an aggregate reimbursement of 695 Euro. The Company had no obligation to pay royalties relating to the agreement. As of December 31, 2012 the Company received 491 Euro.

E. The Company rents its facilities under various operating lease agreements, which expire on various dates. In March 2005 the Company signed an operating lease agreement for its main facility in Israel. This lease agreement expires in August 2010 and has two option periods for 30 months each commencing August 2010. In December 2007, the Company signed an amendment to that agreement, according to which the Company leased an additional space in the same building for a period of 5 years until September 2013, together with extension of the original lease to the same date. The minimum rental payments (assuming no exercise of extension options in the agreements) are as follows: Year 2013 $ 888 2014 $ 136 2015 $ 0 Rental expense for the facilities amounted to $1,297, $1,354 and $1,401 for the years ended December 31, 2010, 2011 and 2012, respectively.

INSIGHTEC LTD.


17

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) E. (Cont.)

The Company leases vehicles under various operating lease agreements, which expire on various dates. The minimum rental payment is $120 which was already paid, and included as part of short-term and long-term prepaid expenses in the balance sheet. Vehicle lease expense amounted to $878, $858 and $668 for the years ended December 31, 2010, 2011 and 2012, respectively.

NOTE 9 - SHAREHOLDERS’ EQUITY (DEFICIENCY)

A Registered Share Capital:

The registered share capital of the Company is NIS 1,770,000 divided into (a) 100,000,000 Ordinary Shares, having a par value of NIS 0.01 each, (b) 29,000,000 Series C Preferred Shares, having a par value of NIS 0.01 each, (c) 15,000,000 Series B Preferred Shares, having a par value of NIS 0.01 each, and (d) 33,000,000 Series B-1 Preferred Shares, having a par value of NIS 0.01 each.

B Issuance of Shares via Investments in the Company

1. According to the Series B-1 Preferred & Series C Preferred Share Purchase Agreement,

dated as of October 10, 2012, the Company issued: (i) 27,519,391 Series C Preferred Shares to existing shareholders of the Company, including General Electric Company, Meditech Advisors LLC and one of the Company's directors in consideration of a purchase price per share equal to US$1.12; and (ii) 32,326,737 Series B-1 Preferred Shares to Elbit Medical Technologies Ltd. and General Electric Company in consideration of a purchase price per share equal to US$1.446 payable by way of conversion of outstanding loans held by such shareholders.

2. On March 18, 2009, the Company executed the Series B Preferred Share Purchase Agreement, under which an investment of an aggregate amount of $15,000 was facilitated, which was comprised of two closings. At the first closing, the Company issued to EI 1,250,000 Series B Preferred Shares, at a purchase price of $6.00 per Series B Preferred Share. On July 14, 2009, in relation to the second closing, the Company issued to EI 1,250,000 Series B Preferred Shares, at a purchase price of $6.00 per Series B Preferred Share.

Within the framework of the Preferred B Agreement, all 2,500,000 Series A Preferred Shares were converted into Series B Preferred Shares, whereby each Series A Preferred Share was converted into 2.162 Series B shares. The total number of Series B Preferred Shares as a result of this conversion is 5,405,405 shares.

C. General Provisions

1. Series C Preferred Shares are senior to all other outstanding shares of the Company. The rights provided to the holders of Series B-1 Preferred and Series B Preferred Shares are similar, mutatis mutandis (other than the original purchase price thereof).

2. Each Ordinary Share and each Preferred Share shall confer upon its holder the right to receive notices of, and to attend and vote in General Meetings. Each holder of Ordinary Shares shall have one vote for each Ordinary Share held by him. Each holder of Preferred

INSIGHTEC LTD.


18

NOTE 9 - SHAREHOLDERS’ EQUITY (DEFICIENCY) (Con.)

Shares shall have one vote for each Ordinary Share into which the Preferred Shares held by such holder may be converted.

1. The Company's Amended and Restated Articles of Association (the "AOA") provides, inter alia, for (i) special majority requirements with respect to certain resolutions, e.g. dividend distribution, issuance of shares ranking equal or senior to the Preferred Shares, material change in the line of business; and (ii) restrictions on certain transfers of Company's shares and bring along and tag along rights.

2 According to the AOA, the holders of the Preferred Shares are entitled, inter alia, to a 'dividend preference', to the extent such dividend is declared by the Board of Directors of the Company, and a 'liquidation preference' in the events stipulated thereunder.

3. The AOA further provides that the holders of the Preferred Shares have the right, at any time, to convert all or any of the shares held by them into Ordinary Shares and that automatic conversion shall apply in certain circumstances.

NOTE 10 - STOCK OPTION PLANS

As of December 31, 2012 there are 2,814,750 outstanding granted options and 1,102,800 outstanding options available for future grants. A. 2007 Option Plan (“2007 Plan”)

On May 1, 2007 the Company's Board of Directors approved and adopted a new options plan –2007 Plan. The total number of options under the 2007 Plan are 2,000,000 (1,000,000 options originally followed by an increase of 1,000,000 options as approved by the Board of directors on February 13, 2008). The vesting of the options granted under 2007 Plan would start at the earlier of the Company’s IPO or Material Change of the Company such as liquidation or merger (the “Commencement Date”) and would be two years from the commencement date for 50% of the options granted, three years from commencement date for additional 25% of the options granted and four years from commencement date for the remaining 25% of the options granted. On October 30, 2007 the Company's Board of Directors approved that all the options which will be granted starting October 30, 2007 under 2007 Plan, shall become fully vested and exercisable on the second anniversary of the Commencement Date and shall remain exercisable until the end of the term of the options, as defined in 2007 Plan.

B. 2006 Option Plan (“2006 Original Plan”) and 2006 Revised Option Plan ("2006

Revised Plan")

On January 30, 2006 the Company's Board of directors approved and adopted an option plan to employees, officers, directors and consultants (“2006 Original Plan”). On December 3, 2012 the Company's Shareholders approved, following the Board's approval, to amend 2006 Plan ("2006 Revised Plan") and to adopt US Annex. The total number of options reserved for issuance under the 2006 Revised Plan is 15,500,000 and under the US Annex is 7,500,000 options. The vesting period of the options granted under 2006 Revised Plan and US Annex is 25% of the Options shall become vested each year on the anniversary of the Grant Date

INSIGHTEC LTD.


19

(such that the Options shall be fully vested on the fourth anniversary of the Grant Date). The options granted under this plan expire after seven years from the Grant Date.

INSIGHTEC LTD.


20

NOTE 10 - STOCK OPTION PLANS (Cont.)

C. Re-pricing of Options

On November 22 ,2012 the Company's Board approved, subject to the consent of each grantee and subject to the Closing of GE New Investment, to cancel all outstanding options granted under the 2003 Option Plans, 2006 Option Plan and 2007 Option Plan (except for options listed in the Boards' minutes) ("Old Options") in consideration for the grant of the same number of options to each grantee (the "New Options") in accordance with the following terms: (i) Exercise price - $ 1.12 per share; (ii) Vesting- 25% of the New Options shall become vested each year on the anniversary of the Grant Date (as defined in Section below); (iii) The New Options shall be granted under the 2006 Revised Plan; (iv) The Grant Date of the New Options ("Grant Date") shall be the later of: (a) 30 days following the filing of the 2006 Revised Plan with the ITA; and (b) the date of receiving a ruling from the ITA which approves that the cancellation of the Old Options and the grant of the New Options will not cause additional tax liabilities ("Ruling"). The Old Options will be cancelled simultaneously and subject to the grant of the New Options. Should the Ruling not occur within 100 days from the date hereof, the cancellation above shall have no effect and will be deemed null and void ab-initio, and the Board will re-convene to discuss alternate amendment of the Old Options. Notwithstanding the above, the date of the cancellation of the Old Options granted to Mr. Motti Zisser, Mr. Shimon Yitzhaki and Mr. Dudi Machluf and the grant date of the New Options to those individuals, will be the date of the approval of such cancellation and grant by the required corporate approvals of Elbit Imaging Ltd. and/or Elbit Medical Technologies Ltd., as applicable.

D. Extension of options expiration date to Directors On December 3, 2012 the Company's Shareholders approved the extension of the expiration date of all options granted to directors under 2003 Option Plans and 2006 Original Plan (the "Extended Options") by three years (the "Extension"). Following the Extension, the revised Expiration Date of the Extended Options will be 10 years from the Effective Date (as defined in the 2003 Plan and 2006 Original Plan). The extension would apply to all options granted to current directors or directors that ceased to serve as directors of the Company after June 1, 2012, as long as such options were vested at the date of termination of service.

It shall be noted the Company's shareholders approved immediate vesting of options granted to certain directors and former directors/or that their vesting schedule shall continue even if the director's membership on the Board of Directors terminates prior to the grant date or the end of the Term of the options/or if he terminates his employment at the Company prior to grant date or the end of Term of the Options. Notwithstanding the above, the above changes in the vesting schedule and exercise period of the options granted to Mr. Motti Zisser, Mr. Shimon Yitzhaki and Mr. Dudi Machluf shall be subject to the receipt of the required corporate approvals of Elbit Imaging Ltd. and/or Elbit Medical Technologies Ltd., as applicable. This change has no material effect on the share-based compensation in 2012 using the B&S method in order to calculate the fair value of the benefit.

E. Adoption of a New Relative Option Plan by the Company On February 11 2010, the Company's Board of Directors approved and adopted a new financial plan (the "Ownership Plan"). According to this Ownership Plan, if and when the Company meets the requirements of several pre-defined significant milestones participants of the plan (Company’s management and key employees) would receive an additional quantity of options, such that the total percentage of Company equity, including all options and notes, held by Company employees and executives at that time would be 16.82% (on a fully diluted basis).

INSIGHTEC LTD.


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NOTE 10 - STOCK OPTION PLANS (Cont.)

E. Adoption of a New Relative Option Plan by the Company (Cont.)

Those options would be granted from the 2007 Plan in accordance with the terms stipulated therein. The exercise price of options would be determined according to the fair value of Company shares at the time of grant thereof. However, in the event of an IPO, merger or acquisition, or “major event” as defined in 2007 Plan, all the options described above would be granted in one lot at the time of the aforesaid event. As specified in Note 10B above, the Company's shareholders approved the adoption of 2006 Revised Plan and allocation of new options. Under such resolutions, it was approved that any and all options intended to be granted or granted under the Ownership Plan shall not be granted and shall be cancelled upon the grant of the aforementioned new options, and that upon such grant the Ownership Plan shall be cancelled in its entirety.

F. Extension of options’ expiration date

On February 10, 2010 the Company's Board of directors decided to extend the exercise period of options granted to employees, directors and others during the years 2003-2005 under 2003 Option Plan (the "Options") by 3 years (the "Extension"). Following the Extension, the revised expiration date of the Options will be 10 years from the Grant Date. The Company used the B&S method in order to measure the fair value of that benefit, and recorded a one-time $559 share-based compensation expenses. On September 20, 2012 the Company's Board approved the extension of the expiration date of all options granted under 2003 Option Plans and 2006 Original Plan (the "Extended Options") by three years (the "Extension"). Following the Extension, the revised Expiration Date of the Extended Options will be 10 years from the Effective Date (as defined in the 2003 Plan and 2006 Original Plan). This change has no material effect on the share-based compensation in 2012 using the B&S method in order to calculate the fair value of the benefit.

G. The weighted average fair value (in dollars) of the options granted during 2010, 2011 and 2012 according to Black-Scholes option-pricing model, amounted to $3.47, $3.35 and $0.88 per option, respectively. Fair value was determined on the basis of private placements of the Company's equity securities and on the basis of other available evidence and management's estimates.

H. A summary of the status of the Company’s share option plans as of December 31, 2009, 2010 and 2011, as well as changes during each of the years and period then ended, is presented below: 2 0 1 2 2 0 1 1 2 0 10

Share options

Weighted average exercise

price Share

options


price Share

options


price (US

dollars) (US

dollars) (US

dollars) Outstanding – beginning of year 2,515,750 5.46 4,980,000 3.34 5,120,250 3.01Granted 446,500 1.44 201,000 5.00 167,250 6.00Cancelled (140,000) 5.77 (641,750) 5.98 (210,000) 5.98Exercised (7,500) 0.0025 (2,023,500) 0.0025 (97,500) 0.0025Outstanding - year end (*) 2,814,750 4.82 2,515,750 5.46 4,980,000 3.34 Options exercisable

year end (*) 1,455,167 5.22 1,498,225 4.89 3,561,565 2.3 (*) After Re-pricing of certain of the options’ exercise price to 6$ – See Note 10 C.

INSIGHTEC LTD.


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NOTE 10 - STOCK OPTION PLANS (Cont.) I. The following table summarizes information about share options outstanding as of December

31, 2011 and 2012:

Outstanding as of

December 31, 2011 Exercisable as of

December 31, 2011

Range of exercise prices

Number outstanding

Weighted average

remaining contractual life

Weighted average

exercise price Number

exercisable

Weighted average

exercise price (US dollars) (in years) (US dollars) (US dollars)

0.0025 40,000 0.4 0.0025 40,000 0.0025 3-5.85 643,000 2.7 4.45 483,000 4.45

6.00-6.60 1,832,750 3.15 6.09 975,225 6.00 2,515,750 1,498,225

Outstanding as of

December 31, 2012 Exercisable as of

December 31, 2012

Range of exercise prices

Number outstanding

Weighted average

remaining contractual life

Weighted average

exercise price Number

exercisable

Weighted average

exercise price (US dollars) (in years) (US dollars) (US dollars)

0.0025 25,000 2 0.0025 25,000 0.0025 1.44 – 1.78 441,500 6.8 1.471 - -

3 – 5.85 543,000 1.7 3.763 438,667 3.487 6 – 6.6 1,805,250 2.15 6.083 991,500 6.151

2,814,750 1,455,167 5.243

Total estimated share-based compensation expense, related to all of the Company’s share-based awards, recognized in the year ended December 31, 2011 and 2010 was comprised as follows: Year ended

December 31, 2012 2011 Cost of revenues - $ $ 1Research and development - 5Sales and marketing - 1General and administrative 380 331

Total Share-based compensation expense 380 $ $ 338

INSIGHTEC LTD.


23

NOTE 11 - INCOME TAXES

A. Law for the Encouragement of Capital Investments-1959

On November 21, 2000, the Company was granted “Approved Enterprise” status under the Tax-Exempt Benefit Track (“the First Plan”), as provided by the Israeli Law for the Encouragement of Capital Investments-1959 (“the Law”). The Company has completed the investments under the First Plan and received a final approval of the Investments Center in 2004. The First Plan considered also as “an Establishment Enterprise Plan”, namely all of the Company’s revenues until the expiration of the First Plan are attributed to the Approved Enterprise, and therefore are subject to the tax benefits). The tax-exempt benefit track provides for a 2 year tax exemption on undistributed earnings derived from assets included in the Approved Enterprise investment program and for a reduced tax rate of 25% for the remaining period until 2013 (expiration year of the First Program). In March 2005 the Law was amended, and accordingly, among other things, the provisions to be considered as an Approved Enterprise for future Plans were changed. The Company executed all relevant required steps in order to be able to receive a status of an Approved Enterprise for future Plans as well. In 2008 the Company received from tax authorities an approval for additional plan as an Approved Enterprise by the amendment to the Law (“the Second Plan”). The Commencing year for Second Plan is 2007. The tax benefits in the Second Plan are the same as in the First Plan, 2 years tax exemption followed by 5 years of reduced tax. The expected expiration date of the Second Plan is 2018. If the investments of non-Israeli investors (as such investments are defined by the Law) exceed 25% the seven-year benefit period mentioned above may be extended to ten years. If the investment of non-Israeli investors is 49% or more, then the rate of tax on earnings derived from assets included in the approved enterprise investment program will decrease to 10% - 20%, depending on the level of ownership by non-Israeli investors, examined on a yearly basis. Dividends paid from earnings that benefited from the approved enterprise tax status are subject to a 15% withholding tax to the recipient (or lower rate based on specific tax treaties), whereas dividends paid out of other earnings are subject to withholding tax to the recipient at the rate of 25% (or lower if paid to a treaty country). Dividend distributed out of approved / benefited exempt income will abolish the tax exemption and the company will be due to the corporate tax rate that should apply to the extant the company was not tax exempted. The above tax benefits are conditioned upon fulfillment of the requirements stipulated by the aforementioned law and the regulations promulgated there under, as well as the criteria set forth in the certificates of approval. In the event of failure by the Company to comply with these conditions, the tax benefits could be canceled, in whole or in part, and the Company would be required to refund the amount of the canceled benefits, plus interest and certain inflation adjustments. No benefit has been used up to December 31, 2012. In January 6, 2011 an amendment to the Law for the Encouragement of Capital Investment-1959 (the "Law") was published. The amendment has a substantial effect on the current provisions of the Law. The followings are the major changes in the amendment: 1. A company located in Preferred Area A can file for both grants and tax benefits. 2. The requisites for benefits were changed with most significant change is that the

minimum investment requirement was removed. In addition the definition of approved entity was changed.

INSIGHTEC LTD.


24

NOTE 11 - INCOME TAXES (Cont.)

A. Law for the Encouragement of Capital Investments-1959 (Cont.) 3. The income attribution based on revenues was cancelled, the result is that approved entity

would be taxable on it entire income at a fixed rate. 4. Tax exemption was cancelled. 5. Dividend payable to Israeli corporations from preferred income would be tax exempted. 6. The Grant Rate out of the approved investment would be up to 24%.

The Tax rates applicable to Approved Industrial Enterprise would be 6% and 12% for those located in Preferred Area A or elsewhere, respectively, with effectiveness for the taxable year 2 of 2015 and onwards. Prior to 2015 the following tax rates will be applicable: For the years 2011-2012 10% and 15%, respectively; and for the years 2013-2014 7% and 12.5%, respectively. The amendment to the law is not expected to have material impact on the Company's consolidated financial statements.

B. Law for the Encouragement of Industry (Taxation), 1969 The Company is an “Industrial Company” under the Law for the Encouragement of Industry (Taxation), 1969 and, therefore, is entitled to certain tax benefits, mainly accelerated rates of depreciation and the right to deduct public issuance expenses for tax purposes.

C. Deferred Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has accumulated losses for Israeli tax purposes as of December 31, 2012 in the amount of approximately $168,000. The Israeli tax loss carry forwards have no expiration date. The Company expects that during the period these losses are utilized, its undistributed earnings will be tax exempt. Since the Company has no intention to distribute such earnings, there will be no tax benefit available from such tax losses and no deferred taxes have been included in these financial statements for these losses.

D. Tax rates applicable to the Company The corporate tax rate in Israel is 25%

E. Tax Assessments The Company and InSightec Inc. have not received final tax assessments since inception. The Company and InSightec Inc. have tax assessments considered final through the year 2008 and 2009, respectively. InSightec Japan Y.K. had final tax assessment through the year 2008. In light of losses for both financial reporting and tax purposes for all years presented, a reconciliation of the effective income tax rate has not been presented.

INSIGHTEC LTD.


25

NOTE 12 - GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS A. Geographic information

Year ended December 31, 2 0 1 2 2 0 1 1 2 0 10Revenues : % % %

America 28 26 26Europe 40 32 46ROW 32 42 28

B. Revenues by major customers

Year ended December 31, 2 0 1 2 2 0 1 1 2 0 10 % % %

Customer A 0 0 11Customer B 28 38 28Customer C 0 6 10Customer D 0 0 0Customer E 16 13 11

C. Fixed assets: Substantially all fixed assets are located in Israel. NOTE 13 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES

A. Transactions: Year ended December 31, 2 0 1 2 2 0 1 1 2 0 10

Revenues $ 5,080 $ 6,550 $ 2,520 Cost of revenues $ 170 $ 21 $ 145 Research and development costs (14.C) $ 150 $ 310 $ 528 Sales and marketing $ 0 $ 0 $ 5 General and administrative $ 0 $ 0 $ (24) Financing expenses (Note 8, 9) $ 2,381 $ 2,463 $ 1,654

Balances: December 31,

2 0 1 2 2 0 1 1

Trade accounts receivables $ 278 $ 867Trade accounts payables $ 96 $ 256Long-term loans from related parties $ 0 $ 33,443

INSIGHTEC LTD.


26

NOTE 13 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Con.)

B. On October 17, 2012 the Company signed a Technology, Co-operation and Distribution Agreement with GE Company. This agreement replaced the 2005 Global Distribution Agreement and two other prior agreements between the Company and GE Company. According to the agreement, GE Company was awarded world-wide distribution rights for marketing and sales of the Company's products. The Agreement also requires that the Company's products be compatible with GE Company imaging equipment for a period of five years or earlier upon the occurrence of certain events. This Agreement also provides GE Company with: (i) a right of first negotiation for exclusive distribution of new Company products; (ii) a first priority right to quote and sell to new GE Company customers; and (iii) a first priority right to quote and sell new products to existing GE Company customers. The agreement also sets up a framework pursuant to which the Company and GE Company will cooperate regarding mutual technology alignment and development.

C. In April 2007, the Company undertook to support the FUS Foundation (“FUSF”), a non-profit

organization, whose mission is to develop new applications and accelerate the worldwide adoption of MRgFUS through among other things, fellowship programs (“the Fellowship programs”) which are aimed to help doctors acquire skills and expertise in working with MRgFUS systems, and also through research programs with leading research institutions On October 2012 the Company agreed to pay during 2012 $1,000 and during 2013 $700. The FUSF agreed to finance the stage 1Neuro research treatments during these years. Expenses related to the FUSF support for the years ended December 31 2010, 2011 and 2012, amounted to $191, $105 and $1,000 respectively.

D. Long–term loans from related parties-see Note 7.

GAMIDA CELL LTD.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2012

U.S. DOLLARS IN THOUSANDS

INDEX

Page Independent Auditors' Report 2 Statement of Financial Position 3 - 4 Statements of Comprehensive Income 5 Statements of Changes in Equity 6 Statements of Cash Flows 7-8 Notes to the Financial Statements 8 - 33

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

- 2 -

Kost Forer Gabbay & Kasierer

3 Aminadav St. Tel-Aviv 67067, Israel Tel: 972 (3)6232525 Fax: 972 (3)5622555 www.ey.com

INDEPENDENT AUDITORS' REPORT

To the shareholders of

GAMIDA CELL LTD.

We have audited the accompanying statements of financial position of Gamida Cell Ltd. ("the Company") as of December 31, 2012 and 2011, and the related statements of income, comprehensive income, changes in equity and cash flows for each of the years ended December 31, 2012, 2011 and 2010. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditor's Regulations (Auditor's Mode of Performance), 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 the board of directors and 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations, changes in its equity and cash flows for each of the years ended December 31, 2012, 2011 and 2010, in conformity with International Financial Reporting Standards ("IFRS").

Without qualifying our opinion, we draw attention to Note 1b to the financial statements. The Company has incurred losses in the amount of $ 6,833 thousand during the year ended December 31, 2012, and has an accumulated deficit of $ 50,420 thousand as of that date. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue to operate as a going concern. Tel-Aviv, Israel KOST FORER GABBAY & KASIERER February 25 , 2013 A Member of Ernst & Young Global

GAMIDA CELL LTD.

- 3 -

STATEMENT OF FINANCIAL POSITION

December 31, 2012 2011 U.S. dollars in thousands

ASSETS

CURRENT ASSETS:

Cash and cash equivalents (Note 5) $ 5,551 $ 7,586 Short-term investments - 167 Short-term deposit 2,000 - Accounts receivable (Note 6) 210 308

7,761 8,061 NON-CURRENT ASSETS:

Long-term lease deposits 33 29

PROPERTY AND EQUIPMENT, NET (Note 8) 229 271

Total assets $ 8,023 $ 8,361 The accompanying notes are an integral part of the financial statements.

GAMIDA CELL LTD.

- 4 -

STATEMENT OF FINANCIAL POSITION

December 31, 2012 2011 U.S. dollars thousands

LIABILITIES AND EQUITY CURRENT LIABILITIES:

Trade payables $ 944 $ 680 Other accounts payable and accruals (Note 9) 720 569 Related parties 841 2,372

2,505 3,621

NON-CURRENT LIABILITIES:

Excess of losses over investment in an affiliate (Note 7) 1,878 927 Liability in respect of warrants to Preferred D1 shares - 3 Retirement benefit liability, net (Note 10) 87 117 Convertible loan (Note 12) - 4,453

1,965 5,500 EQUITY (Note 13):

Share capital 20 17 Additional paid-in capital 53,953 42,810 Accumulated deficit (50,420) (43,587)

Total equity (deficiency) 3,553 (760)

Total liabilities and equity $ 8,023 $ 8,361 *) Reclassified The accompanying notes are an integral part of the consolidated financial statements.

February 25, 2013 Date of approval of the Dr. Yael Margolin Naftali Brikashvili

financial statements Director and CEO CFO

GAMIDA CELL LTD.

- 5 -

STATEMENTS OF COMPREHENSIVE INCOME

Year ended December 31, 2012 2011 2010

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

Research and development expenses, net (Note 16) $ 2,433 $ 1,943 $ 2,187 General and administrative expenses (Note 17) 567 587 618 Other income (243) - -

Operating loss 2,757 2,530 2,805 Finance expenses (Note 18) 837 650 - Finance income (Note 18) (74) (41) (373) Equity in losses of an affiliate 3,313 6,156 4,774

Loss $ 6,833 $ 9,295 $ 7,206

Net loss per share Basic and diluted loss for the year (Note 15): $ (9.9) $ (13.5) $ (10.4)

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

GAMIDA CELL LTD.

- 6 -

STATEMENTS OF CHANGES IN EQUITY

Issued capital

Additional paid-in capital

Accumulated deficit

Total equity

U.S dollars in thousands

Balance as of January 1, 2010 $ 16 $ 42,690 $ (27,086) $ 15,620 Exercises of options by employees 1 81 - 82 Share-based compensation - 31 - 31 Loss - - (7,206) (7,206)

Balance as of December 31, 2010 17 42,802 (34,292) 8,527 Share-based compensation - 8 - 8 Loss - - (9,295) (9,295)

Balance as of December 31, 2011 17 42,810 (43,587) (760) Issue of shares 3 11,138 - 11,141 Share-based compensation - 5 - 5 Loss - - (6,833) (6,833)

Balance as of December 31, 2012 $ 20 $ 53,953 $ (50,420) $ 3,553 The accompanying notes are an integral part of the financial statements.

GAMIDA CELL LTD.

- 7 -

STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Year ended

December 31, 2012 2011 2010 U.S. dollars in thousands Cash flows from operating activities:

Net loss $ (6,833) $ (9,295) $ (7,206)Adjustments to reconcile net income (loss) to net cash

used in operating activities: Depreciation 62 90 154 Change in employee benefit liabilities, net (30) 84 18 Share-based compensation 5 8 31 Decrease (increase) in accounts receivable 98 8 95 Decrease (increase) in long-term lease deposits (4) (3) 1 Increase (decrease) in trade payables 264 204 (211)Increase (decrease) in other accounts payable and

accruals (1,380) 668 3,382 Equity in losses of an affiliate 3,313 6,156 4,774 Financial expenses, net 763 609 (373)

3,091 7,824 7,871 Cash paid and received during the year for:

Interest received 71 (104) 209 Interest paid (12) 13 -

59 (91) 209 Net cash provided by (used in) operating activities (3,683) (1,562) 874 Cash flows from investing activities:

Purchase of property and equipment (20) (51) (90)Withdrawal (Investment in) from short-term deposits and

restricted cash (2,000) 2,885 3,302 Withdrawal (Investment in) from marketable securitires 167 (167) - Investment in an affiliate (2,363) (4,845) (5,767)

Net cash used in investing activities (4,216) (2,178) (2,555)


GAMIDA CELL LTD.

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STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Year ended

December 31, 2012 2011 2010 U.S. dollars in thousands Cash flows from financing activities:

Exercise of options - - 82 Convertible loan from shareholders - 4,000 - Issue of share capital, net 5,906 - -

Net cash provided by financing activities 5,906 4,000 82 Exchange differences on balances of cash and cash

equivalents (42) (75) 31 Increase (decrease) in cash and cash equivalents (2,035) 185 (1,568)Cash and cash equivalents at the beginning of the year 7,586 7,401 8,969 Cash and cash equivalents at the end of the year $ 5,551 $ 7,586 $ 7,401 Conversion of convertible loan into shares $ 5,235 $ - $ -


GAMIDA CELL LTD.

NOTES TO THE FINANCIAL STATEMENTS

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NOTE 1:- GENERAL

a. Gamida Cell Ltd. ("the Company") is engaged in the development of stem cell

therapeutics based on its proprietary technologies for cell expansion. Lead product StemEx® is in phase II/III clinical study for hematological malignancies and developed within a joint venture between Gamida Cell and Teva (one of the Company's shareholders (see Note 1d). StemEx, reached its primary endpoint of improving overall survival in the Phase II/III study which compared the use of StemEx as part of a transplantation regimen to historical controls, in the treatment of patients with hematological malignancies such as leukemia and lymphoma. NiCord® is the second product in clinical development (phase I/II) as part of a transplantation regimen for patients with hematological malignancies and patients with sickle cell disease. On February 14, 2013 the Company announced on the successful results of the Phase I/II study of its second pipeline product NiCord, umbilical cord derived stem cells expanded using the company’s proprietary NAM technology, for patients with hematological malignancies. Additional indications and products are in development for cancer, hematological diseases, autoimmune diseases and regenerative medicine.

The Company was founded in 1998 based on technology for stem cell expansion licensed from Hadassah University Medical Center, Jerusalem.

b. The Company has incurred losses in the amount of $ 6,833 thousand during the year ended December 31, 2012, and has an accumulated deficit of $ 50,420 thousand as of that date.

These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue to operate as a going concern. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all.

c. In October 2000, the Company established a wholly-owned subsidiary in the U.S.A. In

2003, the subsidiary ceased its operations.

d. On February 16, 2005, one of the Company's shareholders ("Teva") decided to exercise its option to enter into a joint venture with the Company to develop, manufacture and commercialize certain product based on Copper Chelator Technology. Consequently, on May 6, 2005 the Company established a wholly-owned Israeli subsidiary, Gamida Cell-Teva JV Ltd. ("JV").

e. In the period starting from year 2005 through June 2009 the JV issued 5,000 Ordinary

shares to Teva in consideration of $ 25 million.

As of June 30, 2009, the Company owned 50% of the shares of the JV. As a result JV's financial statements are no longer consolidated with those of the Company. In the period starting from July 2009 through December 2010 the JV issued 1,992 Ordinary shares to Teva and Gamida Cell in consideration of approximately $ 14.9 million.

GAMIDA CELL LTD.


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NOTE 1:- GENERAL (Cont.)

During 2011, JV issued 1,292 Ordinary shares to Teva and the Company, 646 Ordinary shares each, in consideration of approximately $ 4.85 million from each. In May 2012, JV issued 630 Ordinary shares to Teva and the Company, 315 Ordinary shares each, in consideration of approximately $ 2.4 million from each.

f. JV has incurred losses in the amount of $ 6,625 thousand during the year ended December 31, 2012, and has an accumulated deficit in the amount of $ 58,110 thousand as of December 31, 2012. JV's ability to continue to operate during the following year is dependent upon receiving additional financial support. These factors raise substantial doubt about the JV's ability to continue as a going concern. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should JV be unable to continue to operate as a going concern.

There can be no assurance that additional funds will be available on terms acceptable to JV, or at all.

g. In December 2011, Gamida Cell and JV have engaged with a third party regarding

Gamida and the JV's desire to seek a partner to commercialize StemEx®. The third party will support Gamida Cell on an exclusive basis (subject to the exceptions set forth in the agreement) in the process of a sale or other transaction involving all or a majority of the equity or all or substantially all of assets of Gamida and/or the JV, in consideration for a lump sum plus percentages of the transaction value, as determined in the agreement. Although the engagement has expired on December 2012, Gamida Cell and JV are still subject to certain tail provisions which are detailed under the engagement letter.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies that have been used in the preparation of these financial statements are summarized below:

a. Basis of presentation of the financial statements:

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The Company's financial statements have been prepared on a cost basis, except for: investment property; financial assets and liabilities which are presented at fair value through profit and loss. The Company has elected to present profit or loss items using the function of expense method.

GAMIDA CELL LTD.


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NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The preparation of the financial statements requires management to make critical accounting estimates as well as exercise judgment in the process of adopting significant accounting policies. The matters which required the exercise of significant judgment and the use of estimates, which have a material effect on amounts recognized in the financial statements, are specified in Note 3 below.

b. Investments in associates:

Associates are companies in which the Company has significant influence over the financial and operating policies without having control. The investment in an associate is accounted for using the equity method.

Under the equity method, the investment in the associate is presented at cost with the addition of post-acquisition changes in the Company's share of net assets, including other comprehensive income of the associate. The equity method is applied until the loss of significant influence or classification as an asset held-for-sale. The financial statements of the Company and of the associate are prepared as of the same dates and periods. The accounting policies applied in the financial statements of the associate are uniform and consistent with the policies applied in the financial statements of the Company.

c. Functional currency, presentation currency and foreign currency:

1. Functional currency and presentation currency:

The presentation currency of the financial statements is the U.S. dollar. The functional currency, which is the currency that best reflects the economic environment in which the Company operates and conducts its transactions, is separately determined for each Group entity, including an associate accounted for using the equity method, and this currency is used to separately measure its financial position and operating results. The functional currency of the Company is the U.S. dollar.

2. Transactions, assets and liabilities in foreign currency: Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange rate differences, other than those capitalized to qualifying assets or recorded in equity in hedges, are recognized in profit or loss. Non-monetary assets and liabilities measured at cost in foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

GAMIDA CELL LTD.


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d. Cash equivalents:

Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of acquisition or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Group's cash management.

e. Short-term deposits:

Short-term bank deposits are deposits with an original maturity of more than three months from the date of acquisition. The deposits are presented according to their terms of deposit.

f. Government grants:

Government grants are recognized when there is reasonable assurance that the grants will be received and the Company will comply with the attached conditions. Government grants received from the Office of the Chief Scientist in Israel ("OCI") are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty-bearing sales.

A liability for the loan is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grant received and the fair value of the liability is accounted for as a Government grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as a contingent liability in accordance with IAS 37.

At the end of each reporting period, the Company evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since the Company will not be required to pay royalties) based on the best estimate of future sales and using the original effective interest method, and if so, the appropriate amount of the liability is derecognized against a corresponding reduction in research and development expenses.

g. Property, plant and equipment: Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with plant and equipment.

GAMIDA CELL LTD.


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Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows: % Machinery 15 Office furniture and equipment 6 - 33

Leasehold improvements Over the period

of the lease Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including the extension option held by the Group and intended to be exercised) and the expected life of the improvement.

The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate.

Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. An asset is derecognized on disposal or when no further economic benefits are expected from its use. The gain or loss arising from the derecognition of the asset (determined as the difference between the net disposal proceeds and the carrying amount in the financial statements) is included in profit or loss when the asset is derecognized.

h. Impairment of non-financial assets: The Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss. An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years, and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.

GAMIDA CELL LTD.


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The following criteria are applied in assessing impairment of these specific assets: After application of the equity method, the Company determines whether it is necessary to recognize any additional impairment loss with respect to the investment in associates. The Company determines at the end of each reporting period whether there is objective evidence that the carrying amount of the investment in the associate is impaired. The test of impairment is carried out with reference to the entire investment, including the goodwill attributed to the associate. If there is objective evidence, an impairment loss is recognized in the amount of the difference between the recoverable amount of the investment in the associate and its carrying amount.

i. Financial instruments:

1. Financial liabilities: Financial liabilities within the scope of IAS 39 are classified as either financial

liabilities at fair value through profit or loss, loans at amortized cost or derivatives designated as effective hedging instruments. The Group determines the classification of the liability on the date of initial recognition. All liabilities are initially recognized at fair value. Loans are presented net of directly attributable transaction costs. After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:

Financial liabilities at amortized cost:

After initial recognition, loans, including debentures, are measured based on their terms at amortized cost less directly attributable transaction costs using the effective interest method. The amortization of the effective interest is recognized in profit and loss in the line item, "financing".

2. Hybrid financial instruments:

a) Convertible debentures which contain both an equity component and a

liability component are separated into two components. This separation is performed by first determining the carrying amount of the liability component based on the fair value of an equivalent non-convertible liability. The carrying amount of the equity component is the residual amount and is determined as the difference between the total proceeds received from the convertible debentures and the amount attributed to the liability component, as above, and, thus, presented in subsequent periods. Direct transaction costs are apportioned between the equity component and the liability component based on the allocation of proceeds to the equity and liability components, as above.

GAMIDA CELL LTD.


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b) Convertible debentures that are denominated in foreign currency (other than

the issuing company's functional currency) contain two components: the conversion component and the debt component. The liability conversion component is initially recognized as a financial derivative at fair value. The balance is attributed to the debt component. Direct transaction costs are allocated between the liability conversion component and the liability debt component based on the allocation of the consideration to each component.

j. Provisions:

A provision in accordance with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the Group expects part or all of the expense to be reimbursed to the Company, such as in an insurance contract, the reimbursement is recognized as a separate asset only when it is virtually certain that it will be received by the Company. The expense is recognized in the income statement net of the reimbursed amount.

k. Employee benefit liabilities:

The Group has several employee benefit plans: 1. Short-term employee benefits:

Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered.

2. Post-employment benefits:

The plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans. The Company operates a defined benefit plan in respect of severance pay pursuant to the Severance Pay Law. According to the Law, employees are entitled to severance pay upon dismissal or retirement. The liability for termination of employment is measured using the projected unit credit method. The actuarial assumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate determined by reference to yields on Government bonds with a term that matches the estimated term of the benefit obligation.

In respect of its severance pay obligation to certain of its employees, the Company makes current deposits in pension funds and insurance companies ("the plan assets"). Plan assets comprise assets held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the Group's own creditors and cannot be returned directly to the Group.

GAMIDA CELL LTD.


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The liability for employee benefits shown in the statement of financial position reflects the present value of the defined benefit obligation less the fair value of the plan assets, less past service costs. Actuarial gains and losses are recognized in profit or loss in the period in which they occur.

l. Share-based payment transactions:

The Company's employees/other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions and certain employees/other service providers are entitled to remuneration in the form of cash-settled share-based payment transactions that are measured based on the increase in the Company's share price. Equity-settled transactions:

The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted. The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and/or service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award ("the vesting period"). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in profit or loss represents the change between the cumulative expense recognized at the end of the reporting period and the cumulative expense recognized at the end of the previous reporting period. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. If the Company modifies the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification date.

GAMIDA CELL LTD.


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If a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described above.

m. Finance income and expenses:

Finance income comprises interest income on amounts invested (including available-for-sale financial assets), revenues from dividends, gains from sale of financial assets classified as available-for-sale, changes in fair value of financial assets at fair value through profit or loss, exchange rate gains and gains on hedges recognized in profit or loss. Interest income is recognized as it accrues using the effective interest method. Revenues from dividends are recognized when the Group's right to receive the payment is established. If the dividend is received on quoted shares, the Group recognizes dividend revenue on the ex-date. Changes in fair value of financial assets at fair value through profit or loss include interest and dividend income. Finance expenses comprise interest expense on borrowings, changes in the time value of provisions, dividends paid on preferred shares classified as a liability, changes in the fair value of financial assets at fair value through profit or loss, impairment losses of financial assets and losses on hedges recognized in profit or loss. Borrowing costs that are not capitalized to qualifying assets are recognized in profit or loss using the effective interest method. Gains and losses on exchange rate differences are reported on a net basis.

n. Earnings (loss) per share: Losses per share are calculated by dividing the net loss attributable to equity holders of the Company by the weighted number of Ordinary shares outstanding during the period. Potential Ordinary shares (convertible securities such as convertible debentures, warrants and employee options) are only included in the computation of diluted earnings per share when their conversion decreases earnings per share or increases loss per share from continuing operations. Potential Ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company.

GAMIDA CELL LTD.


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NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUPMTIONS

USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS

In the process of applying the significant accounting policies, the Group has made the following judgments which have the most significant effect on the amounts recognized in the financial statements:

a. Judgments:

Determining the fair value of share-based payment transactions:

The fair value of share-based payment transactions is determined using an acceptable option-pricing model. The model includes data as to the share price and exercise price, and assumptions regarding expected volatility, expected life, expected dividend and risk-free interest rate.

b. Estimates and assumptions:

The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate. The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. - Government grants:

Government grants received from the Office of the Chief Scientist at the Ministry of Industry, Trade and Labor are recognized as a liability if future economic benefits are expected from the research and development activity that will result in royalty-bearing sales. There is uncertainty regarding the estimated future cash flows and the estimated discount rate used to measure the amount of the liability.

- Pension and other post-employment benefits:

The liability in respect of post-employment defined benefit plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about, among others, discount rates, expected rates of return on assets, future salary increases and mortality rates. The carrying amount of the liability may be significantly affected by changes in such estimates.

GAMIDA CELL LTD.


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NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR

ADOPTION

IAS 1 - Presentation of Financial Statements:

In June 2011, the IASB issued an amendment to IAS 1 ("the Amendment") which provides guidance for the presentation of other comprehensive income. According to the Amendment, items which may be reclassified to profit or loss in a future period (such as upon derecognition or recovery) should be presented separately from items that will never be reclassified to profit or loss.

The Amendment is to be applied retrospectively commencing from the financial statements for annual periods beginning on January 1, 2013, or thereafter. The Company will adopt the Amendment in its financial statements starting from the Amendment's effective date in 2013. IAS 19 (Revised) - Employee Benefits:

The IASB made several changes to IAS 19, the principal of which are as follows:

- The remeasurement of the net defined benefit liability (formerly - actuarial gains and

losses) are recognized in other comprehensive income t and not in profit or loss. - The "corridor" approach which allowed the deferral of actuarial gains or losses has been

eliminated. - Income from the plan assets is recognized in profit or loss based on the discount rate used

to measure the employee benefit liabilities. The return on plan assets excluding the aforementioned income recognized in profit and loss is included in the remeasurement of the net defined benefit liability.

- The distinction between short-term employee benefits and long-term employee benefits is based on the expected settlement date and not on the date on which the employee first becomes entitled to the benefits.

- Past service cost arising from changes in the plan is recognized immediately.

The Standard is to be applied retrospectively in financial statements for annual periods commencing on January 1, 2013, or thereafter. Earlier application is permitted. The Company estimates that the effect of the Standard is expected to be an increase / a decrease in loss in the amount of approximately $ 22 thousand, $ 90 thousand and $ 26 thousand for the years ended December 31, 2012, 2011 and 2010, respectively.

GAMIDA CELL LTD.


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ADOPTION (Cont.)

IAS 32 - Financial Instruments: Presentation and IFRS 7 - Financial Instruments: Disclosure:

The IASB issued certain amendments to IAS 32 ("the amendments to IAS 32") regarding the offsetting of financial assets and liabilities. The amendments to IAS 32 clarify, among others, the meaning of "currently has a legally enforceable right of set-off" ("the right of set-off"). Among others, the amendments to IAS 32 prescribe that the right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but also in the event of bankruptcy or insolvency of one of the parties. The amendments to IAS 32 also state that in order for the right of set-off to be currently available, it must not be contingent on a future event, there may not be periods during which the right is not available, or there may not be any events that will cause the right to expire.

The IASB also issued amendments to IFRS 7 ("the amendments to IFRS 7") regarding the offsetting of financial assets and liabilities. According to the amendments to IFRS 7, the Company is required, among others, to provide disclosure of rights of set-off and related arrangements (such as collateral agreements), the composition of amounts that are set off, and amounts subject to enforceable master netting arrangements that do not meet the offsetting criteria of IAS 32. The amendments to IAS 32 are to be applied retrospectively commencing from the financial statements for periods beginning on January 1, 2014, or thereafter. Earlier application is permitted, but disclosure of early adoption is required as well as the disclosures required by the amendments to IFRS 7 as described above. The amendments to IFRS 7 are to be applied retrospectively commencing from the financial statements for periods beginning on January 1, 2013, or thereafter. The Company estimates that the amendments to IAS 32 are not expected to have a material impact on its financial statements. The required disclosures pursuant to the amendments to IFRS 7 will be included in the Company's financial statements.

IFRS 10, IFRS 11, IFRS 12, IFRS 13 - Consolidated Financial Statements, Joint Arrangements, Disclosure of Interests in Other Entities, Fair Value Measurement:

The new Standards are to be applied retrospectively in financial statements for annual periods commencing on January 1, 2013 or thereafter. Earlier application is permitted. However, if the Company chooses earlier application, it must adopt all the new Standards as a package (excluding the disclosure requirements of IFRS 12 which may be adopted separately). The Standards prescribe transition provisions with certain modifications upon initial adoption.

GAMIDA CELL LTD.


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ADOPTION (Cont.) The main provisions of the Standards and their expected effects on the Company are as follows: IFRS 13 - Fair Value Measurement:

IFRS 13 establishes guidance for the measurement of fair value, to the extent that such measurement is required according to IFRS. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. IFRS 13 also specifies the characteristics of market participants and determines that fair value is based on the assumptions that would have been used by market participants. According to IFRS 13, fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market. The new disclosures are to be applied prospectively and they do not apply to comparative figures. The appropriate disclosures will be included in the Company's financial statements upon initial adoption of IFRS 13.

NOTE 5:- CASH AND CASH EQUIVALENTS

December 31, 2012 2011 U.S. dollars in thousands

Cash at banks and on hand $ 5,551 $ 7,586 Cash at banks earns interest at floating rates based on daily bank deposit rates

NOTE 6:- ACCOUNTS RECEIVABLE

December 31 2012 2011 U.S. dollars in thousands

Government authorities $ - $ 60 Grants receivable 197 236 Others 13 12 $ 210 $ 308

GAMIDA CELL LTD.


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NOTE 7:- EXCESS OF LOSSES OVER INVESTMENTS IN AFFILIATE

December 31, 2012 2011 U.S. dollars in thousands Shares $ 14,678 $ 12,316 Capital gain from issuance to a third party 16,282 16,282 Equity in losses of an affiliance (32,838) (29,525) $ (1,878) $ (927)

NOTE 8:- PROPERTY AND EQUIPMENT

December 31, 2012 2011

U.S. dollars in thousands Cost:

Machinery $ 1,298 $ 1,270 Office furniture and equipment 327 335 Leasehold improvements 788 788

2,413 2,393 Accumulated depreciation:

Machinery 1,184 1,144 Office furniture and equipment 231 213 Leasehold improvements 769 765

2,184 2,122 Depreciated cost $ 229 $ 271 In the years ended December 31, 2012 and 2011, depreciation and amortization expenses were $ 62 thousand and $ 90 thousand, respectively, and additional equipment was purchased in an amount of $ 20 thousand and $ 51 thousand, respectively.

NOTE 9:- OTHER ACCOUNTS PAYABLE AND ACCRUALS

December 31, 2012 2011 U.S. dollars in thousands Employees and payroll accruals $ 613 $ 501 Government authorities 57 - Accrued expenses 50 68 $ 720 $ 569

GAMIDA CELL LTD.


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NOTE 10:- RETIREMENT BENEFIT LIABILITY, NET

a. Retirement benefit obligation data:

The amounts recognized in the balance sheet are determined as follows:

Year ended December 31, 2012 2011 2010 U.S. dollars in thousands

Present value of funded obligation $ 1,317 $ 1,205 $ 1,038

Fair value of plan assets $ 1,230 $ 1,088 $ 1,005 Liability in the balance sheet $ 87 $ 117 $ 33

The movement in the defined benefit obligation over the year is as follows:

Year ended December 31, 2012 2011 2010 U.S. dollars in thousands

Beginning of the year $ 1,205 $ 1,038 $ 785 Current service cost 167 165 147 Interest cost 58 50 44 Actuarial losses (16) 60 23 Changes in exchange rate 27 (73) 60 Benefits paid (124) (35) (21) End of the year $ 1,317 $ 1,205 $ 1,038 The movement in the fair value of plan assets of the year is as follows: Year ended December 31, 2012 2011 2010 U.S. dollars in thousands

Beginning of the year $ 1,088 $ 1,005 $ 770 Expected return on plan assets 53 49 43 Actuarial gains (losses) 6 (30) (3) Employer contributions 154 169 158 Changes in exchange rate 25 (70) 58 Benefits paid (96) (35) (21) End of the year $ 1,230 $ 1,088 $ 1,005

GAMIDA CELL LTD.


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NOTE 10:- RETIREMENT BENEFIT LIABILITY, NET (Cont.)

The amounts recognized in the income statement are as follows: Year ended December 31, 2012 2011 2010 U.S. dollars in thousands

Current service cost $ 167 $ 165 $ 147 Interest cost 58 50 44 Expected return on plan assets (53) (49) (46) Actuarial losses (gains) 22 90 26 Total, included in G&A and R&D

costs $ 194 $ 256 $ 171 The principal actuarial assumptions used were as follows: Year ended December 31, 2012 2011 2010 %

Discount rate 4.4 4.6 4.9

Inflation rate 2.5 2.4 2.81

Average expected return on plan assets 4.4 4.6 4.9

Future salary increases 4.2 4.2 4.2 Mortality rate:

Assumptions regarding future mortality experience were set based in accordance with published statistics and experience relevant in Israel.

NOTE 11:- CONTINGENT LIABILITIES, COMMITMENTS, LIENS AND GUARANTEES

a. The facilities of the Company are rented under an operating lease for the period ending

June 2015. Future minimum lease commitments as of December 31 are as follows:

Year ended December 31, U.S dollars in

thousands 2013 $ 252 2014 252 2015 126 $ 630

b. The Company rents motor vehicles under an operating lease agreement that expires in

November 2015, for a monthly aggregate fee of $ 19 thousand.

GAMIDA CELL LTD.


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NOTE 11:- CONTINGENT LIABILITIES, COMMITMENTS, LIENS AND GUARANTEES (Cont.)

c. The Company is obligated to pay royalties to the Government of Israel through the Office

of the Chief Scientist ("the OCS"), at the rates of 3% to 5% on sales proceeds from products developed through the grants received from the OCS. The maximum amount of royalties payable to the Government of Israel is limited to 100% of the grants received, linked to the dollar and bearing interest at the LIBOR rate. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required.

As of December 31, 2012, the Company has a contingent obligation to the Government of Israel in the amount of $ 7,898 thousands (excluding interest).

d. The Company is obligated to pay Hadasit royalties at the rates of 2.5%-3% of net sales

with respect to products developed using the intellectual property developed by Hadasit. e. In July 2008, the Company entered into a non-exclusive license agreement with Amgen,

for the use of 3 growth factors, (the "Agreement"). According to the Agreement the Company will pay in consideration of such license an upfront payment in cash, issue Preferred D shares of NIS 0.01 par value and grant warrants to purchase Preferred D1 shares of NIS 0.01 par value. In addition, the Company will pay milestones payments upon achieving certain milestones and will be obligated to pay royalties of the future revenues from this project for a term of the later of (a) ten years after the first commercial sale from this project, or (b) the expiration of the last to expire patent right used in this project. As of December, 2012, certain consent is still pending, therefore the Company's financial obligation is 2/3 of the above mentioned. The Agreement includes, inter alia, a diligence provision whereby failure of Gamida Cell to comply with the diligence obligation shall entitle Amgen to terminate the Agreement. Following the above mentioned Agreement, the Company signed a sublicense agreement with JV (the "Sublicense Agreement"). According to the Sublicense Agreement the Company will sublicense JV the rights and obligations under the Agreement. In consideration, JV will pay the upfront payment directly to the third party and will compensate the Company for the issuance of the Preferred D shares of NIS 0.01 par value and the grant of warrants to purchase Preferred D1 shares of NIS 0.01 par value to Amgen. All milestones and royalties payments will be paid directly by JV to Amgen. Since, there is a certain consent which is still pending, in August and September 2008 the Company issued 69,735 Preferred D shares of NIS 0.01 par value which reflect only part of the Preferred D shares to be issued, granted 13,254 warrants to purchase Preferred D1 shares of NIS 0.01 par value and transferred $ 667 thousand to Amgen. In July 2008, Teva granted Amgen a guarantee for all liabilities, obligations and other amounts incurred or payable resulting from the Agreement. In September 2008, the Company transferred JV the rights and obligations under the Agreement, in consideration of $ 1,333 thousand.

GAMIDA CELL LTD.


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NOTE 12:- CONVERTIBLE LOAN

In August 28, 2011, the board of directors of the Company decided that the financing round of the Company, which was contemplated to be exercised by a rights offering to the existing shareholders, will be postponed to the first quarter of 2012 and an interim financing of the Company will be made by a convertible bridge loan of up to $ 4 million, to be granted by the existing shareholders. Such loan will be converted to shares upon consummation of the contemplated financing round at a discount on the price per share paid in the financing round. On September 15, 2011, the board of directors of the Company approved the terms of the bridge loan agreement. The grant of the convertible loan was offered to all existing shareholders of the Company. The convertible loan will bear interst at the rate of 8% per annum until March 31, 2012, and 12% from that date, unless a qualifying financing of at least $10,000 thousand occurs on or prior to March 31, 2012. The loan will be converted automatically upon a qualifying financing, or the latest at March 31, 2013 at a varying price per share, as determined in the agreement. The conversion component was estimated upon initial recognition, and the difference between the consideration received and the fair value of the conversion component is attributed to the loan component. The balance includes the convertible loan and the conversion component.The loan component was measured based on its terms at amortized cost using the effective interest method. In the framework of the investment agreement in May 2012, the convertible loan (including accrued interest) was converted into Preffered shares (see Note 11).

NOTE 13:- EQUITY

a. Composition of share capital:

December 31, January 1, 2012 2011 2011

Authorized

Issued and outstanding Authorized

Issued and outstanding Authorized

Issued and outstanding

NIS in thousands

Ordinary shares of NIS 0.01 par value each

11,743,763 689,898 11,576,163 689,898 11,576,163 689,898

Preferred shares of

NIS 0.01 par value each

8,818,837 7,564,779 7,423,837 6,338,280 7,423,837 6,338,280

b. Share rights:

1. Ordinary shares:

The holders of Ordinary shares have the right to receive notices to attend and vote in general meetings, the right to share in dividends and a residual right upon liquidation subject to the liquidation rights of all preferred shareholders.

GAMIDA CELL LTD.


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NOTE 13:- EQUITY (Cont.)

The Ordinary B shares confer on the holders thereof substantially all rights accruing to holders of Ordinary shares in the Company, provided however, that until the IPO (as defined under the Articles of Association), Ordinary B shares shall not entitle the holders thereof to participate in, nor to vote on any matter submitted to, the meetings of the Company's shareholders.

2. Preferred shares:

The Preferred shareholders (A,B,C,D,D1,E1,E2) are entitled to the same rights conferred by the Ordinary shares in addition to the following rights:

Anti dilution protection - The Preferred shareholders (B,C,D,D1,E1,E2) are entitled to Weighted Average Anti Dilution Adjustment.

Dividend - The holders of Preferred shares shall be entitled to participate in the distribution of all dividends.

Liquidation preference -

The holders of the Preferred E1 and E2 shares shall be entitled to receive prior to and in preference to any payment to any of the holders of any other classes of shares of the Company, an amount of $ 7.33 per share with respect to Preferred E1 and an amount of $ 9.16 per share with respect to Preferred E2, plus 8% per annum of such amount from the date of issuance compounded annually (the "Series E1 and E2 Preference Amount").After full payment to the holders of the Preferred E1 and E2 shares, the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed among the holders of the Preferred D and D1 shares up to an aggregate an amount of $ 9.56 per share with respect to Preferred D and with respect to Preferred D1 the lesser of $ 15.09 per share or the issuance price per share actually paid per each Preferred D1, plus 8% per annum of such amount from the date of issuance compounded annually (the "Series D and D1 Preference Amount"). After full payment to the holders of the Preferred D and D1 shares, the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed among the holders of the Preferred C shares up to an aggregate amount per share of $ 6.6178 plus 8% per annum of such amount, from the date of issuance compounded annually (the "Series C Preference Amount"). After full payment to the holders of the Preferred C shares, the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed among the holders of the Preferred B shares up to an aggregate amount per share of $ 5.09 plus 8% per annum of such amount, from the date of issuance compounded annually (the "Series B Preference Amount").

GAMIDA CELL LTD.


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After full payment to the holders of the Preferred B shares, the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed among the holders of the Preferred A shares up to an aggregate amount per share of $ 3.33 plus 8% per annum of such amount, from the date of issuance compounded annually (the "Series A Preference Amount").

After full payment to the holders of the Preferred A shares, the entire remaining assets and funds of the Company legally available for distribution, if any, shall be distributed among all shareholders of the Company on a pro rata as if converted to Ordinary Shares basis

c. In February 2012, the board of the Company decided to approve the "Outline for

proposed right offering for series E preferred financing". The investment amount shall be up to $ 10,000 thousand inclusive of the $ 4,000 thousand convertible loan that was received in Octeber 2011. The Company shall offer the rights to all existing shareholders plus warrants of 50% of the investment amount to purchase series E shares of the Company at the price equals to $ 9.16, exercisable until the earlier of a period of 3 years or upon M&A/IPO. On May 2012, the Company's Bord of Directors and the shareholders meeting approved the agreement mentioned above. According to the agreement the Company issued 571,478 preffered E1 shares, 655,021 preffered E2 shares and 556,165 warrants to preffered E2 shares, in consideration of an additional $ 5.9 million (net of $ 94 thousand issuance expenses), and convertion of the convertible loan (including accrued interest) and conversion component in the amount of $ 5,235 thousand.

d. Share option plan:

Under the Company's 1998, 1999 and 2003 Stock Option Plans ("the Plans"), options may be granted to officers, directors, employees and consultants of the Company or its subsidiaries. Pursuant to the Plans, the Company reserved for issuance 1,353,231 Ordinary shares. The exercise price of the options granted under the plans may not be less than the nominal value of the shares into which the options are exercised. The options vest primarily over three to four years. Any options, which are forfeited or not exercised before expiration, become available for future grants. As of December 31, 2012, an aggregate of 649,043 options are still available for future grant.

On November, 2010, the Company granted several employees 41,500 options to purchase Ordinary shares of the Company at an exercise price of $ 6. The options shall vest over a period of 4 years. The options shall expire after 10 years from date of grant. The fair value of the options totaling $ 42,200 was estimated on the date of grant using the Black and Scholes Merton Model, with the following assumptions: volatility of 90%, risk-free interest rates of 4.1%, dividend yields of 0%. In July 2011, the Company granted to one of its consultant 2,000 fully vested options to purchase 2,000 Ordinary shares of the Company at an exercise price of $ 6. The options shall expire after 10 years from date of grant.

GAMIDA CELL LTD.


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The fair value of the options totaling $ 1,995 was estimated on the date of grant using the Black and Scholes Merton Model, with the following assumptions: volatility of 90%, risk-free interest rates of 4%, dividend yields of 0%. A summary of the Company's options activity under the plans is as follows: Year ended December 31, 2011 2012

Number of

options


price

Number of

options


price Outstanding at beginning of year 593,520 $ 3.58 593,020 $ 3.58Granted 2,000 $ 6 - $ - Forfeited (2,500) $ 3.58 (5,500) $ 6 Outstanding at end of year 593,020 $ 3.58 587,520 $ 3.58

Exercisable options 587,020 $ 3.58 586,166 $ 3.58

The options outstanding as of December 31, 2012, have been separated into ranges of exercise price, as follows:

Exercise price

Options outstanding

as of December 31,

2011

Weighted average

remaining contractual life (years)

Options exercisable

as of December 31,

2012 1.41 303,819 1.4 303,819 4.8 29,877 3.1 29,877 6 253,824 3.6 252,470

587,520 586,166

e. Warrants exercisable:

In September 2008 the Company granted 13,254 warrants to purchase Preferred D1 shares of NIS 0.01 par value at an exercise price per share of $ 15.09 (see Note 11e). Expiration of the warrants shall be upon the earlier of: 1) Four years from the closing date; 2) IPO; or 3) M&A transaction. The warrants expired in August and September 2012.

GAMIDA CELL LTD.


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NOTE 14:- TAXES ON INCOME

a. Tax benefits under the Law for the Encouragement of Capital Investments, 1959:

In 2000, the Company's production facilities in Israel have been granted "Approved Enterprise" status under the above law. The main benefit arising from such status is a tax exemptions for 10 years on income derived from the aforementioned "Approved Enterprise". The period of tax benefits detailed above is subject to a limitation of 12 years from commencement of production, or 14 years from the approval date, whichever is earlier. The period of benefits relating to the "Approved Enterprise" will expire in 2014.

The tax-exempt income attributable to the "Approved Enterprise" can be distributed to shareholders without imposing a tax liability on the Company only upon the complete liquidation of the Company. If the retained tax-exempt income is distributed in a manner other than in the complete liquidation of the Company, it would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative tax benefits (currently - 25%). The entitlement to the above benefits is conditional upon the Company's fulfilling the conditions stipulated by the above law. In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest. On February 28, 2007, the Company submitted a request to the Investment Center for splitting and assigning an "Approved Enterprise" status and related benefits between the Company and its Israeli subsidiary. The request was approved in October 2007.

b. Tax laws applicable to the Company:

According to the law, until 2007, the results for tax purposes were adjusted for the changes in the Israeli CPI. In February 2008, the Knesset (Israel's parliament) passed an amendment to the Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law starting 2008 and thereafter. Since 2008, the results for tax purposes are measured in nominal values, excluding certain adjustments for changes in the Israeli CPI carried out in the period up to December 31, 2007. Adjustments relating to capital gains such as for sale of property (betterment) and securities continue to apply until disposal. Since 2008, the amendment to the law includes, among others, the cancellation of the inflationary additions and deductions and the additional deduction for depreciation.

c. Tax rates applicable to the Company:

The Israeli corporate tax rate was 24% in 2011 and 25% in 2012. A company is taxable on its real (non-inflationary) capital gains at the corporate tax rate in the year of sale.

GAMIDA CELL LTD.


- 31 -

NOTE 14:- TAXES ON INCOME (Cont.)

On December 5, 2011, the Knesset passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Law") which, among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate. The Law also increases the corporate tax rate to 25% in 2012. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate were also increased accordingly.

d. Net operating losses carryforward:

The Company has accumulated losses and deductions for tax purposes as of December 31, 2012, in the amount of approximately $ 51,086 thousand, which may be carried forward and offset against taxable income in the future for an indefinite period.

e. Final tax assessments:

The Company's tax assessments through the 2007 tax year are considered final.

f. No liability for unrecognized tax benefits was recorded. NOTE 15:- NET EARNINGS PER SHARE

The net profit and the weighted average number of shares used in computing basic and diluted earnings per share for the years ended December 31, 2012 and 2011, is as follows: Year ended December 31, 2012 2011 2010 U.S. dollars in thousands

Net loss used for the computation of basic and

diluted earnings loss per share $ 6,833 $ 9,295 $ 7,206 Year ended December 31, 2012 2011 2010 Number of shares Weighted average number of Ordinary shares used

in the computation of basic and diluted earnings per share 689,898 689,898 689,898

GAMIDA CELL LTD.


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NOTE 16:- RESEARCH AND DEVELOPMENT EXPENSES, NET

Year ended December 31, 2012 2011 2010 U.S. dollars in thousands Salaries and social benefits $ 924 $ 1,020 $ 872 Subcontractors 1,726 1,156 1,426 Materials 680 796 677 Rent and maintenance 124 141 134 Travel and trade shows 86 63 77 Depreciation 45 66 104 Other expenses 46 59 162 3,631 3,301 3,452 Less - grants and participation 1,198 1,358 1,265 $ 2,433 $ 1,943 $ 2,187

NOTE 17:- GENERAL AND ADMINISTRATIVE EXPENSES

Year ended

December 31, 2012 2011 2010 U.S. dollars in thousands Salaries and social benefits $ 258 $ 298 $ 279 Professional services 138 70 125 Rent and maintenance 126 144 144 Depreciation 10 12 26 Travel and car expenses 33 29 35 Other expenses 2 34 9 $ 567 $ 587 $ 618

NOTE 18:- FINANCE EXPENSES

Finance expenses:

Year ended

December 31, 2012 2011 2010 U.S. dollars in thousands Bank charges, interest expense and others, net $ 12 $ 19 $ - Convertible loan interest 783 453 - Expenses arising from foreign currency translation

adjustments 42 75 - Losses arising from withdraw of securities - 103 - $ 837 $ 650 $ -

GAMIDA CELL LTD.


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NOTE 18:- FINANCE EXPENSES (Cont.)

Finance income:

Year ended

December 31, 2012 2011 2010 U.S. dollars in thousands Interest income $ 71 $ 31 $ 209 Decrease in value of warrants 3 10 133 Income arising from foreign currency translation

adjustments - - 31 $ 74 $ 41 $ 373

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

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INSIGHTEC LTD. · Balance - December 31, 2012 14,016,462 14,037,888 32,201,524 27,519,391 $ 35 $ 34...

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