UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



FORM 10-K/A

Amendment No. 1



£ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



OR



RTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period
from July 1, 2013 to December 31, 2013



COMMISSION FILE NUMBER: 001-35731



InspireMD, Inc.

(Exact name of Registrant as specified in
its charter)



|Delaware                                                               | 26-2123838                             
|---------------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of
        incorporation or organization) | (I.R.S. Employer Identification Number)
|                                                                       |                                        
|321 Columbus Avenue
        Boston, Massachusetts                      | 02116                                  
|(Address of principal executive offices)                               | (Zip Code)                             



Registrant’s telephone number, including
area code:(857) 453-6553



Securities registered pursuant to Section
12(b) of the Act:

|Title of each class             | Name of each exchange on which registered
|------------------------------- | -----------------------------------------
|Common Stock, $0.0001 par value | NYSE MKT                                 



Securities registered
pursuant to Section 12(g) of the Act: none



________________





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes£NoR



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes£NoR



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesRNo£



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). YesRNo£



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.£



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.



|Large
        accelerated filer£                                                             | Accelerated
        filer£
|-------------------------------------------------------------------------------------------- | --------------------------
|Non-accelerated
        filer£
        (Do not check if a
        smaller reporting company) | Smaller reporting companyR



Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes£NoR



The aggregate market value of the voting
and non-voting stock held by non-affiliates of the registrant as of June 30, 2013, based on the price at which the common equity
was last sold on the NYSE MKT on such date, was approximately $56,816,075. For purposes of this computation only, all officers,
directors and 10% or greater stockholders of the registrant are deemed to be affiliates.



Indicate the number of shares outstanding
of each of the registrant’s classes of common stock as of the latest practicable date.



|Class                           |  | Outstanding
    at February 25, 2014
|------------------------------- |  | ------------------------------------
|Common Stock, $0.0001 par value |  | 34,925,968                          



Documents incorporated by reference:



None






















EXPLANATORY NOTE



We filed our Transition Report on Form 10-KT
for the transition period from July 1, 2013 to December 31, 2013 (the “Original Report”). We are filing this Amendment
No. 1 on Form 10-KT/A (“Amendment No.1”) to the Original Report because the Original Report inadvertently omitted the
date of the Report of Kesselman & Kesselman, Independent Registered Public Accounting Firm. The Report of Kesselman &
Kesselman, Independent Registered Public Accounting Firm is dated February 26, 2014. We have made no further changes to the Original
Report. This Amendment No. 1 does not reflect events occurring after the filing of the Original Report, nor does it modify or update
the disclosures and information contained in the Original Report in any way other than described in this paragraph. Accordingly,
this Amendment No. 1 should be read in conjunction with the Original Report and our other filings with the SEC subsequent to the
filing of the Original Report.















TABLE OF CONTENTS



|         |                                                                                                               | Page
|-------- | ------------------------------------------------------------------------------------------------------------- | ----
|         | PART I                                                                                                        |     
|Item 1.  | Business.                                                                                                     | 3   
|Item 1A. | Risk Factors.                                                                                                 | 27  
|Item 1B. | Unresolved Staff Comments.                                                                                    | 44  
|Item 2.  | Properties.                                                                                                   | 44  
|Item 3.  | Legal Proceedings.                                                                                            | 44  
|Item 4.  | Mine Safety Disclosures.                                                                                      | 44  
|         |                                                                                                               |     
|         | PART II                                                                                                       |     
|Item 5.  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 44  
|Item 6.  | Selected Financial Data.                                                                                      | 45  
|Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations.                        | 45  
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.                                                   | 55  
|Item 8.  | Financial Statements and Supplementary Data.                                                                  | 55  
|Item 9.  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                         | 56  
|Item 9A. | Controls and Procedures.                                                                                      | 56  
|Item 9B. | Other Information.                                                                                            | 57  
|         |                                                                                                               |     
|         | PART III                                                                                                      |     
|Item 10. | Directors, Executive Officers and Corporate Governance.                                                       | 57  
|Item 11. | Executive Compensation.                                                                                       | 61  
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.               | 71  
|Item 13. | Certain Relationships and Related Transactions, and Director Independence.                                    | 74  
|Item 14. | Principal Accounting Fees and Services.                                                                       | 74  
|         |                                                                                                               |     
|         | PART IV                                                                                                       |     
|Item 15. | Exhibits and Financial Statement Schedules.                                                                   | 75  



2







PART I



In this Transition Report on Form 10-K/T,
unless the context requires otherwise, the terms “we,” “our,” “us,” or “the Company”
for periods prior to the closing of our share exchange transactions on March 31, 2011 refer to InspireMD Ltd., a private company
incorporated under the laws of the State of Israel that is now our wholly-owned subsidiary, and its subsidiary, taken as a whole,
and the terms “we,” “our,” “us,” or “the Company” for periods subsequent to the
closing of the share exchange transactions refer to InspireMD, Inc., a Delaware corporation, and its subsidiaries, including InspireMD
Ltd., taken as a whole.



| | Item 1. | Business.
| | ------- | ---------



Change in Fiscal Year End



On September 16, 2013, our board of directors
approved a change in our fiscal year-end from June 30 to December 31, effective December 31, 2013. This Transition Report on Form
10-K/T reports our financial results for the six month period from July 1, 2013 through December 31, 2013, which we refer to as
the “transition period” throughout this report. Following the transition period, we will file annual reports for each
twelve month period ended December 31 of each year beginning with the twelve month period ended December 31, 2014.



History



We were organized in the State of Delaware
on February 29, 2008 as Saguaro Resources, Inc. to engage in the acquisition, exploration and development of natural resource properties.
On March 28, 2011, we changed our name from “Saguaro Resources, Inc.” to “InspireMD, Inc.”



On March 31, 2011, we completed a series
of share exchange transactions pursuant to which we issued the shareholders of InspireMD Ltd. 12,666,666 shares of common stock
(as adjusted for the one-for-four reverse stock split of our common stock that occurred on December 21, 2012) in exchange for all
of InspireMD Ltd.’s issued and outstanding ordinary shares, resulting in the former shareholders of InspireMD Ltd. holding
a controlling interest in us and InspireMD Ltd. becoming our wholly-owned subsidiary. In addition, all options, warrants or other
securities convertible into or exercisable for ordinary shares of InspireMD Ltd. were exchanged for options, warrants or other
securities convertible into or exercisable for shares of our common stock.



Immediately following the share exchange
transactions, we transferred all of our pre-share exchange operating assets and liabilities to our wholly-owned subsidiary, Saguaro
Holdings, Inc., a Delaware corporation, and transferred all of Saguaro Holdings, Inc.’s outstanding capital stock to Lynn
Briggs, our then-majority stockholder and our former president, chief executive officer, chief financial officer, secretary-treasurer
and sole director, in exchange for the cancellation of 1,875,000 shares of our common stock (as adjusted for the one-for-four reverse
stock split of our common stock that occurred on December 21, 2012) held by Ms. Briggs.



After the share exchange transactions and
the divestiture of our pre-share exchange operating assets and liabilities, we succeeded to the business of InspireMD Ltd. as our
sole line of business, and all of our then-current officers and directors resigned and were replaced by designees of InspireMD
Ltd.



Overview



We are a medical device company focusing
on the development and commercialization of our proprietary stent platform technology, MGuardTM. MGuard provides embolic
protection in stenting procedures by placing a micronet mesh sleeve over a stent (see photograph below of an MGuard stent). Our
initial products are marketed for use mainly in patients with acute coronary syndromes, notably acute myocardial infarction (heart
attack) and saphenous vein graft coronary interventions (bypass surgery). According to the TYPHOON STEMI trial (New England Journal
of Medicine, 2006) and the SOS SVG Trial (Journal of the American College of Cardiology, 2009), of patients with acute myocardial
infarction and saphenous vein graft coronary interventions, 7.5% to 44% experience major adverse cardiac events, including cardiac
death, heart attack and restenting of the artery. When performing stenting procedures in patients with acute coronary symptoms,
interventional cardiologists face a difficult dilemma in choosing, with the aim of ensuring adequate protection from distal embolization
(the dislodgement of particles from the artery wall that results in blood clot), between bare-metal stents, which have a high rate
of restenosis (formation of new blockages), and drug-eluting (drug-coated) stents, which have a high rate of late thrombosis (formation
of clots months or years after implantation), require administration of anti-platelet drugs for at least one year post procedure,
are more costly than bare-metal stents and have additional side effects. We believe that MGuard is a simple and seamless solution
for these patients. For the six months ended December 31, 2013, our total revenue was approximately $3.1 million and our net loss
was approximately $9.3 million. For the six months ended December 31, 2012, our total revenue was approximately $1.9 million and our net
loss was approximately $9.4 million.



3







MGuard Sleeve – Microscopic View



Z:\Vineyard\Live jobs\2014\02 Feb\21 Feb\Shift III\InspireMD 10-KT\Draft\03-Production



We intend to study our MGuard technology
for use in a broad range of coronary related situations in which complex lesions occur and intend to seek to make it an industry
standard for treatment of acute coronary syndromes. We believe that patients will benefit from a cost-effective alternative which
we believe will prove to have a superior clinical efficacy and safety profile than other stent technologies. We believe that with
our MGuard technology, we are well positioned to emerge as a key player in the global stent market.



We also intend to apply our technology to
develop additional products used for other vascular procedures, specifically carotid (the arteries that supply blood to the brain)
and peripheral (other arteries) procedures.



In October 2007, our first generation product,
the MGuard Coronary, received CE Mark approval for treatment of coronary arterial disease in the European Union. CE Mark is a mandatory
conformance mark on many products marketed in the European Economic Area and certifies that a product has met European Union consumer
safety, health or environmental requirements. We began shipping our product to customers in Europe in January 2008 and have since
expanded our global distribution network to Southeast Asia, India, Latin America and Israel.



Our initial MGuard Coronary product incorporated
a stainless steel stent. We replaced this stainless steel platform with a more advanced cobalt-chromium based platform, which we
refer to as the MGuard Prime version of the MGuard Coronary product. We believe the new platform will prove to be superior because
cobalt-chromium stents are generally known in the industry to provide better deliverability and possibly even a reduction in major
adverse cardiac events. In particular, according to Jabara, et al. (“A Third Generation Ultra-thin Strut Cobalt Chromium
Stent: Histopathological Evaluation in Porcine Coronary Arteries,” EuroIntervention, November 2009), due to its greater density,
cobalt-chromium enables the construction of stents that have both thinner struts and similar radial strength as stainless steel,
with its thicker struts. In turn, Jabara, et al. found that the reduced thickness of the struts provides more flexibility and lower
crossing profiles, thereby reducing the inflammatory response and neointimal thickening, potentially lowering restenosis and target
vessel revascularization rates.



The MGuard Prime version of the MGuard Coronary product received CE Mark approval in the European Union
in October 2010 for improving luminal diameter and providing embolic protection. We believe we can use and leverage the clinical
trial results of our original stainless steel based MGuard Coronary to help market our new cobalt-chromium based MGuard Prime version
of the MGuard Coronary product. In addition, MGuard Carotid received CE Mark approval in the European Union in March 2013.



4







However, we face a number of
challenges to the further growth of our MGuard Coronary and other planned MGuard products. For example, we face competition
from numerous pharmaceutical and biotechnology companies in the therapeutics area, as well as competition from academic
institutions, government agencies and research institutions. Most of our current and potential competitors have, and will
continue to have, substantially greater financial, technological, research and development, regulatory and clinical,
manufacturing, marketing and sales, distribution and personnel resources than we do. In addition, none of our products are
currently approved by the U.S. Food and Drug Administration. Clinical trials necessary to support a pre-market approval
application to the U.S. Food and Drug Administration for our MGuard products, including one that is underway, will be
expensive and will require the enrollment of a large number of patients, and suitable patients may be difficult to identify
and recruit, which may cause a delay in the development and commercialization of our product candidates. Furthermore, our
rights to our intellectual property with respect to our products could be challenged or our products could be challenged in
view of third party intellectual property rights. Based on the prolific litigation that has occurred in the stent industry
and the fact that we may pose a competitive threat to some large and well-capitalized companies that own or control patents
relating to stents and their use, manufacture and delivery, we believe that it is possible that one or more third parties
will assert a patent infringement claim against the manufacture, use or sale of our MGuard products based on one or more of
these patents. Additionally, there is a strong preference to use drug-eluting stents in some countries. Over the last decade,
there has been an increasing tendency to use drug-eluting stents in percutaneous coronary intervention (PCI), commonly known
as angioplasty (a therapeutic procedure to treat narrowed coronary arteries of the heart found in patients with heart
disease), with a usage rate of drug-eluting stents in PCI approaching 70-80% in some countries, even though
drug-eluting stents do not address thrombus management in acute myocardial infarction. Also, the use of other bare-metal
stents is preferred over the use of MGuard products in certain circumstances, such as when placing the stent at the entrance
to large side branches, known as “jailing large side branches.”



Unless otherwise indicated, in this Annual
Report, references to MGuard Coronary are to both our initial stainless steel based MGuard Coronary and our more current cobalt-chromium
based MGuard Prime version of the MGuard Coronary, as applicable.



Our principal executive offices are located at 321 Columbus Avenue, Boston, MA 02116. Our telephone number
is (857) 453-6553. We make available free of charge through our website at www.inspire-md.com our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports. You may also obtain any
materials we file with, or furnish to, the U.S. Securities and Exchange Commission on its website at www.sec.gov.



Business Segment and Geographic Areas



For financial information about our one
operating and reportable segment and geographic areas, refer to “Part II—Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Part II—Financial Statements and Supplementary
Data—Note 12. Entity Wide Disclosures.”



Our Industry



According to Fact Sheet No. 310/updated
June 2013 of the World Health Organization, approximately 7.0 million people worldwide died of ischaemic heart disease in 2011.
Physicians and patients may select from among a variety of treatments to address coronary artery disease, including pharmaceutical
therapy, balloon angioplasty, stenting with bare metal or drug-eluting stents, and coronary artery bypass graft procedures, with
the selection often depending upon the stage of the disease. A stent is an expandable “scaffold-like” device, usually
constructed of a stainless steel material, that is inserted into an artery to expand the inside passage and improve blood flow.



According to the 2014 MEDTECH OUTLOOK produced
in December 2013 by BMO Capital Markets, revenues from the global coronary stent market are predicted to slightly decline, although
in volume of stents the market is predicted to continue to grow. The growth in volume is due to the appeal for less invasive percutaneous
coronary intervention procedures and advances in technology coupled with the increase in the elderly population, obesity rates
and advances in technology.



5







Coronary artery disease is one of the leading causes of death worldwide. The treatment of coronary artery
disease includes alternative treatment methodologies, that is, coronary artery bypass grafting or angioplasty (percutaneous coronary
intervention) with or without stenting. According to the 2014 MEDTECH OUTLOOK produced by the BMO Capital Markets in December 2013,
the percutaneous coronary intervention procedures involving stents used to treat coronary artery diseases had an estimated 68%
market penetration rate in 2013.



Our Products



The MGuard stent is an embolic protection
device based on a protective sleeve, which is constructed out of an ultra-thin polymer mesh and wrapped around the stent. The protective
sleeve is comprised of a micron level fiber-knitted mesh, engineered in an optimal geometric configuration and designed for utmost
flexibility while retaining strength characteristics of the fiber material (see illustration below). The sleeve expands seamlessly
when the stent is deployed, without affecting the structural integrity of the stent, and can be securely mounted on any type of
stent.



MGuard Deployed in Artery







The protective sleeve is designed to provide
several clinical benefits:



| | · | the mesh diffuses the pressure and the impact of deployment exerted
by the stent on the arterial wall and reduces the injury to the vessel;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | the protective sleeve reduces plaque dislodgement and blocks debris
from entering the bloodstream during and post procedure (called embolic showers);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in future products, when drug coated, the mesh is expected to deliver
better coverage and uniform drug distribution on the arterial wall and therefore potentially reduce the dosage of the active ingredient
when compared to approved drug-eluting stents on the market; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the protective sleeve maintains the standards of a conventional stent
and therefore should require little to no additional training by physicians.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



MGuard – Coronary Applications



Our MGuard Coronary with a bio-stable mesh
and our planned MGuard Coronary with a drug-eluting mesh are aimed at the treatment of coronary arterial disease.



6







MGuard Coronary with a bio-stable
mesh.  Our first MGuard product, the MGuard Coronary
with a bio-stable mesh, is comprised of our mesh sleeve wrapped around a stainless steel bare-metal stent. The current MGuard
Prime version of our MGuard Coronary with a bio-stable mesh is comprised of our mesh sleeve wrapped around a cobalt-chromium bare-metal
stent. In comparison to a conventional bare-metal stent, we believe the MGuard Coronary with a bio-stable mesh provides protection
from embolic showers. Results of completed clinical trials on the MGuard Coronary stent, including the MAGICAL, PISCIONE,
MGuard international registry (iMOS) and MASTER I clinical trials described below (see “— Comparison of Clinical Trial
Results to Date with Results Achieved Using Bare Metal or Drug-Eluting Stents in the STEMI Population” below), indicate
positive outcomes and safety measures.



The results of the initial single arm trials (MAGICAL, PISCIONE and iMOS) for the MGuard Coronary stent
suggest higher levels of reperfusion, lower rates of 30-day and 1-year major adverse cardiac events, and high levels of complete
ST resolution, as compared to the levels and rates of other bare-metal and drug-eluting stents. MGuard Coronary demonstrated high
levels of complete ST resolution (occurrence in 61% of patients in the MAGICAL study and 90% of patients in the PISCIONE study
for the MGuard Coronary stent) and lower rates of 30 day and 1 year major adverse cardiac events (2.4% and 5.9%, respectively,
for the MGuard Coronary stent), as compared to the levels and rates of other bare-metal and drug-eluting stents, as reported by
Vlaar et. al. (Cardiac death and reinfarction after 1 year in the Thrombus Aspiration during Percutaneous coronary intervention
in Acute myocardial infarction Study (TAPAS): a 1-year follow-up study, Lancet 2008; 371: 1915–20). As reported in the study
by Vlaar et. al., complete ST resolution occurred in 44.2% of patients with a bare-metal stent and 56.6% of patients with a bare-metal
stent preceded by an aspiration procedure, and the 30 day and 1 year major adverse cardiac event rates were 9.4% and 20.3%, respectively,
for patients with a bare-metal stent and 6.8% and 16.6%, respectively, for patients with a bare-metal stent preceded by an aspiration
procedure. Furthermore, results from the HORIZONS-AMI trial demonstrated that 1-year major adverse cardiac event rates were 10.5%
for patients with drug eluting stents. Complete ST resolution is the evidence of a quick and adequate disappearance of the pathologic
ST elevation in the patient’s electrocardiogram, which is the clear marker of STEMI. The faster and more complete the resolution
is, the better recovery of the myocardium and the better prognosis for the patient. Vlaar et. al. reported that a higher complete
ST resolution correlates with lower mortality and/or reinfarction rates among affected patients (cardiac mortality was 1.4% for
patients with complete ST resolution compared to 15.3% for patients with no ST resolution).





With respect to our MASTER I trial, 30 day,
6 month and 12 month results were reported on October 24, 2012, May 23, 2013 and October 19, 2013, respectively (See “—
Clinical Trials — Completed Clinical Trials for MGuard Coronary Bare Metal Stent Plus Bio-Stable Mesh”). As described
below, the MASTER I trial demonstrated superior rates of epicardial coronary flow, complete ST-segment resolution and a slightly
lower mortality rate with the MGuard Coronary as compared to commercially-approved bare metal or drug-eluting stents. However,
unlike the other trials described above, the MASTER I trial failed to show a statistically significant reduced rate of 30 day,
6-month or 12-month major adverse cardiac events with the MGuard Coronary compared to a conventional bare metal stent.



MGuard Coronary with a drug eluting
bio-absorbable mesh.Based upon the clinical profile of MGuard
Coronary, we anticipate that the MGuard Coronary with a drug-eluting bio-absorbable mesh will offer comparable levels of reperfusion
and complete ST resolution to the MGuard Coronary with a bio-stable mesh, as described above, and a comparative restenosis rate,
which is the rate at which patients experience formation of new blockages in their arteries, when compared to existing drug-eluting
stents. While the feasibility of attaching our bio-absorbable mesh onto various approved drug eluting stents is currently being
evaluated, a proprietary MGuard Coronary with a drug-eluting bio-absorbable mesh is not yet under development. The bio-absorbability
of MGuard Coronary with a drug eluting bio-absorbable mesh is intended to improve upon the bio-absorbability of other drug-eluting
stents, in light of the large surface area of the mesh and the small diameter of the fiber. We intend to study whether the protective
sleeve on the MGuard Coronary with a drug-eluting bio-absorbable mesh can improve uniform distribution of the applied drug to
the vessel wall for improved drug therapy management compared to other drug-eluting stents, where the drug is distributed on the
struts only. If this intended result is achieved with respect to the improved and uniform distribution of the applied drug to
the vessel wall, the total dosage of the medication potentially could be reduced while increasing its efficacy. MGuard Coronary
with a drug-eluting bio-absorbable mesh is expected to promote smooth and stable endothelial cell growth and subsequent attachment
to the lumen of the vessel wall, which is essential for rapid healing and recovery.





7







MGuard – Carotid Applications



We intend to market our mesh sleeve coupled
with a self-expandable stent (a stent that expands without balloon dilation pressure or need of an inflation balloon) for use in
carotid-applications. We obtained CE Mark approval for our MGuard carotid stent in March 2013 and expect to commence our first
clinical study of this product in the first half of 2014. We believe that our MGuard design will provide substantial advantages
over existing therapies in treating carotid artery stenosis (blockage or narrowing of the carotid arteries), like conventional
carotid stenting and endarterectomy (surgery to remove blockage), given the superior embolic protection characteristics witnessed
in coronary arterial disease applications in high risk patient populations. We intend that the embolic protection will result from
the mesh sleeve, as it traps emboli at their source. In addition, we believe that MGuard Carotid will provide post-procedure protection
against embolic dislodgement, which can occur immediately after a carotid stenting procedure and is often a source of post-procedural
strokes in the brain. Schofer, et al. (“Late cerebral embolization after emboli-protected carotid artery stenting assessed
by sequential diffusion-weighted magnetic resonance imaging,” Journal of American College of Cardiology Cardiovascular
Interventions, Volume 1, 2008) have also shown that the majority of the incidents of embolic showers associated with carotid
stenting occur immediately post-procedure.



MGuard – Peripheral Applications



We intend to market our mesh sleeve coupled
with a self-expandable stent (a stent that expands without balloon dilation pressure or need of an inflation balloon) for use in
peripheral applications. This product is currently under development, although we have temporarily delayed its development until
additional funding is secured. Peripheral Artery Disease, also known as peripheral vascular disease, is usually characterized by
the accumulation of plaque in arteries in the legs, need for amputation of affected joints or even death, when untreated. Peripheral
Artery Disease is treated either by trying to clear the artery of the blockage, or by implanting a stent in the affected area to
push the blockage out of the way of normal blood flow.



As in carotid procedures, peripheral procedures
are characterized by the necessity of controlling embolic showers both during and post-procedure. Controlling embolic showers is
so important in these indications that physicians often use covered stents, at the risk of blocking branching vessels, to ensure
that emboli does not fall into the bloodstream. We believe that our MGuard design will provide substantial advantages over existing
therapies in treating peripheral artery stenosis (blockage or narrowing of the peripheral arteries).



Product Development and Critical Milestones



Below is a list of the products described
above and our projected critical milestones with respect to each. As used below, “CQ” stands for calendar quarter (e.g.,
“CQ1-2013” means January 1, 2013 through March 31, 2013). While we currently anticipate seeking approval from the U.S.
Food and Drug Administration for all of our products in the future, we have only outlined an estimated timetable to seek U.S. Food
and Drug Administration approval for our MGuard Coronary with bio-stable mesh product in our current business plan. The use of
the term “to be determined” in the table below with regard to certain milestones indicates that the achievements of
such milestones is unable to be accurately predicted as such milestones are too far in the future.



|Product                                               |  | Indication          |  | StartDevelopment |  | CE Mark          |  | EuropeanUnion Sales |  | FDAApproval      |  | U.S. Sales      
|----------------------------------------------------- |  | ------------------- |  | ---------------- |  | ---------------- |  | ------------------- |  | ---------------- |  | ----------------
|MGuard Coronary Plus Bio-Stable Mesh                  |  | Bypass/ Coronary    |  | 2005             |  | Oct. 2007        |  | CQ1-2008            |  | CQ2-2016         |  | 2016            
|                                                      |  |                     |  |                  |  |                  |  |                     |  |                  |  |                 
|MGuard Peripheral Plus Bio-Stable Mesh                |  | Peripheral Arteries |  | CQ1-2011         |  | To be determined |  | To be determined    |  | To be determined |  | To be determined
|                                                      |  |                     |  |                  |  |                  |  |                     |  |                  |  |                 
|MGuard Carotid Plus Bio-Stable Mesh                   |  | Carotid Arteries    |  | CQ1-2011         |  | March 2013       |  | To be determined    |  | To be determined |  | To be determined
|                                                      |  |                     |  |                  |  |                  |  |                     |  |                  |  |                 
|MGuard Coronary Plus Bio-Absorbable Drug-Eluting Mesh |  | Bypass/ Coronary    |  | To be determined |  | To be determined |  | To be determined    |  | To be determined |  | To be determined





With respect to MGuard Carotid with bio-stable mesh and MGuard Peripheral with bio-stable mesh, we have
determined that the expected commencement of sales in the European Union cannot be accurately predicted since (i) sales cannot
commence for MGuard Carotid until we have further clinical data for this product and (ii) the development of MGuard Peripheral
with bio-stable mesh has been postponed until we have additional funding.



We anticipate that our MGuard Coronary with
bio-stable mesh will be classified as a Class III medical device by the U.S. Food and Drug Administration.



8







Pre-Clinical Studies



We performed laboratory and animal testing
prior to submitting an application for CE Mark approval for our MGuard Coronary with bio-stable mesh. We also performed all CE
Mark-required mechanical testing of the stent. We conducted pre-clinical animal trials at the CBSET lab in July 2006 and August
2007. In these animal trials, on average, the performance of the MGuard Coronary with bio-stable mesh was comparable with the performance
of control bare-metal stents. Analysis also indicated that in these animal trials, the mesh produced levels of inflammation comparable
with those levels produced by standard bare-metal stents. No human trials were conducted as part of these pre-clinical trials.



The table below describes our completed
and planned pre-clinical trials. The use of the term “To be determined” in the table below with regard to milestone
dates in our pre-clinical studies indicates that we have not yet decided when to schedule such milestones.





|Product                   |  | Stent
        Platform                                              |            | Approval
 Requirement                    |                  | Start of Study   |                  | End of Study    
|------------------------- |  | ------------------------------------------------------------------- | ---------- | ---------------------------------------- | ---------------- | ---------------- | ---------------- | ----------------
|MGuardCoronary            |  | Bare-Metal Stent Plus Bio-Stable
        Mesh                       |            | CE Mark (European Union + Rest of World) |                  | CQ4-2006         |                  | CQ3-2007        
|                          |  |                                                                     |            |                                          |                  |                  |                  |                 
|                          |  | Drug-Eluting Mesh (Bare-Metal Stent Plus
        Drug-Eluting Mesh) |            | CE Mark (European Union + Rest of World) |                  | To be determined |                  | To be determined
|                          |  |                                                                     | FDA (U.S.) |                                          | To be determined |                  | To be determined
|                          |  |                                                                     |            |                                          |                  |                  |                 
|                          |  | Cobalt-Chromium Stent Plus Bio-Stable
        Mesh                  |            | FDA (U.S.)                               |                  | CQ2-2011         |                  | CQ2-2012        
|                          |  |                                                                     |            |                                          |                  |                  |                  |                 
|MGuard Peripheral/Carotid |  | Self Expanding System Plus Mesh                                     |            | CE Mark (European Union + Rest of World) |                  | CQ4-2012         |                  | CQ2-2013        





With respect to the preclinical studies
for MGuard Coronary with a drug eluting bio-absorbable mesh, the trials have been indefinitely suspended due to our determination
to focus our time and resources on other trials at this time.





Clinical Trials



The table below describes our completed
and planned clinical trials. The use of the term “To be determined” in the table below with regard to milestone dates
in our clinical trials indicates that we have not yet decided when to schedule such milestones. All milestone dates set forth in
the table below are our best estimates based upon the current status of each clinical trial.



9











|                  |  |                                                       |  |                                                                                         |  |                      |  |                                                                                      |  | Study
    Status  
|----------------- |  | ----------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | -------------------- |  | ------------------------------------------------------------------------------------ |  | ------------------
|Product           |  | StentPlatform                                         |  | ClinicalTrial Sites                                                                     |  | Follow-upRequirement |  | Objective                                                                            |  | No.
    ofPatients
|MGuardCoronary    |  | Bare-Metal Stent PlusBio-Stable Mesh                  |  | Germany –two sites                                                                      |  | 12 months            |  | Studyto evaluatesafety andperformanceof MGuardsystem                                 |  |                   
|                  |  |                                                       |  | Brazil –one site                                                                        |  | 12 months            |  |                                                                                      |  |                   
|                  |  |                                                       |  | Poland –four sites                                                                      |  | 3 years              |  |                                                                                      |  |                   
|                  |  |                                                       |  | InternationalMGuardObservationalStudy –worldwide –19 sites                              |  | 12 months            |  |                                                                                      |  |                   
|                  |  |                                                       |  | Israeli MGuardObservationalStudy – Israel –9 sites                                      |  | 6 months             |  |                                                                                      |  |                   
|                  |  |                                                       |  | Masterrandomizedcontrol trial –9 countries,50 centers inSouth America,Europe and Israel |  | 13 months            |  |                                                                                      |  |                   
|                  |  |                                                       |  | BrazilObservationalStudy – 25 sites                                                     |  | 12 months            |  |                                                                                      |  |                   
|                  |  |                                                       |  | FDA Study –70 sites, U.S.and out of U.S.                                                |  | 13 months            |  | Pivotal study to evaluatesafety andperformanceof MGuardsystem forFDA approval        |  |                   
|                  |  | Drug-ElutingStent(Bare-MetalStent + DrugEluting Mesh) |  | South Americaand Europe –10 sites                                                       |  | To be determined     |  | Pilot studyto evaluatesafety andperformanceof MGuardsystem forFDA andCE Markapproval |  |                   
|                  |  |                                                       |  | U.S. – 50 sites                                                                         |  | To be determined     |  |                                                                                      |  |                   
|                  |  |                                                       |  | Rest of Worldas anObservationalStudy                                                    |  | 12 months to 3 years |  | Evaluationof safetyand efficacyfor specificindications                               |  |                   
|MGuard Peripheral |  | Self-ExpandingSystem + Mesh                           |  | South Americaand Europe –four sites                                                     |  | 12 months            |  | Pilot studyto evaluatesafety andperformanceof MGuardsystem for CE Markapproval       |  |                   
|MGuard Carotid    |  | Self-ExpandingSystem + Mesh                           |  | Rest of Worldas aregistry study                                                         |  | 12 months            |  | Evaluation ofsafety andefficacy forspecificindicationspost-marketing                 |  |                   







10







Each of the patient numbers and study dates
set forth in the tables above are management’s best estimate of the timing and scope of each referenced trial. Actual dates
and patient numbers may vary depending on a number of factors, including, without limitation, feedback from reviewing regulatory
authorities, unanticipated delays by us, regulatory authorities or third party contractors, actual funding for the trials at the
time of trial initiation and initial trial results.





The MGuard Coronary clinical trials for
the drug-eluting stent have been delayed from our previously announced target until additional funding is secured.



With respect to the MGuard Peripheral clinical trial for the self-expanding system plus mesh, the start
date has been delayed from our previously announced start date until additional funding is secured.





With respect to the MGuard Carotid clinical
trial for the self-expanding system plus mesh, the number of patients has been decreased due to feedback from the clinical trial
leaders that a smaller patient population would be sufficient for this clinical trial.



Completed Clinical Trials for MGuard
Coronary Bare-Metal Stent Plus Bio-Stable Mesh



As
shown in the table above, we have completed six clinical trials with respect to our MGuard Coronary with bio-stable mesh. Our first
study, conducted at two centers in Germany, included 41 patients with either saphenous vein graft coronary interventions or native
coronary lesions treatable by a stenting procedure (blockages where no bypass procedure was performed). The MGuard Coronary rate
of device success, meaning the stent was successfully deployed in
the target lesion, was 100% and the rate of procedural success, meaning there were no major adverse cardiac events prior to hospital
discharge, was 95.1%. At six months, only one patient (2.4% of participants) had major Q-wave myocardial infarction (QWMI) and
19.5% of participants had target vessel revascularization (an invasive procedure required due to a stenosis in the same vessel
treated in the study). This data supports MGuard Coronary’s safety in the treatment of vein grafts and native coronary legions.



Our 2007 study in Brazil included 30 patients
who were candidates for a percutaneous coronary intervention (angioplasty) due to native coronary lesion(s) and/or narrowing of
a native coronary artery or a bypass graft. In all patients, the stent was successfully deployed with perfect blood flow parameters
(the blood flow parameter is a measurement of how fast the blood flows in the arteries and the micro circulation system in the
heart). Except for a single case of a major adverse cardiac event (3% of participants) that was non-QWMI, there were no major cardiac
events at the time of the follow-up 30 days after the deployment of the stents.



The MAGICAL study, which was conducted in
Poland, included 60 patients with acute ST-segment elevation myocardial infarction (the most severe form of a heart attack, referred
to as “STEMI”). The purpose of the study was to evaluate the clinical performance of MGuard Coronary with bio-stable
mesh when used in STEMI patients where percutaneous coronary intervention is the primary line of therapy. Perfect blood flow in
the artery was achieved in 90% of patients, perfect blood flow into the heart muscle was achieved in 73% of patients and complete
(>70%) restoration of electrocardiogram normality was achieved in 61.4% of patients. The total major adverse cardiac events
rate during the six-month period following the deployment of the stents was 1.7% and after a three-year period was 8.8%.



Our observation study in Europe was an open
registry launched in the first calendar quarter of 2009. This registry enrolled 550 patients in 19 sites, primarily in Austria,
Czech Republic and Hungary, and was aimed at evaluating the performance of MGuard Coronary with bio-stable mesh in a “real
world” population. Based upon the number of patients enrolled, we decided to close enrollment on January 10, 2013 and concentrate
on clinical follow-up for this study. The primary endpoint that this registry evaluated was the occurrence of major adverse cardiac
events at 30 days and six months following deployment of the stent. The clinical follow-up continued for a period of up to one
year per patient. We expect to have a final report of the results from this study available in the first calendar quarter of 2014.



11







Our observational study in Israel was an
open registry launched in the fourth calendar quarter of 2009. This registry enrolled 87 patients. Based upon the number of patients
enrolled, we decided to close enrollment on February 6, 2013 and concentrate on clinical follow-up for this study. The primary
endpoint that this registry evaluated was the occurrence of major adverse cardiac events at 30 days following deployment of the
stent. The clinical follow-up was conducted six months following deployment of the stent. We expect to have a final report of the
results from this study available in the first calendar quarter of 2014.



In the second calendar quarter of 2011, we began the MGuard for Acute ST Elevation Reperfusion Trial (which
we refer to as our “MASTER I trial”), a prospective, randomized study in Europe, South America and Israel to compare
the MGuard Coronary stent with commercially-approved bare metal and drug-eluting stents in achieving superior myocardial reperfusion
(the restoration of blood flow) in primary angioplasty for the treatment of acute STEMI, the most severe form of heart attack.
The MASTER I trial enrolled 433 subjects, 50% of whom were treated with an MGuard Coronary stent and 50% of whom were treated with
a commercially-approved bare metal or drug-eluting stent. The detailed acute and 30 days results from the trial, which were presented
at the Transcatheter Cardiovascular Therapeutics (TCT) conference on October 24, 2012, were as follows:



| | · | The primary endpoint of post-procedure complete ST-segment resolution
(restoration of blood flow to the heart muscle after a heart attack) was significantly improved in patients randomized to the MGuard
Coronary stent compared to commercially-approved bare metal or drug-eluting stents (57.8% vs. 44.7%).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The MGuard Coronary stent resulted in superior rates of thrombolysis in myocardial infarction (TIMI) 3
flow, which evidences normal coronary blood flow that fills the distal coronary bed completely, as compared to commercially-approved
bare metal or drug-eluting stents (91.7% vs. 82.9%), with comparable rates of myocardial blush grade 2 or 3 (83.9% vs. 84.7%) and
corrected TIMI frame count (cTFC) (17.0 vs. 18.1), markers of optimal blood flow to the heart.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Angiographic success rates (attainment of <50% final residual stenosis
of the target lesion and final TIMI 3 flow) were higher in the MGuard Coronary group compared to commercially-approved bare metal
or drug-eluting stents (91.7% vs 82.4%).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Mortality (0% vs. 1.9%) and major adverse cardiac events (1.8% vs.
2.3%) at 30 days post procedure were not statistically significantly different between patients randomized to the MGuard Coronary
stent as opposed to commercially-approved bare metal or drug-eluting stents. All other major adverse cardiac event components,
as well as stent thrombosis, were comparable between the MGuard Coronary and commercially-approved bare metal or drug-eluting stents.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The six month results from the trial, which
were presented at EuroPCR, the official annual meeting of the European Association for Percutaneous Cardiovascular Interventions,
on May 23, 2013, were as follows:



| | · | Mortality (0.5% vs. 2.8%) and major adverse cardiac events (5.2% vs. 3.4%) at 6 months post procedure were not statistically significantly different between patients randomized to the MGuard Coronary stent as opposed to commercially-approved bare metal or drug-eluting stents. All other major adverse cardiac event components, as well as stent thrombosis, were comparable between the MGuard Coronary and commercially-approved bare metal or drug-eluting stents.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The twelve month results from the trial,
which were presented at the Transcatheter Cardiovascular Therapeutics (TCT) conference on October 29, 2013, were as follows:



| | · | Mortality (1.0% vs. 3.3%) and major adverse cardiac events (9.1% vs. 3.3%) at 12 months post procedure were not statistically significantly different between patients randomized to the MGuard Coronary stent as opposed to commercially-approved bare metal or drug-eluting stents. All other major adverse cardiac event components, as well as stent thrombosis, were comparable between the MGuard Coronary and commercially-approved bare metal or drug-eluting stents.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12









In sum, the MASTER I trial demonstrated
that among patients with acute STEMI undergoing emergency PCI, or angioplasty, MGuard Coronary resulted in superior rates of epicardial
coronary flow (blood flow within the vessels that run along the outer surface of the heart) and complete ST-segment resolution
compared to commercially-approved bare metal or drug-eluting stents. In addition, MGuard Coronary showed a slightly lower mortality
rate and a slightly higher major adverse cardiac event rate as compared to commercially-approved bare metal or drug-eluting stents
six and twelve months following the procedure.



A detailed table with the results from the MASTER I trial is set forth below. In statistical significance
testing, “p-Value” refers to the probability of obtaining a given test result. Anything less than 0.05 is considered
statistically significant.





|                                     |  | MGuard Coronary |      |  | Bare Metal Stents/Drug Eluting Stents |  |      | p-Value | 
|------------------------------------ |  | --------------- | ---- |  | ------------------------------------- |  | ---- | ------- | 
|Number of Patients                   |  |                 | 217  |  |                                       |  | 216  |         | 
|TIMI 0-1                             |  |                 | 1.8  |  |                                       |  | 5.6  |         | 
|TIMI 3                               |  |                 | 91.7 |  |                                       |  | 82.9 |         | 
|Myocardial blush grade 0-1           |  |                 | 16.1 |  |                                       |  | 14.8 |         | 
|Myocardial blush grade 3             |  |                 | 74.2 |  |                                       |  | 72.1 |         | 
|ST segment resolution >70            |  |                 | 57.8 |  |                                       |  | 44.7 |         | 
|30 day major adverse cardiac event   |  |                 | 1.8  |  |                                       |  | 2.3  |         | 
|6 month major adverse cardiac event  |  |                 | 5.2  |  |                                       |  | 3.4  |         | 
|12 month major adverse cardiac event |  |                 | 9.1  |  |                                       |  | 3.3  |         | 



Ongoing Clinical Trials for MGuard Coronary
Bare-Metal Stent Plus Bio-Stable Mesh



In the third calendar quarter of 2010, we
launched a Brazilian registry to run in 25 Brazilian sites and enroll 500 patients. The primary endpoint that this registry will
evaluate is the occurrence of major adverse cardiac events at six months following the deployment of the stent, and the clinical
follow-up will continue for a period of up to one year per patient. As of February 25, 2014, 24 patients of the prospective 500
have been enrolled.



U.S. Food and Drug Administration
Trial





Presently, none of our products may be sold
or marketed in the U.S. In connection with our efforts to seek approval of our MGuard Coronary with bio-stable mesh by the U.S.
Food and Drug Administration, we filed an investigational device exemption application with the U.S. Food and Drug Administration
during the summer of 2012 in order to conduct a pivotal trial. On April 19, 2013, we received an approval with conditions from
the U.S. Food and Drug Administration for our investigational device exemption application, which allowed us to initiate enrollment
in the trial. This trial, which we refer to as our “MASTER II trial,” is expected to be a multi-center, randomized
study, consisting of up to 1,114 patients suffering from STEMI, throughout 35 sites in the U.S. and an additional 35 sites in Europe.
The MASTER II trial will have two co-primary endpoints: superiority in complete ST resolution and non-inferiority in death and
target vessel myocardial infarction. In addition, a 356 patient sub-study will be conducted to assess the effect of the MGuard
Coronary on infarct size, as measured by magnetic resonance imaging, and an additional 200 patient sub-study will be conducted
to assess the late lumen loss, measured at 13 months. We expect that the clinical follow-ups for the subjects in the study will
be at 30 days, six months and 12 months. The budget for the MASTER II trial is estimated to be up to $13.0 million and the enrollment
phase for the study is expected to last 18 months. We began enrollment in the MASTER II trial on July 29, 2013.



Comparison of Clinical Trial Results to Date with Results
Achieved Using Bare Metal or Drug-Eluting Stents in the STEMI Population





13







We conducted a meta-analysis of data from
four clinical trials in which MGuard was used:



| | · | the MAGICAL study, a single arm study in which 60 acute ST-segment
elevation myocardial infarction (the most severe form of a heart attack, referred to as STEMI) patients with less than 12 hours
symptom onset were enrolled, as reported in “Mesh Covered Stent in ST-segment Elevation Myocardial Infarction” in EuroIntervention,
2010 and presented by D. Dudek, “Extended Follow-up of the MAGICAL Trial”, EuroPCR 2012;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the PISCIONE study, a single arm study in which 100 STEMI patients
were enrolled, as reported in “Multicentre Experience with MGuard Net Protective Stent in ST-elevation Myocardial Infarction:
Safety, Feasibility, and Impact on Myocardial Reperfusion” in Catheter Cardiovasc Interv, 2009 and presented by F.
Piscione, “Multicentre Experience MGuard with MGuard net Protective Stent in ST-elevation Myocardial Infarction: Long-term
Results”, Transcatheter Cardiovascular Therapeutics (TCT) Conference 2010 and F. Piscione, “MGuard in Acute MI: Three-Year
Follow-up”, TCT Conference 2011;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the iMOS study, a Registry on MGuard Coronary use in the “real-world”
population, from a study whose data was not published; and
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | the Jain study, which looks at a small group of 51 STEMI patients,
as reported in “Prevention of Thrombus Embolization during Primary Percutaneous Intervention Using a Novel Mesh Covered Stent”
in Catheter Cardiovasc Interv, 2009 and presented by R. Weermckody, “A Mesh Covered Stent Effectively Reduces the Risk of
Digital Embolisation During Primary Percutaneous Intervention for ST Elevation Myocardial Infarction,” EuroPCR 2010.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our meta-analysis included data from the
following trials:



| | · | The CADILLAC (Controlled Abciximab and Device Investigation to Lower
Late Angioplasty Complications) study, which found that primary stent implantation is a preferred strategy for the treatment of
acute myocardial infarction, as reported in “A Prospective, Multicenter, International Randomized Trial Comparing Four Reperfusion
Strategies in Acute Myocardial Infarction: Principal Report of the Controlled Abciximab and Device Investigation to Lower Late
Angioplasty Complications (CADILLAC) Trial” in Journal of American College of Cardiology, 2001, “Comparison
of Angioplasty with Stenting, with or without Abciximab, in Acute Myocardial Infarction” in New England Journal of Medicine,
2002, “Frequency, Correlates, and Clinical Implications of Myocardial Perfusion After Primary Angioplasty and Stenting, With
and Without Glycoprotein IIb/IIIa Inhibition, in Acute Myocardial Infarction” in Journal of the American College of Cardiology,
2004 and “Combined Prognostic Utility of ST-segment Recovery and Myocardial Blush After Primary Percutaneous Coronary Intervention
in Acute Myocardial Infarction” in European Heart Journal, 2005;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The EXPORT trial which was a randomized open-label study whose primary
endpoint was to evaluate flow improvement in AMI patients using either conventional stenting or aspiration followed by stenting,
as reported in “Systematic Primary Aspiration in Acute Myocardial Percutaneous Intervention: A Multicentre Randomised Controlled
Trial of the Export Aspiration Catheter” in EuroIntervention, 2008;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The EXPIRA trial which was a single-center study aimed to explore
pre-treatment with manual thrombectomy as compared to conventional stenting, as reported in “Thrombus Aspiration During Primary
Percutaneous Coronary Intervention Improves Myocardial Reperfusion and Reduces Infarct Size: The EXPIRA (Thrombectomy with Export
Catheter in Infarct-related Artery During Primary Percutaneous Coronary Intervention) Prospective, Randomized Trial” in Journal
of American College of Cardiology, 2009;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The REMEDIA trial, whose objective was to assess the safety and efficacy
of the EXPORT catheter for thrombus aspiration in STEMI patients, as reported in “Manual Thrombus-Aspiration Improves Myocardial
Reperfusion: The Randomized Evaluation of the Effect of Mechanical Reduction of Distal Embolization by Thrombus-Aspiration in Primary
and Rescue Angioplasty (REMEDIA) Trial” in Journal of American College of Cardiology, 2005;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14







| | · | The Horizons-AMI (Harmonizing Outcomes with RevascularIZatiON and Stents in Acute MI), which is the largest
randomized trial which compared drug-eluting stents to bare metal stents in myocardial infarction patients, as reported in “Paclitaxel-Eluting
Stents Versus Bare-Metal Stents in Acute Myocardial Infarction” in New England Journal of Medicine, 2009, “Bivalirudin
in Patients Undergoing Primary Angioplasty for Acute Myocardial Infarction (HORIZONS-AMI): 1-Year Results of a Randomised Controlled
Trial” in Lancet, 2009, and “Heparin Plus a Glycoprotein IIb/IIIa Inhibitor Versus Bivalirudin Monotherapy and
Paclitaxel-eluting Stents Versus Bare-metal Stents in Acute Myocardial Infarction (HORIZONS-AMI): Final 3-year Results from a Multicentre,
Randomised Controlled Trial” in Lancet, 2011; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The TAPAS Trial which showed that thrombus aspiration before stenting
benefits MI patients, as reported in “Thrombus Aspiration During Primary Percutaneous Coronary Intervention” in New
England Journal of Medicine, 2009 and “Cardiac Death and Reinfarction After 1 Year in the Thrombus Aspiration During
Percutaneous Coronary Intervention in Acute Myocardial Infarction Study (TAPAS): A 1-year Follow-up Study” in Lancet,
2008.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The non-randomized, pooled data analysis
of MGuard Coronary outcomes in STEMI population show comparable rates of thrombolysis in myocardial infarction (TIMI) 3 flow with
no significant difference of the historical control as compared to MGuard Coronary (87.8% and 91.7%, respectively), while the rates
of myocardial blush grade score 3 (37.3% for the historical control and 81.6% for MGuard Coronary) and ST segment resolution>70%
(53.6% for the historical control and 79.1% for MGuard Coronary) are significantly better with the MGuard Coronary. MGuard Coronary
also appears consistently superior at the 30 days major adverse cardiac event (8.4% for the historical control and 2.4% for MGuard
Coronary) and 1 year major adverse cardiac event (12.8% for the historical control and 5.9% for MGuard Coronary) endpoints. The
data appears in the following tables.



|                                            |  | NAME OF STUDY |     |  |          | 
|------------------------------------------- |  | ------------- | --- |  | -------- | 
|                                            |  | MAGICAL       |     |  | PISCIONE | 
|Number of Patients                          |  |               | 60  |  |          | 
|Thrombolysis in myocardial infarction 0-1,% |  |               | 0   |  |          | 
|Thrombolysis in myocardial infarction 3,%   |  |               | 90  |  |          | 
|Myocardial blush grade 0-1,%                |  |               | 3.3 |  |          | 
|Myocardial blush grade 3,%                  |  |               | 73  |  |          | 
|ST segment resolution>70%,%                 |  |               | 61  |  |          | 
|ST segment resolution>50%,%                 |  |               | 88  |  |          | 
|30 day major adverse cardiac event,%        |  |               | 0   |  |          | 
|6 month major adverse cardiac events,%      |  |               | 0   |  |          | 
|1 year major adverse cardiac events,%       |  |               | —   |  |          | 
|1 year target vessel revascularization      |  |               | —   |  |          | 
|Acute Binary Resteonosis 6M,%               |  |               | —   |  |          | 



15







|                                                 |  | THREE YEAR FOLLOW UP STUDIES NAME OF STUDY |              |   |          | 
|------------------------------------------------ |  | ------------------------------------------ | ------------ | - | -------- | 
|                                                 |  | MAGICAL                                    |              |   | PISCIONE | 
|Number of Patients                               |  |                                            | 57 out of 60 |   |          | 
|Cardiac death at 3Y                              |  |                                            | 7            | % |          | 
|Non Cardiac death at 3Y                          |  |                                            | 1.8          | % |          | 
|Re-MI at 3Y                                      |  |                                            | 0            | % |          | 
|TLR at 3Y                                        |  |                                            | 1.8          | % |          | 
|TVR at 3Y Include TLR                            |  |                                            | 3.5          | % |          | 
|Stroke                                           |  |                                            | 1.8          | % |          | 
|Stent thrombosis Definite / Probable             |  |                                            | 0            | % |          | 
|MACE (Cardiac death, RE-MI, TLR)                 |  |                                            | 8.8          | % |          | 
|MACCE (All death, target vessel MI, TVR, Stroke) |  |                                            | 10.5         | % |          | 





|Trial                                           |  | CADILLAC                   |      |  | Horizons-
     AMI |  |      | Horizons-
     AMI |  |  | TAPAS                   |  |  | TAPAS   |      |  | EXPORT  |  |      | EXPORT |  |  | EXPIRA  |  |  | EXPIRA                  |      |  | REMEDIA                      |  |      | REMEDIA |  |  | Historical
     comparison |  |  | MGuard  |    |  | Level
    of 
    Significance | 
|----------------------------------------------- |  | -------------------------- | ---- |  | ------------------ |  | ---- | ------------------ |  |  | ----------------------- |  |  | ------- | ---- |  | ------- |  | ---- | ------ |  |  | ------- |  |  | ----------------------- | ---- |  | ---------------------------- |  | ---- | ------- |  |  | -------------------------- |  |  | ------- | -- |  | ------------------------------ | 
|Group                                           |  | Stent
    + 
    Abciximab |      |  | BMS                |  |      | DES                |  |  | Thrombus
    aspiration |  |  | control |      |  | control |  |      | TA     |  |  | control |  |  | Thrombus
    aspiration |      |  | Thrombus
    
    aspiration |  |      | control |  |  | Average                    |  |  | Average |    |  |                                | 
|                                                |  |                            |      |  |                    |  |      |                    |  |  |                         |  |  |         |      |  |         |  |      |        |  |  |         |  |  |                         |      |  |                              |  |      |         |  |  |                            |  |  |         |    |  |                                | 
|Number of Patients                              |  |                            | 524  |  |                    |  | 749  |                    |  |  | 2257                    |  |  |         | 535  |  |         |  | 536  |        |  |  | 129     |  |  |                         | 120  |  |                              |  | 87   |         |  |  | 88                         |  |  |         | 50 |  |                                | 
|Thrombolysis in myocardial
    infarction 0-1,% |  |                            | —    |  |                    |  | —    |                    |  |  | —                       |  |  |         | —    |  |         |  | —    |        |  |  | 3.9     |  |  |                         | 2.4  |  |                              |  | 1.1  |         |  |  | 0                          |  |  |         | —  |  |                                | 
|Thrombolysis in myocardial
    infarction 3,%   |  |                            | 96.9 |  |                    |  | 89.8 |                    |  |  | 87.6                    |  |  |         | 86   |  |         |  | 82.5 |        |  |  | 76.9    |  |  |                         | 82   |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|Myocardial blush grade 0-1,%                    |  |                            | 48.7 |  |                    |  | —    |                    |  |  | —                       |  |  |         | 17.1 |  |         |  | 26.3 |        |  |  | 31.6    |  |  |                         | 27.6 |  |                              |  | 40.2 |         |  |  | 11.4                       |  |  |         | 32 |  |                                | 
|Myocardial blush grade 3,%                      |  |                            | 17.4 |  |                    |  | —    |                    |  |  | —                       |  |  |         | 45.7 |  |         |  | 32.2 |        |  |  | 25.4    |  |  |                         | 35.8 |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|ST segment resolution>70%,%                     |  |                            | 62.1 |  |                    |  | —    |                    |  |  | —                       |  |  |         | 56.6 |  |         |  | 44.2 |        |  |  | —       |  |  |                         | —    |  |                              |  | 39.1 |         |  |  | 63.6                       |  |  |         | 58 |  |                                | 
|ST segment resolution>50%,%                     |  |                            | —    |  |                    |  | —    |                    |  |  | —                       |  |  |         | —    |  |         |  | —    |        |  |  | 71.9    |  |  |                         | 85   |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|30 day major adverse cardiac
    event,%        |  |                            | 4.4  |  |                    |  | —    |                    |  |  | —                       |  |  |         | 6.8  |  |         |  | 9.4  |        |  |  | —       |  |  |                         | —    |  |                              |  | —    |         |  |  | —                          |  |  |         | 10 |  |                                | 
|6 month major adverse cardiac
    events,%      |  |                            | 10.2 |  |                    |  | —    |                    |  |  | —                       |  |  |         | —    |  |         |  | —    |        |  |  | —       |  |  |                         | —    |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|1 year major adverse cardiac
    events,%       |  |                            | —    |  |                    |  | 11.9 |                    |  |  | 10.5                    |  |  |         | 16.6 |  |         |  | 20.3 |        |  |  | —       |  |  |                         | —    |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|Acute Binary Resteonosis 6
    month,%          |  |                            | 20.8 |  |                    |  | —    |                    |  |  | —                       |  |  |         | —    |  |         |  | —    |        |  |  | —       |  |  |                         | —    |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|1 year target vessel revascularization          |  |                            | —    |  |                    |  | 8.7  |                    |  |  | 5.8                     |  |  |         | 12.9 |  |         |  | 11.2 |        |  |  | —       |  |  |                         | —    |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 
|Acute Binary Resteonosis 1
    year,%           |  |                            | —    |  |                    |  | 21   |                    |  |  | 8.2                     |  |  |         | —    |  |         |  | —    |        |  |  | —       |  |  |                         | —    |  |                              |  | —    |         |  |  | —                          |  |  |         | —  |  |                                | 









16







Future Clinical Trials for MGuard Coronary



We expect that post-marketing trials will be conducted to further evaluate the safety and efficacy of
the MGuard Coronary with bio-stable mesh in specific indications. These trials will be designed to facilitate market acceptance
and expand the use of the product. In other countries outside of the U.S., we believe that we generally will be able to rely upon
CE Mark approval of the product, as well as the results of the MASTER II trial and MASTER I trial in order to obtain local approvals.



Growth Strategy



Our primary business objective is to utilize
our proprietary technology to become the industry standard for treatment of acute coronary syndromes and to provide a superior
solution to the common acute problems caused by current stenting procedures, such as restenosis, embolic showers and late thrombosis.
We are pursuing the following business strategies in order to achieve this objective.



| | · | Successfully commercialize MGuard Coronary with bio-stable mesh.  We
have begun commercialization of MGuard Coronary with a bio-stable mesh in Europe, Russia, Asia and Latin America through our distributor
network and directed selling efforts and we are aggressively pursuing additional registrations and contracts in other countries
such as Canada, South Korea and certain smaller countries in Latin America. By the time we begin marketing this product in the
U.S., we expect to have introduced the MGuard Coronary technology to clinics and interventional cardiologists around the world,
and to have fostered brand name recognition and widespread adoption of MGuard Coronary. We plan to accomplish this by participating
in national and international conferences, conducting and sponsoring clinical trials, publishing articles in scientific journals,
holding local training sessions and conducting electronic media campaigns.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Successfully
                                         develop the next generation of MGuard stents.While
                                         we market our MGuard Coronary with bio-stable mesh, we intend to develop the MGuard Coronary
                                         with a drug-eluting mesh. We are also working on our MGuard stents for carotid, for which
                                         we received CE Mark approval in March 2013. In addition, we released our cobalt-chromium
                                         version of MGuard Coronary, MGuard Prime, in 2010, which has predominantly replaced,
                                         and we anticipate will entirely replace, the original stainless steel based version of
                                         MGuard Coronary over the next few years.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Continue to leverage MGuard technology to develop additional
applications for interventional cardiologists and vascular surgeons.In addition to the applications described above,
we believe that we will eventually be able to utilize our proprietary technology to address imminent market needs for new product
innovations to significantly improve patients’ care. We have applied for intellectual property rights using our mesh technology
in the areas of brain aneurism, treating bifurcated blood vessels and a new concept of distal protective devices. We believe these
areas have large growth potential given, in our view, that present solutions are far from satisfactory, and there is a significant
demand for better patient care. We believe that our patents, and patent applications once allowed, can be put into practice and
that they will drive our growth at a later stage.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Work
                                         with world-renowned physicians to build awareness and brand recognition of MGuard portfolio
                                         of products.We work
                                         closely with leading cardiologists to evaluate and ensure the efficacy and safety of
                                         our products. Some of these prominent physicians will serve on our Scientific Advisory
                                         Board, which is our advisory committee that advises our board of directors, and run clinical
                                         trials with the MGuard Coronary stent. We believe these individuals, once convinced of
                                         the MGuard Coronary stent’s appeal, will be invaluable assets in facilitating the
                                         widespread adoption of the stent. In addition, we plan to look to these cardiologists
                                         to generate and publish scientific data on the use of our products, and to present their
                                         findings at various conferences they attend.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17







| | · | Establish relationships with collaborative and development partners
to fully develop and market our existing and future products.We are seeking strategic partners for collaborative
research, development, marketing, distribution, or other agreements, which could assist with our development and commercialization
efforts for MGuard Coronary and other potential products that are based on our proprietary mesh technology. We are in discussions
with multiple potential partners and may enter into an arrangement to pursue further development and commercialization of these
products.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Continue
                                         to protect and expand our portfolio of patents.Our
                                         patents and their protection are critical to our success. We have filed nine separate
                                         patent applications for our MGuard technology in the U.S. and corresponding patent applications
                                         in Canada, China, Europe, Israel, India, and South Africa. We believe these patents and
                                         patent applications collectively cover all of our existing products, and may be useful
                                         for protecting our future technology developments. We intend to continue patenting new
                                         technology as it is developed, and to actively pursue any infringement covered by any
                                         of our patents. To date, we have secured patent protection in China for four patents
                                         and in each of the U.S. and South Africa for one patent. See “— Intellectual
                                         Property — Patents.”
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As noted above, we previously filed patent
applications for our MGuard technology in China, as part of our intended growth strategy. However, upon further consideration of
the cost and resources required to achieve (and risks and costs associated with enforcing) patent protection in China, we elected
to prioritize our pursuit of growth opportunities in other countries and, as such, have ceased our growth efforts in China for
the current time period. We intend to reevaluate our strategy towards commercialization of our MGuard technology in China in the
future.



Competition



The stent industry is highly competitive.
The bare-metal stent and the drug-eluting stent markets in the U.S. and Europe are dominated by Abbott Laboratories, Boston Scientific
Corporation, Johnson & Johnson and Medtronic, Inc. Due to ongoing consolidation in the industry, there are high barriers to
entry for small manufacturers in both the European and the U.S. markets. However, we believe that the European market is somewhat
more fragmented, and small competitors appear able to gain market share with greater ease.



In the future, we believe that physicians
will look to next-generation stent technology to compete with existing therapies. These new technologies will likely include bio-absorbable
stents, stents that are customizable for different lesion lengths, stents that focus on treating bifurcated lesions, and stents
with superior polymer and drug coatings. Some of the companies developing new stents are The Sorin Group, Xtent, Inc., Cinvention
AG, OrbusNeich, Biotronik SE & Co. KG, Svelte Medical Systems, Inc., Reva Inc. and Stentys SA, among others. To address current
issues with drug-eluting stents, The Sorin Group and Cinvention AG have developed stents that do not require a polymer coating
for drug delivery, thereby expanding the types of drugs that can be used on their respective stents. OrbusNeich has addressed the
problem differently, developing a stent coated with an antibody designed to eliminate the need for any drug at all. Xtent, Inc.
has been concentrating on a stent that can be customized to fit different sized lesions, so as to eliminate the need for multiple
stents in a single procedure. Biotronik SE & Co. KG is currently developing bio-absorbable stent technologies, and Abbott Laboratories
is currently developing a bio-absorbable drug-eluting stent. These are just a few of the many companies working to improve stenting
procedures in the future as the portfolio of available stent technologies rapidly increases. As the market moves towards next-generation
stenting technologies, minimally invasive procedures should become more effective, driving the growth of the market in the future.
We plan to continue our research and development efforts in order to be at the forefront of the acute myocardial infarction solutions.



According to the 2014 MEDTECH OUTLOOK produced
by the BMO Capital Markets on December 3, 2013, the worldwide stent market is dominated by three major players, with a combined
total market share of approximately 92%. Within the bare metal stent market and drug-eluting stent market, the top three companies
have approximately 71% and 97% of the market share, respectively. These three companies are Abbott Laboratories, Boston Scientific
Corporation and Medtronic, Inc. To date, our sales are not significant enough to register in market share. As such, one of the
challenges we face to the further growth of MGuard is the competition from numerous pharmaceutical and biotechnology companies
in the therapeutics area, as well as competition from academic institutions, government agencies and research institutions. Most
of our current and potential competitors, including but not limited to those listed above, have, and will continue to have, substantially
greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution
and personnel resources than we do.



18







In addition to the challenges from our
competitors, we face challenges related specifically to our products. None of our products are  currently approved by the
U.S. Food and Drug Administration. Clinical trials necessary to support a pre-market approval application to the U.S. Food
and Drug Administration for our MGuard products will be expensive and will require the enrollment of a large number of
patients, and suitable patients may be difficult to identify and recruit, which may cause a delay in the development and
commercialization of our product candidates. Furthermore, our rights to our intellectual property with respect to our
products could be challenged. Based on the prolific litigation that has occurred in the stent industry and the fact that we
may pose a competitive threat to some large and well-capitalized companies that own or control patents relating to stents and
their use, manufacture and delivery, we believe that it is possible that one or more third parties will assert a patent
infringement claim against the manufacture, use or sale of our MGuard products based on one or more of these patents, and/or
will allege misappropriation of their proprietary confidential information or other intellectual property.



We note that an additional challenge facing
our products comes from drug-eluting stents. Over the last decade, there has been an increasing tendency to use drug-eluting stents
in PCI, with a usage rate of drug-eluting stents in PCI approaching 70-80% in some countries, even though drug-eluting stents do
not address thrombus management in acute myocardial infarction. The HORIZONS-AMI trial that compared drug-eluting stents to bare-metal
stents in STEMI patients failed to show any benefit of drug-eluting stents as compared to bare-metal stents with regard to safety
(death, re-infarction, stroke, or stent thrombosis), but showed the 1-year target vessel revascularization (TVR) rate for drug-eluting
stent patients was only 5.8%, as compared to 8.7% for patients with bare-metal stents. However, based on data from over 350 patients
across three clinical trials, the TVR rate for MGuard Coronary was 2.8%. (This data is comprised of: (i) a TVR rate of 2.3% for
a 100-patient study, as reported in “Multicentre Experience with MGuard Net Protective Stent in ST-elevation Myocardial Infarction:
Safety, Feasibility, and Impact on Myocardial Reperfusion” in Catheter Cardiovasc Interv, 2009; (ii) a TVR rate of
2.3% for a sub-group of 203 STEMI patients from the International MGuard Observational Study; and (iii) a TVR rate of 6.0% for
a group of 51 heart attack patients, as reported in “Prevention of Thrombus Embolization during Primary Percutaneous Intervention
Using a Novel Mesh Covered Stent” in Catheter Cardiovasc Interv, 2009).



Another challenge facing the MGuard products
is that placing the stent at the entrance to large side branches, known as jailing large side branches, is not recommended with
the MGuard Coronary stent, because there is a risk of thrombosis. Jailing requires the need to cross the stent with guidewire and
to create an opening with the balloon to allow proper flow, which can be achieved with lower risk by using other bare-metal stents.



Research and Development Expenses



During each of the six months ended December 31, 2013 and the twelve months ended June 30, 2013 and 2012,
we spent approximately $3.3 million, $4.2 million and $4.0 million, respectively, on research and development.



Sales and Marketing



Sales and Marketing



In October 2007, MGuard Coronary with a
bio-stable mesh received CE Mark approval in the European Union, and shortly thereafter was commercially launched in Europe through
local distributors. We are also in negotiations with additional distributors in Europe, Asia and Latin America and are actively
selling our MGuard Coronary with a bio-stable mesh in more than 20 countries.



Until U.S. Food and Drug Administration
approval of our MGuard Coronary with a bio-stable mesh, which we are targeting for 2016, we plan to focus our marketing efforts
primarily on Europe, Asia and Latin America. Within Europe, we have focused on markets with established healthcare reimbursement
from local governments such as Russia, Italy, Germany, France, Austria, Poland, Czech Republic, Denmark, Holland, Spain, Sweden,
Switzerland and the United Kingdom.



19







In addition to utilizing local and regional
distributor networks, we are using international trade shows and industry conferences to gain market exposure and brand recognition.
We plan to work with leading physicians to enhance our marketing efforts. As sales volume has increased, we have engaged in direct
sales in certain geographic markets.



Product Positioning



The MGuard Coronary has initially penetrated
the market by entering market segments with indications that present high risks of embolic dislodgement, notably acute myocardial
infarction and saphenous vein graft coronary interventions. The market penetration of the MGuard Coronary for each of the twelve
months ended June 30, 2013 and June 30, 2012 was minimal, with total sales of approximately $4.9 million and approximately $5.3
million, respectively each representing less than 1% of the total sales of the acute myocardial infarction solutions market. The
market penetration for the six months ended December 31, 2013 was also minimal, with total sales in the six months ended December
31, 2013 of approximately $3.1 million representing less than 1% of the total sales of the acute myocardial infarction solutions
market.



When performing stenting procedures in patients
with acute coronary symptoms, interventional cardiologists face a difficult dilemma in choosing between bare-metal stents, which
have a high rate of restenosis, and drug-eluting stents, which have a high rate of late stent thrombosis, require administration
of anti-platelet drugs for at least one year post procedure and are more costly than bare-metal stents. We are marketing our platform
technology, MGuard Coronary, as a superior and cost effective solution to these currently unmet needs of interventional cardiologists.
We believe our MGuard Coronary technology is clinically superior to bare-metal stents because it provides embolic protection during
and post-procedure. We believe our MGuard Coronary technology is clinically superior to drug-eluting stents, due to its lower stent
thrombosis rate and protection from embolic showers during and post-procedure.



In addition to the advantages of the MGuard
Coronary technology that we believe to exist, the MGuard Coronary technology maintains the deliverability, crossing profile, and
dilatation pressure of a conventional stent, and interventional cardiologists do not have to undergo any training before utilizing
the product.



Insurance Reimbursement



In most countries, a significant portion
of a patient’s medical expenses is covered by third-party payors. Third-party payors can include both government funded insurance
programs and private insurance programs. While each payor develops and maintains its own coverage and reimbursement policies, the
vast majority of payors have similarly established policies. All of the MGuard products sold to date have been designed and labeled
in such a way as to facilitate the utilization of existing reimbursement codes, and we intend to continue to design and label our
products in a manner consistent with this goal.



While most countries have established reimbursement
codes for stenting procedures, certain countries may require additional clinical data before recognizing coverage and reimbursement
for the MGuard products or in order to obtain a higher reimbursement price. In these situations, we intend to complete the required
clinical studies to obtain reimbursement approval in countries where it makes economic sense to do so.



In the U.S., if the MGuard Coronary with
bio-stable mesh is approved by the U.S. Food and Drug Administration, it will be eligible for reimbursement from the Centers for
Medicare and Medicaid Services, which serve as a benchmark for all reimbursement codes. While there is no guarantee these codes
will not change over time, we believe that the MGuard Coronary will be eligible for reimbursement through both governmental healthcare
agencies and most private insurance agencies in the U.S. once it is approved by the U.S. Food and Drug Administration.



20







Intellectual Property



Patents



We have filed nine patent applications that are pending in the U.S. covering aspects of our MGuard technology.
We have filed corresponding patent applications in Canada, China, Europe, Israel, India and South Africa, for an aggregate total
of 35 patents and pending applications. These patent rights are directed to cover percutaneous therapy, knitted stent jackets,
stent and filter assemblies, in vivo filter assembly, optimized stent jackets, stent apparatuses for treatment via body
lumens and methods of use, stent apparatuses for treatment via body lumens and methods of manufacture and use, and stent apparatuses
for treatment of body lumens, among others. In lay terms, these patent applications generally cover three aspects of our products:
the mesh sleeve with and without a drug, the product and the delivery mechanism of the stent. On October 27, 2010, our patent application
pertaining to “Stent Apparatus for Treatment via Body Lumens and Method of Use”, South African patent application 2007/10751,
was issued as South African Patent No. 2007/10751. On October 25, 2011, our patent application pertaining to “In Vivo Filter
Assembly”, U.S. Patent Application 11/582,354, was issued as U.S. Patent 8,043,323. On June 13, 2012, our patent application
pertaining to “Filter Assemblies,” Chinese Patent Application No. 200780046659.9, was issued as Chinese Patent No.
ZL200780046659.9. On September 26, 2012, our patent application pertaining to “Bifurcated Stent Assemblies,” Chinese
Patent Application No. 200780046676.2, was issued as Chinese Patent No. ZL200780046676.2. On October 10, 2012, our patent application
pertaining to “Knitted Stent Jackets,” Chinese Patent Application No. 200780046697.4, was issued as Chinese Patent
No. ZL200780046697.4. On January 2, 2013, our patent application pertaining to “Optimized Stent Jacket,” Chinese Patent
Application No. 200780043259.2, was issued as Chinese Patent No. ZL200780043259.2. None of the other patent applications has been
granted to date, although two more are now allowed and awaiting issuance. We believe one or more pending patent applications, upon
issuance, will cover each of our existing products. We also believe that the patent applications we have filed, in particular those
covering the use of a knitted micron-level mesh sleeve over a stent for various indications, if issued as patents with claims substantially
in their present form, would likely create a significant barrier for another company seeking to use similar technology. There is
no assurance, however, that our pending patent applications will issue as patents with such claims or that if issued, the patents
will withstand challenges to their validity or enforceability that may arise.



There is also a risk that our products and
commercial processes, as commercialized, will be found to infringe or in some way violate the intellectual property rights of third
parties. To date, however, we are not aware of other companies that have patents directed to a micron fiber, releasable knitted
fiber sleeve over a stent. However, larger, better funded competitors own patents relating to the use of drugs to treat restenosis,
stent architecture, catheters to deliver stents, and stent manufacturing and coating processes and compositions, as well as general
delivery mechanism patents like rapid exchange that might be alleged to cover one or more of our products. For example, we are
aware of one public company that is pursuing patent protection directed to layered materials disposed over a particular stent configuration,
however, these applications were generally filed after our core patent application filings. Stent manufacturers have historically
engaged in significant litigation, and we could be subject to claims of infringement of intellectual property from one or more
competitors. Although we believe that any such claims based on patents of which we are currently aware would be un-founded, such
litigation would divert attention and resources away from the development and/or commercialization of MGuard stents and other product
development, and could result in an adverse court judgment that would make it impossible or impractical to continue selling MGuard
stents in one or more territories. Furthermore, we may be subject to claims of infringement of patent rights of which we are currently
unaware. Other manufacturers or other parties may also challenge the intellectual property that we own, or may own in the future.
We may be forced into litigation to uphold the validity of the claims in our patent portfolio, as well as our ownership rights
to such intellectual property, and litigation is often an uncertain and costly process.



Trademarks



We use the InspireMD and MGuard trademarks
in connection with our products. We have registered these trademarks in Europe. The trademarks are renewable indefinitely, so long
as we continue to use the mark in Europe and make the appropriate filings when required. We have also registered the name “MicroNet®”
as a trademark in the U.S. and we are pursuing a similar trademark in Europe.



Government Regulation



The manufacture and sale of our products
are subject to regulation by numerous governmental authorities, principally the European Union CE Mark, the U.S. Food and Drug
Administration and other corresponding foreign agencies.



21







Sales of medical devices outside the U.S.
are subject to foreign regulatory requirements that vary widely from country to country. These laws and regulations range from
simple product registration requirements in some countries to complex clearance and production controls in others. As a result,
the processes and time periods required to obtain foreign marketing approval may be longer or shorter than those necessary to obtain
U.S. Food and Drug Administration market authorization. These differences may affect the efficiency and timeliness of international
market introduction of our products. For countries in the European Union, medical devices must display a CE Mark before they may
be imported or sold. In order to obtain and maintain the CE Mark, we must comply with the Medical Device Directive 93/42/EEC and
pass initial and annual facilities audit inspections to ISO 13485 standards by an European Union inspection agency. We have obtained
ISO 13485 quality system certification and the products we currently distribute into the European Union display the required CE
Mark. In order to maintain certification, we are required to pass annual facilities audit inspections conducted by European Union
inspectors.



As noted below, we currently have distribution agreements for our products with distributors, or are directly
selling our products, in the following countries: Italy, Austria, Slovenia, Spain, Hungary, Estonia, Ukraine, Holland, Russia,
Latvia, Brazil, Mexico, Argentina, Colombia, India, Sri Lanka, South Africa, Pakistan, Belarus, Croatia, Ireland, Lithuania, Malta,
Malaysia, Venezuela, Australia, Belgium, the Czech Republic, Finland, Kazakhstan, Slovakia, Sweden, Denmark, Norway, Switzerland,
Poland, Germany, Cyprus, France, Finland, Romania, the United Kingdom, Saudi Arabia, New Zealand and Israel. We are subject to
governmental regulation in each of these countries and we are not permitted to sell all of our products in each of these countries.
In addition, we have distribution agreements for our products in Uzbekistan, Taiwan, South Korea, Canada, Kuwait and Armenia, although
we have not yet obtained regulatory approval to sell our products in those countries. While each of the European Union member countries
accepts the CE Mark as its sole requirement for marketing approval, some of these countries still require us to take additional
steps in order to gain reimbursement rights for our products. Furthermore, while we believe that each of the above-listed countries
that is not a member of the European Union accepts the CE Mark as its primary requirement for marketing approval, each such country
requires additional regulatory requirements for final marketing approval of the MGuard Prime version of the MGuard Coronary product.
Additionally, in Canada, we are required to pass annual facilities audit inspections performed by Canadian inspectors. Furthermore,
we are currently targeting additional countries in Europe, Asia, and Latin America. We believe that each country that we are targeting
also accepts the CE Mark as its primary requirement for marketing approval. We expect that the results of the MASTER I trial will
enhance our ability to satisfy any additional governmental regulatory requirements in each of the countries where we currently
distribute or directly sell our products and in any countries that we are currently targeting for expansion.However, even
if all governmental regulatory requirements are satisfied in each such country, we anticipate that obtaining marketing approval
in each country could take as few as three months or as many as twelve months, due to the nature of the approval process in each
individual country, including typical wait times for application processing and review, as discussed in greater detail below.



The MGuard Prime version of the MGuard Coronary
product received CE Mark approval in the European Union in October 2010 and marketing approval in those countries listed in the
table below. We are currently seeking marketing approval for the MGuard Prime version of the MGuard Coronary product in Brazil,
Mexico, Argentina, South Korea, Taiwan, Australia, Belarus, Malaysia, Saudi Arabia, the U.S. and Canada. We are focused on seeking
marketing approval in these countries because we believe that these countries represent the strongest opportunities for us to grow
with respect to our sales. We have determined that other countries with better organized and capitalized healthcare systems may
not present us the same opportunities for growth due to the lack of use of stents in treatment of cardiac episodes and less advantageous
healthcare reimbursement policies, among other reasons. While we understand that each of the countries in which we are seeking
marketing approval for the MGuard Prime version of the MGuard Coronary product accepts the CE Mark as its primary requirement for
marketing approval and does not to our understanding require any additional tests, each country does have some additional regulatory
requirements for marketing approval. More specifically, for example, for the approval process in Mexico, where we already have
approval for and sales of MGuard Coronary, we need to submit an application for regulatory approval for MGuard Prime, which we
anticipate will be granted at least thirty months later. For the approval process in Argentina, we need to submit an application
for regulatory approval, which we anticipate will be granted approximately at least sixteen months later. For the approval process
in South Korea, we need to submit an application for regulatory approval and have in-house quality audit, which we anticipate will
be granted in approximately two years. For the approval process in Canada, we need to submit an application for regulatory approval,
which we anticipate will be granted approximately twelve months later. For the approval process in Australia, we need to submit
an application for regulatory approval, to have in-house quality audit which we anticipate will be granted in approximately one
year. For the approval process in Taiwan, we need to submit an application for regulatory approval, which we anticipate will be
granted at least fifteen months later. In Israel, where we received marketing approval in September 2011, we are subject to annual
renewal of our marketing approval. Regulators in Israel may request additional documentation or other materials and results of
studies from medical device manufacturers as part of the renewal process. Generally, however, the annual renewal of marketing approval
is given automatically, barring a material change in circumstances or results. In Russia, we received market approval in February
2012. In Chile, we received market approval for our previous distributor in December 2010. We have terminated our relationship
with our previous distributor in Chile, however, and once we enter into a relationship with a new distributor, we will be required
to submit a new application for regulatory approval in Chile, which we anticipate will be granted approximately twelve months after
our submission for approval.



22







For the approval process in Brazil for MGuard
Prime, where we already have approval for and sales of MGuard Coronary, we must comply with Brazilian Good Manufacturing Practice,
or GMP, quality system requirements. ANVISA, Brazil’s regulatory agency, must conduct an inspection of the manufacturing
of the MGuard Prime version of the MGuard Coronary product to determine compliance with Brazil GMP regulations. Upon successful
completion of an audit, ANVISA will then issue the GMP certificate necessary to register a medical device in Brazil, which can
take approximately one year to complete. Based upon new legislation in Brazil, we intend to apply for regulatory approval while
we await the results of the audit necessary to receive our GMP certificate. We anticipate that the approval process in Brazil will
take between two and three years.



Please refer to the table below setting forth the approvals
and sales for original stainless steel based MGuard Coronary product and the cobalt-chromium based MGuard Prime version of the
MGuard Coronary product on a country-by-country basis.



Approvals and Sales of the Original
MGuard Coronary and the MGuard Prime version of the MGuard Coronary on a Country-by-Country Basis





|Countries             |  |  | OriginalMGuardApproval |     |  |  | Original MGuardSales |     |  |  | MGuard PrimeApproval |  |  |  | MGuardPrimeSales |    
|--------------------- |  |  | ---------------------- | --- |  |  | -------------------- | --- |  |  | -------------------- |  |  |  | ---------------- | ---
|Argentina             |  |  | Y                      |     |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Armenia               |  |  | N                      |     |  |  | N                    |     |  |  | N                    |  |  |  | N                |    
|Australia             |  |  | N                      | (2) |  |  | Y                    |     |  |  | N                    |  |  |  | Y                | (1)
|Austria               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Belarus               |  |  | Y                      |     |  |  | Y                    |     |  |  | N                    |  |  |  | Y                | (3)
|Belgium               |  |  | Y                      |     |  |  | N                    |     |  |  | Y                    |  |  |  | Y                |    
|Brazil                |  |  | Y                      |     |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Chile                 |  |  | N                      | (2) |  |  | Y                    |     |  |  | N                    |  |  |  | Y                | (3)
|Colombia              |  |  | Y                      |     |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Croatia               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Cyprus                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Czech Republic        |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Denmark               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | N                |    
|Egypt                 |  |  | Y                      |     |  |  | N                    |     |  |  | N                    |  |  |  | N                |    
|Estonia               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Finland               |  |  | Y                      |     |  |  | N                    |     |  |  | Y                    |  |  |  | Y                |    
|France                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Germany               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Greece                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | N                |    
|Holland (Netherlands) |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Hungary               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|India                 |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | N                |    
|Ireland               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Israel                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Italy                 |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Kazakhstan            |  |  | N                      | (4) |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Latvia                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Lithuania             |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Malaysia              |  |  | N                      |     |  |  | N                    |     |  |  | N                    |  |  |  | Y                | (3)
|Malta                 |  |  | Y                      |     |  |  | N                    |     |  |  | Y                    |  |  |  | Y                |    
|Mexico                |  |  | Y                      |     |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Norway                |  |  | Y                      |     |  |  | N                    |     |  |  | Y                    |  |  |  | Y                |    
|Pakistan              |  |  | Y                      | (5) |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Poland                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Portugal              |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | N                |    
|Romania               |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Russia                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Saudi Arabia          |  |  | N                      |     |  |  | N                    |     |  |  | N                    |  |  |  | Y                | (3)
|Singapore             |  |  | N                      |     |  |  | Y                    | (6) |  |  | N                    |  |  |  | N                |    
|Slovakia              |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Slovenia              |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|South Africa          |  |  | Y                      | (5) |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Spain                 |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Sri Lanka             |  |  | Y                      | (5) |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|Sweden                |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Switzerland           |  |  | Y                      |     |  |  | Y                    |     |  |  | Y                    |  |  |  | Y                |    
|Ukraine               |  |  | Y                      |     |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    
|United Kingdom        |  |  | Y                      |     |  |  | N                    |     |  |  | Y                    |  |  |  | Y                |    
|Uzbekistan            |  |  | N                      |     |  |  | N                    |     |  |  | N                    |  |  |  | N                |    
|Venezuela             |  |  | N                      | (2) |  |  | Y                    |     |  |  | N                    |  |  |  | N                |    







23
















(1) We sold a limited quantity of our MGuard
Prime products in Australia pursuant to a law that permits patients to purchase medical products that are not included on the Australian
Register of Therapeutic Goods under certain limited circumstances, on case by case bases.

(2) We terminated our
relationship with our previous distributor in this country,  through which our product had market approval. As a result of
such termination, we will be required to obtain regulatory approval upon our selection of a new distributor in such
country.

(3) We have made sales to distributors in
this country, but based upon information from such distributors, we believe that the product has not been sold to customers in
this country.

(4) Our regulatory approval for sales in
Kazakhstan expired in January 2014. We intend to renew our regulatory approval for Kazakhstan in the future.

(5) We believe that we have regulatory approval
for the MGuard Coronary product in this country, based upon information from our distributor in such country, who was responsible
for obtaining the regulatory approval for the MGuard Coronary product. However, the certificate evidencing regulatory approval
is held by our distributor and we cannot guarantee that it is in full force and effect.

(6) At time the sales were made, we satisfied
the regulatory requirements in Singapore. The regulatory requirements in Singapore were subsequently changed and we no longer meet
these requirements.





In the U.S., the medical devices that will
be manufactured and sold by us will be subject to laws and regulations administered by the U.S. Food and Drug Administration, including
regulations concerning the prerequisites to commercial marketing, the conduct of clinical investigations, compliance with the Quality
System Regulation and labeling. We anticipate that our MGuard Prime Coronary product with bio-stable mesh product will be classified
as a Class III medical device by the U.S. Food and Drug Administration.



A manufacturer may seek market authorization
for a new medical device through the rigorous Premarket Approval application process, which first requires that the U.S. Food and
Drug Administration determine that the device is safe and effective for the purposes intended.



We will also be required to register with
the U.S. Food and Drug Administration as a medical device manufacturer. As such, our manufacturing facilities will be subject to
U.S. Food and Drug Administration inspections for compliance with Quality System Regulation. These regulations will require that
we manufacture our products and maintain our documents in a prescribed manner with respect to design, manufacturing, testing and
quality control activities. As a medical device manufacturer, we will further be required to comply with U.S. Food and Drug Administration
requirements regarding the reporting of adverse events associated with the use of our medical devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the malfunction were to recur. U.S. Food and Drug Administration
regulations also govern product labeling and prohibit a manufacturer from marketing a medical device for unapproved applications.
If the U.S. Food and Drug Administration believes that a manufacturer is not in compliance with the law, it can institute enforcement
proceedings to detain or seize products, issue a recall, enjoin future violations and assess civil and criminal penalties against
the manufacturer, its officers and employees.



Customers



Our customer base is varied. We began shipping
our product to customers in Europe in January 2008 and have since expanded our global distribution network to Southeast Asia, India,
Latin America and Israel. For the six months ended December 31, 2013, 70% of our revenue was generated in Europe, 11% of our revenue
was generated in Latin America, 7% of our revenue was generated in Asia and 4% of our revenue was generated in Israel, with the
remaining 8% of our revenue generated in the rest of the world. Our major customers in the six months ended December 31, 2013 were
Bosti Trading Ltd., a distributor in the Russian Federation that accounted for 24% of our revenues and Izasa Distribuciones Tecnicas
SA, a distributor in Spain that accounted for 12% of our revenues. Our agreement with Bosti Trading Ltd. grants Bosti Trading Ltd.
the right to be the exclusive distributor of MGuard products in the Russian Federation, the Republic of Uzbekistan and the Republic
of Armenia until May 2014, subject to the achievement of certain order minimums. Under our agreement with Bosti Trading Ltd., Bosti
Trading Ltd. is required to purchase 3,500 stents from us in 2012, 6,000 stents in 2013 and 4,000 stents in the first six months
of 2014, respectively. Although Bosti Trading Ltd. did not adhere to its order minimum for 2012 and 2013, we did not terminate
Bosti Trading Ltd.’s right to be the exclusive distributor of MGuard products in the Russian Federation, the Republic of
Uzbekistan and the Republic of Armenia. Our agreement with Izasa Distribuciones Tecnicas SA grants Izasa Distribuciones Tecnicas
SA the right to be the exclusive distributor of MGuard products in Spain until May 2014, with no order minimums currently in place.
Izasa Distribuciones Tecnicas SA also agreed to partner with us in a study to be conducted in Spain entitled MGuard Prime Implementation
in STEMI (acute myocardial infarction with ST elevation).



24









For the twelve months ended June 30,
2013, 71% of our revenue was generated in Europe, 12% of our revenue was generated in Latin America, 6% of our revenue was
generated in Asia and 6% of our revenue was generated in Israel, with the remaining 5% of our revenue generated in the rest
of the world. Our major customers in the twelve months ended June 30, 2013 were Bosti Trading Ltd., which accounted for 17%
of our revenues, Izasa Distribuciones Tecnicas SA, a distributor in Spain that accounted for 14% of our revenues, and CMS
Produtos Medicos Ltda., which accounted for 10% of our revenues. Our agreements with Bosti Trading Ltd. and Izasa
Distribuciones Tecnicas SA are discussed above. Our agreement with CMS Produtos Medicos Ltda. grants CMS Produtos Medicos
Ltda. the right to be the exclusive distributor of MGuard products in Brazil until April 2014, with no order minimums
currently in place. Unless otherwise indicated below, all of the distribution agreements described under
“Customers” are subject to automatic annual extensions unless affirmatively terminated.



For the six months ended June 30,
2012, 64% of our revenue was generated in Europe, 22% of our revenue was generated in Latin America and 8% of our revenue was
generated in Israel, with the remaining 6% of our revenue generated in the rest of the world. Our major customers in the six
months ended June 30, 2012 were Bosti Trading Ltd., which accounted for 22% of our revenues, Euromed Deutschland GmbH, our
former distributor in Germany that accounted for 14% of our revenues, and Kardia Srl, a distributor in Italy that accounted
for 9% of our revenues. For the twelve months ended June 30, 2012, our major customer was Bosti Trading Ltd., accounting for
15% of our revenues. Our agreement with Bosti Trading Ltd. is discussed above. Our agreement with Euromed Deutschland GmbH
was terminated on January 28, 2013, in connection with Euromed Deutschland GmbH filing for insolvency protection on September
24, 2012. Our agreement with Kardia Srl grants Kardia Srl the right to be the exclusive distributor of MGuard products in
Italy until August 2016, with no order minimums currently in place.





Manufacturing and Suppliers



We manufacture our stainless steel MGuard
stent through a combination of outsourcing and assembly at our own facility. Third parties in Germany manufacture the base stent
and catheter materials, and we add our proprietary mesh sleeve to the stent. Our current exclusive product supplier is QualiMed
Innovative Medizinprodukte GmbH. QualiMed Innovative Medizinprodukte GmbH is a specialized German stent manufacturer that electro
polishes and crimps the stent onto a balloon catheter that creates the base for our stainless steel MGuard stents. QualiMed Innovative
Medizinprodukte GmbH has agreed to take responsibility for verifying and validating the entire stent system by performing the necessary
bench test and biocompatibility testing. During the production process, QualiMed Innovative Medizinprodukte GmbH is responsible
for integrating the mesh covered stent with the delivery system, sterilization, packaging and labeling. Our manufacturing agreement
with QualiMed Innovative Medizinprodukte GmbH expires in September 2017, unless earlier terminated by either party in the event
of breach of material terms of the agreement, liquidation of the other party, our failure to receive requested products for more
than 60 days, a substantiated intellectual property claim is brought against the other party or the development agreement between
the parties is terminated. The manufacturing agreement provides for a rebate program that rewards us for increases in sales of
our products. Our proprietary mesh sleeve is supplied by Biogeneral, Inc., a San Diego, California-based specialty polymer manufacturer
for medical and engineering applications. Natec Medical Ltd. supplies us with catheters that help create the base for our MGuard
stents. Our agreement with Natec Medical Ltd., which may be terminated by either party upon six months’ notice, calls for
non-binding minimum orders and discounted catheters upon reaching certain purchasing thresholds.



25







Our MGuard Prime cobalt-chromium stent was designed by Svelte Medical Systems Inc. We have an agreement
with Svelte Medical Systems Inc. that grants us a non-exclusive, worldwide license for production and use of the MGuard Prime cobalt-chromium
stent for the life of the stent’s patent, subject to the earlier termination of the agreement upon the bankruptcy of either
party or the uncured default by either party under any material provision of the agreement. Our royalty payments to Svelte Medical
Systems Inc. are determined by the sales volume of MGuard Prime stents. Until October 20, 2012, we paid a royalty of 7% for all
product sales outside of the U.S. and, for products sales within the U.S., a rate of 7% for the first $10.0 million of sales and
a rate of 10% for all sales exceeding $10.0 million. We also shared with Svelte Medical Systems Inc. in the cost of obtaining the
CE Mark approval, with its costs not to exceed $85,000, and the U.S. Food and Drug Administration approval, with its costs not
to exceed $200,000. On October 20, 2012, we amended our agreement with Svelte Medical Systems Inc., pursuant to which Svelte Medical
Systems Inc. reduced the royalty rate to 2.9% of all net sales both inside and outside the U.S. in exchange for (i) us waiving
the $85,000 in regulatory fees for the CE Mark that were owed to us by Svelte Medical Systems Inc., (ii) us making full payment
of royalties in the amount of $205,587 due to Svelte Medical Systems, Inc. as of September 30, 2012, and (iii) $1,763,000, payable
in 215,000 shares of our common stock (as adjusted for the one-for-four reverse stock split of our common stock that occurred on
December 21, 2012), that were valued at the closing price of our common stock on October 19, 2012 of $8.20 per share (as adjusted
for the one-for-four reverse stock split of our common stock that occurred on December 21, 2012). On August 22, 2013, we further
amended our agreement with Svelte Medical Systems Inc., pursuant to which (i) we agreed to pay Svelte Medical Systems Inc. an advanced
payment of $192,000, representing a royalty rate of 2.0% of all net sales for the period from July 1, 2013 to June 30, 2015, assuming
net sales of $1.2 million per quarter, (ii) we agreed to pay a royalty rate of 2.5% on any net sales exceeding $10.56 million for
the period from July 1, 2013 to June 30, 2015 and (iii) the royalty rate was increased to 2.9% of all net sales beginning July
1, 2015. We have mutual indemnification obligations with Svelte Medical Systems Inc. for any damages suffered as a result of third
party actions based upon breaches of representations and warranties or the failure to perform certain covenants in the license
agreement, and Svelte Medical Systems Inc. will also indemnify us for any damages suffered as a result of third party actions based
upon intellectual property or design claims against the MGuard Prime cobalt-chromium stent.



Our MGuard Prime cobalt-chromium stent is
being manufactured and supplied by MeKo Laserstrahl-Materialbearbeitung. Our agreement with MeKo Laserstrahl-Materialbearbeitung
for the production of electro polished L605 bare metal stents for MGuard Prime is priced on a per-stent basis, subject to the quantity
of stents ordered. The complete assembly process for MGuard Prime, including knitting and securing the sleeve to the stent and
the crimping of the sleeve stent on to a balloon catheter, is done at our Israel manufacturing site. Once MGuard Prime has been
assembled, it is sent for sterilization in Germany and then back to Israel for final packaging.



Each MGuard stent is manufactured from two
main components, the stent and the mesh polymer. The stent is made out of stainless steel or cobalt chromium. Both of these materials
are readily available and we acquire them in the open market. The mesh is made from polyethylene terephthalate (PET). This material
is readily available in the market as well, because it is used for many medical applications. In the event that our supplier can
no longer supply this material in fiber form, we would need to qualify another supplier, which could take several months. In addition,
in order to retain the approval of the CE Mark, we are required to perform periodic audits of the quality control systems of our
key suppliers in order to insure that their products meet our predetermined specifications.



Distributors



We currently have exclusive distribution
agreements for our CE Mark-approved MGuard Coronary with bio stable mesh with medical product distributors based in Italy, Austria,
Slovenia, Spain, Hungary, Estonia, Ukraine, Holland, Russia, Latvia, Brazil, Mexico, Argentina, Colombia, India, Sri Lanka, South
Africa, Pakistan, Belarus, Croatia, Ireland, Lithuania, Malta, Malaysia, Venezuela, Australia, Belgium, the Czech Republic, Finland,
Kazakhstan, Slovakia, Sweden, Denmark, Norway, Uzbekistan, Armenia, Canada, Finland, Korea, Romania, the United Kingdom, Taiwan,
Saudi Arabia and Israel. We are currently in discussions with multiple distribution companies in Europe, Asia, and Latin America.



We are in the process of replacing certain
third party distributors with direct sales channels in key countries where end user average selling prices and the lack of strong
distributors are limiting factors. While we believe that this transition to direct selling will ultimately lead to greater sales
in these markets, the transition away from certain distributors adversely impacted revenue for the six months ended December 31,
2013 and the twelve months ended June 30, 2013, as we had fewer parties selling our products. In addition, we are in the process
of appointing new distributors in certain territories, and believe that new incentives and broader responsibilities have strengthened
arrangements with our partners in those territories.



Current and future agreements with distributors
stipulate that, while we are responsible for training, providing marketing guidance, marketing materials, and technical guidance,
distributors will be responsible for carrying out local registration, marketing activities and sales. In addition, in most cases,
all sales costs, including sales representatives, incentive programs, and marketing trials, will be borne by the distributor. Under
current agreements, distributors purchase stents from us at a fixed price. Our current agreements with distributors are generally
for a term of approximately three years and automatically renew for an additional three years unless modified by either party.



26







Employees



As of February 25, 2014, we had 71 full-time
employees.  Except for some of our employees in Europe, our employees are not party to any collective bargaining agreements.
We do not expect the collective bargaining agreements to which our employees are party to have a material effect on our business
or results of operations. We consider our relations with our employees to be good. We believe that our future success will depend,
in part, on our continued ability to attract, hire and retain qualified personnel.



Item 1A.	Risk Factors.



There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals.
You should carefully consider the risks described below and the other information included in this Transition Report on Form 10-K/T,
including the consolidated financial statements and related notes. If any of the following risks, or any other risks not described
below, actually occur, it is likely that our business, financial condition, and/or operating results could be materially adversely
affected. The risks and uncertainties described below include forward-looking statements and our actual results may differ from
those discussed in these forward-looking statements.



Risks Related to
Our Business



We have a history of net losses and may experience future
losses.



To date, we have experienced net losses.
A substantial portion of the expenses associated with our manufacturing facilities are fixed in nature (i.e., depreciation) and
will reduce our operating margin until such time, if ever, as we are able to increase utilization of our capacity through increased
sales of our products. The clinical trials necessary to support our anticipated growth will be expensive and lengthy. In addition,
our strategic plan will require a significant investment in clinical trials, product development and sales and marketing programs,
which may not result in the accelerated revenue growth that we anticipate. Because we expect to continue incurring negative cash
flows from operations, there can be no assurance that we will ever generate sufficient revenues to become profitable.



We expect to derive our revenue from sales of our MGuard
stent products and other products we may develop. If we fail to generate revenue from this source, our results of operations and
the value of our business would be materially and adversely affected.



We expect our revenue to be generated from
sales of our MGuard stent products and other products we may develop. Future sales of these products, if any, will be subject to
the receipt of regulatory approvals and commercial and market uncertainties that may be outside our control. If we fail to generate
such revenues, our results of operations and the value of our business and securities would be materially and adversely affected.



If we are unable to obtain and maintain intellectual property
protection covering our products, others may be able to make, use or sell our products, which would adversely affect our revenue.



Our ability to protect our products from
unauthorized or infringing use by third parties depends substantially on our ability to obtain and maintain valid and enforceable
patents. Similarly, the ability to protect our trademark rights might be important to prevent third party counterfeiters from selling
poor quality goods using our designated trademarks/trade names. Due to evolving legal standards relating to the patentability,
validity and enforceability of patents covering medical devices and pharmaceutical inventions and the scope of claims made under
these patents, our ability to enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights
under any of our pending patent applications and patents may not provide us with commercially meaningful protection for our products
or may not afford a commercial advantage against our competitors or their competitive products or processes. In addition, patents
may not be issued from any pending or future patent applications owned by or licensed to us, and moreover, patents that may be
issued to us now or in the future may not be valid or enforceable. Further, even if valid and enforceable, our patents may not
be sufficiently broad to prevent others from marketing products like ours, despite our patent rights.



27







The validity of our patent claims depends,
in part, on whether prior art references exist that describe or render obvious our inventions as of the filing date of our patent
applications. We may not have identified all prior art, such as U.S. and foreign patents or published applications or published
scientific literature, that could adversely affect the patentability of our pending patent applications. For example, some material
references may be in a foreign language and may not be uncovered during examination of our patent applications. Additionally, patent
applications in the U.S. are maintained in confidence for up to 18 months after their filing. In some cases, however, patent applications
remain confidential in the U.S. Patent and Trademark Office for the entire time prior to issuance as a U.S. patent. Patent applications
filed in countries outside the U.S. are not typically published until at least 18 months from their first filing date. Similarly,
publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be
certain that we were the first to invent, or the first to file patent applications relating to, our stent technologies. In the
event that a third party has also filed a U.S. patent application covering our stents or a similar invention, we may have to participate
in an adversarial proceeding, known as an interference, declared by the U.S. Patent and Trademark Office to determine priority
of invention in the U.S. It is possible that we may be unsuccessful in the interference, resulting in a loss of some portion or
all of our position in the U.S. The laws of some foreign jurisdictions do not protect intellectual property rights to the same
degree as in the U.S., and many companies have encountered significant difficulties in protecting, enforcing, and defending such
rights in certain foreign jurisdictions. If we encounter such difficulties or are otherwise precluded from effectively protecting
our intellectual property rights in any foreign jurisdictions, our business prospects could be substantially harmed.



We may initiate litigation to enforce our
patent rights on any patents issued on pending patent applications, which may prompt adversaries in such litigation to challenge
the validity, scope, ownership, or enforceability of our patents. Third parties can sometimes bring challenges against a patent
holder to resolve these issues, as well. If a court decides that any such patents are not valid, not enforceable, not wholly owned
by us, or are of a limited scope, we may not have the right to stop others from using our inventions. Also, even if our patent
rights are determined by a court to be valid and enforceable, they may not be sufficiently broad to prevent others from marketing
products similar to ours or designing around our patents, despite our patent rights, nor do they provide us with freedom to operate
unimpeded by the patent and other intellectual property rights of others that may cover our products.



We also rely on trade secret protection
to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce. We may
not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure and confidentiality agreements with
employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology. These agreements
may be breached and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary
information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. Any disclosure of confidential
data into the public domain or to third parties could allow competitors to learn our trade secrets and use the information in competition
against us.



We have limited manufacturing capabilities and manufacturing
personnel, and if our manufacturing facilities are unable to provide an adequate supply of products, our growth could be limited
and our business could be harmed.



We currently manufacture our MGuard stent at our facility in Tel Aviv, Israel, and we have contracted
with QualiMed Innovative Medizinprodukte GmbH, a German manufacturer, to assist in production. If there were a disruption to our
existing manufacturing facility, we would have no other means of manufacturing our MGuard stent until we were able to restore the
manufacturing capability at our facility or develop alternative manufacturing facilities. If we were unable to produce sufficient
quantities of our MGuard stent to meet market demand or for use in our current and planned clinical trials, or if our manufacturing
process yields substandard stents, our development and commercialization efforts would be delayed.



28







We currently have limited resources, facilities
and experience to commercially manufacture our product candidates. In order to produce our MGuard stent in the quantities that
we anticipate will be required to meet anticipated market demand, we will need to increase, or “scale up,” the production
process by a significant factor over the current level of production. There are technical challenges to scaling-up manufacturing
capacity, and developing commercial-scale manufacturing facilities will require the investment of substantial funds and hiring
and retaining additional management and technical personnel who have the necessary manufacturing experience. We may not successfully
complete any required scale-up in a timely manner or at all. If unable to do so, we may not be able to meet potential future demand.
If we are unable to manufacture a sufficient supply of our MGuard stent, our revenues, business and financial prospects would be
adversely affected and we may suffer reputational harm, which could further adversely affect our revenues, business and financial
prospects. In addition, if the scaled-up production process is not efficient or produces stents that do not meet quality and other
standards, our future gross margins may decline. Also, our current and planned personnel, systems, procedures and controls may
not be adequate to support our anticipated growth. If we are unable to manage our growth effectively, our business could be harmed.



Additionally, any damage to or destruction
of our Tel Aviv facility or its equipment, prolonged power outage or contamination at our facility would significantly impair our
ability to produce MGuard stents.



Finally, the production of our MGuard stent
must occur in a highly controlled, clean environment to minimize particles and other yield and quality-limiting contaminants. In
spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause a substantial percentage
of defective products in a lot. If we are unable to maintain stringent quality controls, or if contamination problems arise, our
clinical development and commercialization efforts could be delayed, which would harm our business and results of operations.



Clinical trials necessary to support a pre-market approval
application to the U.S. Food and Drug Administration for our products will be lengthy and expensive and will require the enrollment
of a large number of patients, and suitable patients may be difficult to identify and recruit. Any such delay or failure of clinical
trials could prevent us from commercializing our stent products, which would materially and adversely affect our results of operations
and the value of our business.



Clinical trials necessary to support a pre-market
approval application to the U.S. Food and Drug Administration for our products will be expensive and will require the enrollment
of a large number of patients, and suitable patients may be difficult to identify and recruit, which may cause a delay in the development
and commercialization of our product candidates. In some trials, a greater number of patients and a longer follow up period may
be required. Patient enrollment in clinical trials and the ability to successfully complete patient follow-up depends on many factors,
including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites, the
eligibility criteria for the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in
our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the
safety and efficacy of our products, or they may be persuaded to participate in contemporaneous clinical trials of competitive
products. In addition, patients participating in our clinical trials may die before completion of the trial or suffer adverse medical
events unrelated to or related to our products. Delays in patient enrollment or failure of patients to continue to participate
in a clinical trial may cause an increase in costs and delays or result in the failure of the clinical trial.



In addition, the length of time required
to complete clinical trials for pharmaceutical and medical device products varies substantially according to the degree of regulation
and the type, complexity, novelty and intended use of a product, and can continue for several years and cost millions of dollars.
The commencement and completion of clinical trials for our products under development may be delayed by many factors, including
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines or our inability or the inability
of any potential licensee to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical
trials.



Physicians may not widely adopt the MGuard stent unless
they determine, based on experience, long-term clinical data and published peer reviewed journal articles, that the use of the
MGuard stent provides a safe and effective alternative to other existing treatments for coronary artery disease.



29







We believe that physicians will not widely
adopt the MGuard stent unless they determine, based on experience, long-term clinical data and published peer reviewed journal
articles, that the use of our MGuard stent provides a safe and effective alternative to other existing treatments for coronary
artery disease, including coronary artery bypass grafting balloon angioplasty, bare-metal stents and other drug-eluting stents,
provided by Boston Scientific Corporation, Medtronic Inc., Abbott Laboratories and others.



We cannot provide any assurance that the
data collected from our current and planned clinical trials will be sufficient to demonstrate that the MGuard stents are an attractive
alternative to other procedures. If we fail to demonstrate safety and efficacy that is at least comparable to other drug-eluting
stents or bare-metal stents that have received regulatory approval and that are available on the market, our ability to successfully
market the MGuard stent will be significantly limited. Even if the data collected from clinical studies or clinical experience
indicate positive results, each physician’s actual experience with our MGuard stent will vary. Clinical trials conducted
with the MGuard Coronary stent have involved procedures performed by physicians who are technically proficient and are high-volume
stent users. Consequently, both short-term and long-term results reported in these clinical trials may be significantly more favorable
than typical results of practicing physicians, which could negatively affect rates of adoptions of our products. We also believe
that published peer-reviewed journal articles and recommendations and support by influential physicians regarding our MGuard Coronary
stent will be important for market acceptance and adoption, and we cannot assure you that we will receive these recommendations
and support, or that supportive articles will be published.



In addition, currently, physicians consider
drug-eluting stents to be the industry standard for treatment of coronary artery disease. While we believe that the MGuard Coronary
stent is a safe and effective alternative, it is not a drug-eluting stent, which may further hinder its support and adoption by
physicians.



Our products are based on a new technology, and we have
only limited experience in regulatory affairs, which may affect our ability or the time required to navigate complex regulatory
requirements and obtain necessary regulatory approvals, if such approvals are received at all. Regulatory delays or denials may
increase our costs, cause us to lose revenue and materially and adversely affect our results of operations and the value of our
business.



Because our products are new and long-term
success measures have not been completely validated, regulatory agencies, including the U.S. Food and Drug Administration, may
take a significant amount of time in evaluating product approval applications. For example, there are currently several methods
of measuring restenosis and we do not know which of these metrics, or combination of these metrics, will be considered appropriate
by the U.S. Food and Drug Administration for evaluating the clinical efficacy of stents. Treatments may exhibit a favorable measure
using one of these metrics and an unfavorable measure using another metric. Any change in the accepted metrics may result in reconfiguration
of, and delays in, our clinical trials. Additionally, we have only limited experience in filing and prosecuting the applications
necessary to gain regulatory approvals, and our clinical, regulatory and quality assurance personnel are currently composed of
only eight employees. As a result, we may experience delays in connection with obtaining regulatory approvals for our products.



In addition, the products we and any potential
licensees license, develop, manufacture and market are subject to complex regulatory requirements, particularly in the U.S., Europe
and Asia, which can be costly and time-consuming. There can be no assurance that such approvals will be granted on a timely basis,
if at all. Furthermore, there can be no assurance of continued compliance with all regulatory requirements necessary for the manufacture,
marketing and sale of the products we will offer in each market where such products are expected to be sold, or that products we
have commercialized will continue to comply with applicable regulatory requirements. If a government regulatory agency were to
conclude that we were not in compliance with applicable laws or regulations, the agency could institute proceedings to detain or
seize our products, issue a recall, impose operating restrictions, enjoin future violations and assess civil and criminal penalties
against us, our officers or employees and could recommend criminal prosecution. Furthermore, regulators may proceed to ban, or
request the recall, repair, replacement or refund of the cost of, any device manufactured or sold by us. Furthermore, there can
be no assurance that all necessary regulatory approvals will be obtained for the manufacture, marketing and sale in any market
of any new product developed or that any potential licensee will develop using our licensed technology.



Even if our products are approved by regulatory authorities,
if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our
products, these products could be subject to restrictions or withdrawal from the market.



30







Any product for which we obtain marketing
approval in the U.S., along with the manufacturing processes, post-approval clinical data and promotional activities for such product,
will be subject to continual review and periodic inspections by the U.S. Food and Drug Administration and other regulatory bodies.
In particular, we and our suppliers will be required to comply with the U.S. Food and Drug Administration’s Quality System
Regulation for the manufacture of our MGuard stent, which covers the methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval in
the U.S. The U.S. Food and Drug Administration enforces the Quality System Regulation through unannounced inspections. We and our
third-party manufacturers and suppliers have not yet been inspected by the U.S. Food and Drug Administration and will have to successfully
complete such inspections before we receive U.S. regulatory approval for our products. Failure by us or one of our suppliers to
comply with statutes and regulations administered by the U.S. Food and Drug Administration and other regulatory bodies, or failure
to take adequate response to any observations, could result in, among other things, any of the following enforcement actions:



| | · | warning letters or untitled letters;
| | - | ------------------------------------

| | · | fines and civil penalties;
| | - | --------------------------

| | · | unanticipated expenditures;
| | - | ---------------------------

| | · | delays in approving, or refusal to approve, our products;
| | - | ---------------------------------------------------------

| | · | withdrawal or suspension of approval by the U.S. Food and Drug Administration
or other regulatory bodies;
| | - | ---------------------------------------------------------------------------------------------------------

| | · | product recall or seizure;
| | - | --------------------------

| | · | orders for physician notification or device repair, replacement or
refund;
| | - | --------------------------------------------------------------------------

| | · | interruption of production;
| | - | ---------------------------

| | · | operating restrictions;
| | - | -----------------------

| | · | injunctions; and
| | - | ----------------

| | · | criminal prosecution.
| | - | ---------------------



If any of these actions were to occur, it
could harm our reputation and could cause our product sales and profitability to suffer. Furthermore, key component suppliers may
not currently be or may not continue to be in compliance with applicable regulatory requirements.



Even if regulatory approval of a product
is granted in the U.S., the approval may be subject to limitations on the indicated uses for which the product may be marketed.
If the U.S. Food and Drug Administration determines that our promotional materials, training or other activities constitute promotion
of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory
enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they
consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant
fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.



Moreover, any modification to a device that
has received U.S. Food and Drug Administration approval that could significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, design or manufacture, requires a new approval from the U.S. Food and Drug Administration.
If the U.S. Food and Drug Administration disagrees with any determination by us that new approval is not required, we may be required
to cease marketing or to recall the modified product until approval is obtained. In addition, we could also be subject to significant
regulatory fines or penalties.



Additionally, we may be required to conduct
costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report
adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including
unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply
with regulatory requirements, such as Quality System Regulation, may result in restrictions on such products or manufacturing processes,
withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product
seizures, injunctions or the imposition of civil or criminal penalties.



31







Further, healthcare laws and regulations
may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our
business by courts or regulatory authorities may result in a determination that could adversely affect our operations. In addition,
the healthcare regulatory environment may change in a way that restricts our operations.



Failure to obtain regulatory approval in foreign jurisdictions
will prevent us from marketing our products in such jurisdictions.



We market our products in international
markets. In order to market our products in other foreign jurisdictions, we must obtain separate regulatory approvals from those
obtained in the U.S. and Europe. The approval procedure varies among countries and can involve additional testing, and the time
required to obtain approval may differ from that required to obtain CE Mark or U.S. Food and Drug Administration approval. Foreign
regulatory approval processes may include all of the risks associated with obtaining CE Mark or U.S. Food and Drug Administration
approval in addition to other risks. We may not obtain foreign regulatory approvals on a timely basis, if at all. CE Mark does
not ensure approval by regulatory authorities in other countries. We may not be able to file for regulatory approvals and may not
receive necessary approvals to commercialize our products in certain markets.



We operate in an intensely competitive and rapidly changing
business environment, and there is a substantial risk our products could become obsolete or uncompetitive.



The medical device market is highly competitive. We compete with many medical device companies in the
U.S. and internationally in connection with our current product and products under development. We face competition from numerous
pharmaceutical and biotechnology companies in the therapeutics area, as well as competition from academic institutions, government
agencies and research institutions. When we commercialize our products, we expect to face intense competition from Boston Scientific
Corporation, Guidant Corporation, Medtronic, Inc., Abbott Vascular Devices, Johnson & Johnson, Terumo Medical Corporation and
others. Most of our current and potential competitors, including but not limited to those listed above, have, and will continue
to have, substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing
and sales, distribution and personnel resources than we do. There can be no assurance that we will have sufficient resources to
successfully commercialize our products, if and when they are approved for sale. The worldwide market for stent products is characterized
by intensive development efforts and rapidly advancing technology. Our future success will depend largely upon our ability to anticipate
and keep pace with those developments and advances. Current or future competitors could develop alternative technologies, products
or materials that are more effective, easier to use or more economical than what we or any potential licensee develop. If our technologies
or products become obsolete or uncompetitive, our related product sales and licensing revenue would decrease. This would have a
material adverse effect on our business, financial condition and results of operations.



We may become subject to claims by much larger and better
capitalized competitors seeking to invalidate our intellectual property or our rights thereto.



Based on the prolific litigation that has
occurred in the stent industry and the fact that we may pose a competitive threat to some large and well-capitalized companies
that own or control patents relating to stents and their use, manufacture and delivery, we believe that it is possible that one
or more third parties will assert a patent infringement claim against the manufacture, use or sale of our MGuard stent based on
one or more of these patents. It is also possible that a lawsuit asserting patent infringement, misappropriation of intellectual
property, or related claims may have already been filed against us of which we are not aware. A number of stent-related patents
are owned by very large and well-capitalized companies that are active participants in the stent market. As the number of competitors
in the stent market grows, the possibility of patent infringement by us, and/or a patent infringement or misappropriation claim
against us, increases.



32







These companies have maintained their position
in the market by, among other things, establishing intellectual property rights relating to their products and enforcing these
rights aggressively against their competitors and new entrants into the market. All of the major companies in the stent and related
markets, including Boston Scientific Corporation and Medtronic, Inc., have been repeatedly involved in patent litigation relating
to stents since at least 1997. The stent and related markets have experienced rapid technological change and obsolescence in the
past, and our competitors have strong incentives to stop or delay the introduction of new products and technologies. We may pose
a competitive threat to many of the companies in the stent and related markets. Accordingly, many of these companies will have
a strong incentive to take steps, through patent litigation or otherwise, to prevent us from commercializing our products.



If we fail to maintain or establish satisfactory agreements
with suppliers or if we experience an interruption of the supply of materials from suppliers, we may not be able to obtain materials
that are necessary to develop our products.



We depend on outside suppliers for certain
raw materials. These raw materials or components may not always be available at our standards or on acceptable terms, if at all,
and we may be unable to locate alternative suppliers or produce necessary materials or components on our own.



Some of the components of our products are
currently provided by only one vendor, or a single-source supplier. We depend on QualiMed Innovative Medizinprodukte GmbH, which
manufactures the body of the stent, MeKo Laserstrahl-Materialbearbeitung for the laser cutting of the stent, Natec Medical Ltd.
for the supply of catheters and Biogeneral Inc. for the fiber. We may have difficulty obtaining similar components from other suppliers
that are acceptable to the U.S. Food and Drug Administration or foreign regulatory authorities if it becomes necessary.



If we have to switch to a replacement supplier,
we will face additional regulatory delays and the interruption of the manufacture and delivery of our MGuard stent for an extended
period of time, which would delay completion of our clinical trials or commercialization of our products. In addition, we will
be required to obtain prior regulatory approval from the U.S. Food and Drug Administration or foreign regulatory authorities to
use different suppliers or components that may not be as safe or as effective. As a result, regulatory approval of our products
may not be received on a timely basis or at all.



We may be exposed to product liability claims and insurance
may not be sufficient to cover these claims.



We may be exposed to product liability claims based on the use of any of our products, or products incorporating
our licensed technology, in clinical trials. We may also be exposed to product liability claims based on the sale of any such products
following the receipt of regulatory approval. Product liability claims could be asserted directly by consumers, health-care providers
or others. We have obtained product liability insurance coverage; however such insurance may not provide full coverage for our
future clinical trials, products to be sold, and other aspects of our business. We also have liability insurance for an ongoing
clinical trial in Europe and our MASTER II trial. Insurance coverage is becoming increasingly expensive and we may not be able
to maintain current coverage, or expand our insurance coverage to include future clinical trials or the sale of products incorporating
our licensed technology if marketing approval is obtained for such products, at a reasonable cost or in sufficient amounts to protect
against losses due to product liability or at all. A successful product liability claim or series of claims brought against us
could result in judgments, fines, damages and liabilities that could have a material adverse effect on our business, financial
condition and results of operations. We may incur significant expense investigating and defending these claims, even if they do
not result in liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could
suffer, which could have a material adverse effect on our business, financial condition and results of operations.



We may implement a product recall or voluntary market
withdrawal due to product defects or product enhancements and modifications, which would significantly increase our costs.



The manufacturing and marketing of our MGuard
stent products involves an inherent risk that our products may prove to be defective. In that event, we may voluntarily implement
a recall or market withdrawal or may be required to do so by a regulatory authority. A recall of one of our products, or a similar
product manufactured by another manufacturer, could impair sales of the products we market as a result of confusion concerning
the scope of the recall or as a result of the damage to our reputation for quality and safety.



33







The successful management of operations depends on our
ability to attract and retain talented personnel.



We depend on the expertise of our senior
management and research personnel, which would be difficult to replace. The loss of the services of any of our senior management
could compromise our ability to achieve our objectives. Furthermore, recruiting and retaining qualified personnel will be crucial
to future success. There can be no assurance that we will be able to attract and retain necessary personnel on acceptable terms
given the competition among medical device, biotechnology, pharmaceutical and healthcare companies, universities and non-profit
research institutions for experienced management, scientists, researchers, sales and marketing and manufacturing personnel. If
we are unable to attract, retain and motivate our key personnel, our operations may be jeopardized and our results of operations
may be materially and adversely affected.



We are an international business, and we are exposed to
various global and local risks that could have a material adverse effect on our financial condition and results of operations.



We operate globally and develop and manufacture
products in multiple countries. Consequently, we face complex legal and regulatory requirements in multiple jurisdictions, which
may expose us to certain financial and other risks. International sales and operations are subject to a variety of risks, including:



| | · | foreign currency exchange rate fluctuations;
| | - | --------------------------------------------

| | · | greater difficulty in staffing and managing foreign operations;
| | - | ---------------------------------------------------------------

| | · | greater risk of uncollectible accounts;
| | - | ---------------------------------------

| | · | longer collection cycles;
| | - | -------------------------

| | · | logistical and communications challenges;
| | - | -----------------------------------------

| | · | potential adverse changes in laws and regulatory practices, including
export license requirements, trade barriers, tariffs and tax laws;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | · | changes in labor conditions;
| | - | ----------------------------

| | · | burdens and costs of compliance with a variety of foreign laws;
| | - | ---------------------------------------------------------------

| | · | political and economic instability;
| | - | -----------------------------------

| | · | increases in duties and taxation;
| | - | ---------------------------------

| | · | foreign tax laws and potential increased costs associated with overlapping
tax structures;
| | - | ------------------------------------------------------------------------------------------

| | · | greater difficulty in protecting intellectual property;
| | - | -------------------------------------------------------

| | · | the risk of third party disputes over ownership of intellectual property
and infringement of third party intellectual property by our products; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | · | general economic and political conditions in these foreign markets.
| | - | -------------------------------------------------------------------



International markets are also affected
by economic pressure to contain reimbursement levels and healthcare costs. Profitability from international operations may be limited
by risks and uncertainties related to regional economic conditions, regulatory and reimbursement approvals, competing products,
infrastructure development, intellectual property rights protection and our ability to implement our overall business strategy.
We expect these risks will increase as we pursue our strategy to expand operations into new geographic markets. We may not succeed
in developing and implementing effective policies and strategies in each location where we conduct business. Any failure to do
so may harm our business, results of operations and financial condition.



If we fail to obtain an adequate level of reimbursement
for our products by third party payors, there may be no commercially viable markets for our product candidates or the markets may
be much smaller than expected.



The availability and levels of reimbursement
by governmental and other third party payors affect the market for our product candidates. The efficacy, safety, performance and
cost-effectiveness of our product candidates and of any competing products will determine the availability and level of reimbursement.
Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government
sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to
produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our products to other
available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner, if at all. Our failure
to receive international reimbursement or pricing approvals would negatively impact market acceptance of our products in the international
markets in which those approvals are sought.



34







We believe that future reimbursement may
be subject to increased restrictions both in the U.S. and in international markets. There is increasing pressure by governments
worldwide to contain health care costs by limiting both the coverage and the level of reimbursement for therapeutic products and
by refusing, in some cases, to provide any coverage for products that have not been approved by the relevant regulatory agency.
Future legislation, regulation or reimbursement policies of third party payors may adversely affect the demand for our products
currently under development and limit our ability to sell our product candidates on a profitable basis. In addition, third party
payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products
and services. If reimbursement for our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory
levels, market acceptance of our products would be impaired and future revenues, if any, would be adversely affected.



In the U.S. and in the European Union, our business could
be significantly and adversely affected by recent healthcare reform legislation and other administration and legislative proposals.



The Patient Protection and Affordable Care
Act and the Health Care and Education Reconciliation Act in the U.S. were enacted into law in March 2010. Certain provisions of
these acts will not be effective for a number of years and there are many programs and requirements for which the details have
not yet been fully established or consequences not fully understood, and it is unclear what the full impacts will be from the legislation.
The legislation levies a 2.3% excise tax, that began on January 1, 2013, on all sales of any U.S. medical device listed with the
U.S. Food and Drug Administration under Section 510(j) of the Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807, unless
the device falls within an exemption from the tax, such as the exemption governing direct retail sale of devices to consumers or
for foreign sales of these devices. If we commence sales of our MGuard Coronary stent in the U.S., this new tax may materially
and adversely affect our business and results of operations. The legislation also focuses on a number of Medicare provisions aimed
at improving quality and decreasing costs. It is uncertain at this point what negative unintended consequences these provisions
will have on patient access to new technologies. The Medicare provisions include value-based payment programs, increased funding
of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and
pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital
payments). Additionally, the provisions include a reduction in the annual rate of inflation for hospitals which started in 2011
and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending.
We cannot predict what healthcare programs and regulations will be ultimately implemented at the federal or state level in the
U.S., or the effect of any future legislation or regulation. However, any changes that lower reimbursements for our products or
reduce medical procedure volumes could adversely affect our business plan to introduce our products in the U.S.



In the European Union, on September 26,
2012, the European Commission proposed a revision of the legislation currently governing medical devices. If adopted by the European
Parliament and the Council in their present form, these proposed revisions, which would be adopted in 2014 and would then gradually
come into effect from 2015 to 2019, will impose stricter requirements on medical device manufacturers. Moreover, the supervising
competences of the competent authorities of the European Union Member States and the notified bodies will be strengthened. The
regulation of advanced therapy medicinal products is also in continued development in the European Union, with the European Medicines
Agency publishing new clinical or safety guidelines concerning advanced therapy medicinal products on a regular basis. Any of these
regulatory changes and events could limit our ability to form collaborations and our ability to continue to commercialize our products,
and if we fail to comply with any such new or modified regulations and requirements it could adversely affect our business, operating
results and prospects.



Our strategic business plan may not produce the intended
growth in revenue and operating income.



Our strategies include making significant
investments in sales and marketing programs to achieve revenue growth and margin improvement targets. If we do not achieve the
expected benefits from these investments or otherwise fail to execute on our strategic initiatives, we may not achieve the growth
improvement we are targeting and our results of operations may be adversely affected.



35







In addition, as part of our strategy for
growth, we may make acquisitions and enter into strategic alliances such as joint ventures and joint development agreements. However,
we may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully, and
our strategic alliances may not prove to be successful. In this regard, acquisitions involve numerous risks, including difficulties
in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management’s
attention from other business concerns. Although we will endeavor to evaluate the risks inherent in any particular transaction,
there can be no assurance that we will properly ascertain all such risks. In addition, acquisitions could result in the incurrence
of substantial additional indebtedness and other expenses or in potentially dilutive issuances of equity securities. There can
be no assurance that difficulties encountered with acquisitions will not have a material adverse effect on our business, financial
condition and results of operations.



We may have violated Israeli securities law.



We may have violated section 15 of the Israeli
Securities Law of 1968. Section 15 of the Israeli Securities Law of 1968 requires the filing of a prospectus with the Israel Securities
Authority and the delivery thereof to purchasers in connection with an offer or sale of securities to more than 35 parties during
any 12-month period. We allegedly issued securities to more than 35 investors during certain 12-month periods, ending in October
2008. Our wholly-owned subsidiary, InspireMD Ltd., a private company incorporated under the laws of the State of Israel, applied
for a no-action determination from the Israel Security Authority on February 14, 2011 in connection with the foregoing. To date,
the Israel Securities Authority has not responded to InspireMD Ltd.’s application for no-action determination and we are
unable to predict when a response will be received. The maximum penalties for violating section 15 of the Israeli Securities Law
of 1968 are as follows: imprisonment of five years; a fine of up to approximately $317,000 to be paid by management of the violating
company; and a fine of up to approximately $1,590,000 to be paid by the violating company, any of which penalties could result
in a material adverse effect on our operations. We believe that it is unlikely that either we or any individual will be subject
to fines or other penalties as a result of these alleged violations.



We will need to raise additional capital to meet our business
requirements in the future and such capital raising may be costly or difficult to obtain and could dilute our stockholders’
ownership interests.



In order to fully realize all of our business
objectives, we will need to raise additional capital, which may not be available on reasonable terms or at all. For instance, we
will need to raise additional funds to accomplish the following:



| | · | developing MGuard Carotid, MGuard Peripheral and MGuard Coronary with
a drug eluting bio-absorbable mesh and any additional products;
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | · | pursuing growth opportunities, including more rapid expansion;
| | - | --------------------------------------------------------------

| | · | acquiring complementary businesses;
| | - | -----------------------------------

| | · | making capital improvements to improve our infrastructure;
| | - | ----------------------------------------------------------

| | · | hiring qualified management and key employees;
| | - | ----------------------------------------------

| | · | developing new services, programming or products;
| | - | -------------------------------------------------

| | · | responding to competitive pressures;
| | - | ------------------------------------

| | · | complying with regulatory requirements such as licensing and registration;
and
| | - | ------------------------------------------------------------------------------

| | · | maintaining compliance with applicable laws.
| | - | --------------------------------------------



Any additional capital raised through the
sale of equity or equity backed securities may dilute our stockholders’ ownership percentages and could also result in a
decrease in the market value of our equity securities.



The terms of any securities issued by us
in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and
the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our
securities then outstanding.



36







Furthermore, any additional debt or equity
financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain such additional
financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets,
perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations,
and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would
receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues
from operations needed to stay in business.



In addition, we may incur substantial costs
in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection
with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.



Risks Related to Operating in Israel



We anticipate being subject to fluctuations in currency
exchange rates because we expect a substantial portion of our revenues will be generated in Euros and U.S. dollars, while a significant
portion of our expenses will be incurred in New Israeli Shekels.



We expect a substantial portion of our revenues
will be generated in U.S. dollars and Euros, while a significant portion of our expenses, principally salaries and related personnel
expenses, is paid in New Israeli Shekels, or NIS. As a result, we are exposed to the risk that the rate of inflation in Israel
will exceed the rate of devaluation of the NIS in relation to the Euro or the U.S. dollar, or that the timing of this devaluation
will lag behind inflation in Israel. Because inflation has the effect of increasing the dollar and Euro costs of our operations,
it would therefore have an adverse effect on our dollar-measured results of operations. The value of the NIS, against the Euro,
the U.S. dollar, and other currencies may fluctuate and is affected by, among other things, changes in Israel’s political
and economic conditions. Any significant revaluation of the NIS may materially and adversely affect our cash flows, revenues and
financial condition. Fluctuations in the NIS exchange rate, or even the appearance of instability in such exchange rate, could
adversely affect our ability to operate our business.



If there are significant shifts in the political, economic
and military conditions in Israel and its neighbors, it could have a material adverse effect on our business relationships and
profitability.



Our sole manufacturing facility and certain
of our key personnel are located in Israel. Our business is directly affected by the political, economic and military conditions
in Israel and its neighbors. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred
between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has caused security and economic
problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian
Authority, there has been a marked increase in violence, civil unrest and hostility, including armed clashes, between the State
of Israel and the Palestinians since September 2000. The establishment in 2006 of a government in the Gaza Strip by representatives
of the Hamas militant group has created heightened unrest and uncertainty in the region. In mid-2006, Israel engaged in an armed
conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June 2007, there was an escalation in violence
in the Gaza Strip. From December 2008 through January 2009 and again in November and December 2012, Israel engaged in an armed
conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel and negatively affected
business conditions in Israel. Recent political uprisings and social unrest in Syria are affecting its political stability, which
has led to the deterioration of the political relationship between Syria and Israel and have raised new concerns regarding security
in the region and the potential for armed conflict. Similar civil unrest and political turbulence is currently ongoing in many
countries in the region. The continued political instability and hostilities between Israel and its neighbors and any future armed
conflict, terrorist activity or political instability in the region could adversely affect our operations in Israel and adversely
affect the market price of our shares of common stock. In addition, several countries restrict doing business with Israel and Israeli
companies have been and are today subjected to economic boycotts. The interruption or curtailment of trade between Israel and its
present trading partners could adversely affect our business, financial condition and results of operations.



Our operations could be disrupted as a result of the obligation
of certain of our personnel residing in Israel to perform military service.



37







Some of our key employees reside in Israel
and may be required to perform annual military reserve duty. Currently, all male adult citizens and permanent residents of Israel
under the age of 40 (or older, depending on their position with the Israeli Defense Forces reserves), unless exempt, are obligated
to perform military reserve duty annually and are subject to being called to active duty at any time under emergency circumstances.
Our operations could be disrupted by the absence for a significant period of one or more of our key employees due to military service.
Any such disruption could have a material adverse effect on our business, results of operations and financial condition.



We may not be able to enforce covenants not-to-compete
under current Israeli law.



We have non-competition agreements with
most of our employees, many of which are governed by Israeli law. These agreements generally prohibit our employees from competing
with us or working for our competitors for a specified period following termination of their employment. However, Israeli courts
are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively
brief periods of time in restricted geographical areas and only when the employee has unique value specific to that employer’s
business and not just regarding the professional development of the employee. Any such inability to enforce non-compete covenants
may cause us to lose any competitive advantage resulting from advantages provided to us by such confidential information.



It may be difficult for investors in the U.S. to enforce
any judgments obtained against us or some of our directors or officers.



The majority of our assets are located outside
the U.S. In addition, certain of our officers are nationals and/or residents of countries other than the U.S., and all or a substantial
portion of such persons’ assets are located outside the U.S. As a result, it may be difficult for investors to enforce within
the U.S. any judgments obtained against us or any of our non-U.S. officers, including judgments predicated upon the civil liability
provisions of the securities laws of the U.S. or any state thereof. Additionally, it may be difficult to assert U.S. securities
law claims in actions originally instituted outside of the U.S. Israeli courts may refuse to hear a U.S. securities law claim because
Israeli courts may not be the most appropriate forums in which to bring such a claim. Even if an Israeli court agrees to hear a
claim, it may determine that the Israeli law, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be
applicable, certain content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process,
and certain matters of procedure would still be governed by the Israeli law. Consequently, you may be effectively prevented from
pursuing remedies under U.S. federal and state securities laws against us or any of our non-U.S. directors or officers.



The tax benefits that are available to us require us to
continue meeting various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.



The tax benefits that are available to us
require us to continue meeting various conditions and may be terminated or reduced in the future, which could increase our costs
and taxes. InspireMD Ltd. has been granted a “Beneficiary Enterprise” status by the Investment Center in the Israeli
Ministry of Industry Trade and Labor which made us eligible for tax benefits under the Israeli Law for the Encouragement of Capital
Investments, 1959. The main benefit is a two-year exemption and five years of a reduced tax rate of 25% from tax on income derived
from beneficiary activities in facilities located in Israel. In order to remain eligible for the tax benefits of a “Beneficiary
Enterprise”, we must continue to meet certain conditions stipulated in the Israeli Law for the Encouragement of Capital Investments,
1959 and its regulations, as amended, which may include, among other things, making specified investments in fixed assets and equipment,
financing a percentage of those investments with our capital contributions, filing certain reports with the Investment Center,
complying with provisions regarding intellectual property and the criteria set forth in the specific certificate of approval issued
by the Investment Center or the Israel Tax Authority. If we do not meet these requirements, the tax benefits could be cancelled
and we could be required to refund any tax benefits that we received in the past. Further, in the future, these tax benefits may
be reduced or discontinued. If these tax benefits are cancelled, our Israeli taxable income would be subject to regular Israeli
corporate tax rates. The standard corporate tax rate for Israeli companies is 26.5% of taxable income. In the future, we may not
be eligible to receive additional tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959. The termination
or reduction of these tax benefits would increase our tax liability, which would reduce our profits.



38







Risks Related to Our Organization and Our Common Stock



We are subject to financial reporting and other requirements
that place significant demands on our resources.



On March 31, 2011, we became subject to
reporting and other obligations under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404
of the Sarbanes-Oxley Act of 2002. Section 404 requires us to conduct an annual management assessment of the effectiveness of our
internal controls over financial reporting. These reporting and other obligations place significant demands on our management,
administrative, operational, internal audit and accounting resources. Any failure to maintain effective internal controls could
have a material adverse effect on our business, operating results and stock price. Moreover, effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed.



There are inherent limitations in all control systems,
and misstatements due to error or fraud may occur and not be detected.



The ongoing internal control provisions
of Section 404 of the Sarbanes-Oxley Act of 2002 require us to identify of material weaknesses in internal control over financial
reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes
in accordance with accounting principles generally accepted in the U.S. Our management, including our chief executive officer and
chief financial officer, does not expect that our internal controls and disclosure controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints
and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur
because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of
two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions,
such as growth of the company or increased transaction volume, or the degree of compliance with the policies or procedures may
deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur
and not be detected.



In addition, discovery and disclosure of
a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could
discourage certain customers or suppliers from doing business with us, cause downgrades in our future debt ratings leading to higher
borrowing costs and affect how our stock trades. This could in turn negatively affect our ability to access public debt or equity
markets for capital.



Our stock price has been and may continue to be volatile,
which could result in substantial losses for investors.



The market price of our common stock has
been and is likely to continue to be highly volatile and could fluctuate widely in response to various factors, many of which are
beyond our control, including the following:



| | · | technological innovations or new products and services by us or our
competitors;
| | - | --------------------------------------------------------------------------------

| | · | additions or departures of key personnel;
| | - | -----------------------------------------

| | · | sales of our common stock, particularly under any registration statement
for the purposes of selling any other securities, including management shares;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | limited availability of freely-tradable “unrestricted”
shares of our common stock to satisfy purchase orders and demand;
| | - | ------------------------------------------------------------------------------------------------------------------------

| | · | our ability to execute our business plan;
| | - | -----------------------------------------

| | · | operating results that fall below expectations;
| | - | -----------------------------------------------





39









| | · | loss of any strategic relationship;
| | - | -----------------------------------

| | · | industry developments;
| | - | ----------------------

| | · | economic and other external factors; and
| | - | ----------------------------------------

| | · | period-to-period fluctuations in our financial results.
| | - | -------------------------------------------------------



In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also significantly affect the market price of our common stock.



Delaware law, our corporate charter and bylaws and our
stockholder rights plan, or poison pill, contain anti-takeover provisions that could delay or discourage takeover attempts that
stockholders may consider favorable.



Our board of directors is authorized to
issue shares of preferred stock in one or more series and to fix the voting powers, preferences and other rights and limitations
of the preferred stock. Accordingly, we may issue shares of preferred stock with a preference over our common stock with respect
to dividends or distributions on liquidation or dissolution, or that may otherwise adversely affect the voting or other rights
of the holders of common stock. Issuances of preferred stock, depending upon the rights, preferences and designations of the preferred
stock, may have the effect of delaying, deterring or preventing a change of control, even if that change of control might benefit
our stockholders. In addition, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits
a public Delaware corporation from engaging in a “business combination” with an “interested stockholder”
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (i)
prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder; (ii) the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee
stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to the date of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.



Section 203 could delay or prohibit mergers
or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even
though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market
price.



In addition, on October 22, 2013, our board
of directors adopted a rights agreement, implementing what is commonly known as a “poison pill,” to protect and maximize
the value of our outstanding equity interests in the event of an unsolicited attempt by an acquirer to take us over, in a manner
or on terms not approved by our board of directors. The rights agreement may have the effect of rendering more difficult or discouraging
an acquisition of our company deemed undesirable by our board of directors and could cause substantial dilution to any such person
or group that attempts to acquire us on terms or in a manner not approved by our board of directors, except pursuant to an offer
conditioned upon the negation, purchase or redemption of the rights set forth in the rights agreement.



Offers or availability for sale of a substantial number
of shares of our common stock may cause the price of our common stock to decline.



Sales of a significant number of shares
of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise
funds through future offerings of common stock. Our stockholders and the holders of our options and warrants may sell substantial
amounts of our common stock in the public market. The availability of these shares of our common stock for resale in the public
market has the potential to cause the supply of our common stock to exceed investor demand, thereby decreasing the price of our
common stock.



40







In addition, the fact that our stockholders,
option holders and warrant holders can sell substantial amounts of our common stock in the public market, whether or not sales
have occurred or are occurring, could make it more difficult for us to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we deem reasonable or appropriate.



We do not expect to pay dividends in the future. As a
result, any return on investment may be limited to the value of our common stock.



We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment
of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors as our
board of directors may consider relevant. We are also subject to certain restrictions pursuant to our loan and security agreement
with Hercules Technology Growth Capital, Inc., which prohibits us from paying dividends or distributions on our common stock. If
we do not pay dividends, our common stock may be less valuable because a return on an investment in our common stock will only
occur if our stock price appreciates.



Risks Related to our Indebtedness



Our obligations under our term loan are secured by substantially
all of our assets, so if we default on those obligations, the lender could foreclose on our assets. As a result of these security
interests, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities
if we were to become insolvent at a time when the value of such assets exceeded the amount of our indebtedness and other obligations.
In addition, the existence of these security interests may adversely affect our financial flexibility.



The lender under our
term loan has a security interest in substantially all of our assets and those of InspireMD Ltd., our wholly-owned subsidiary.
As a result, if we default under our obligations to the lender, the lender could foreclose on its security interests and liquidate
some or all of these assets, which would harm our business, financial condition and results of operations.



In the event of a default
in connection with our bankruptcy, insolvency, liquidation, or reorganization, the lender would have a prior right to substantially
all of our assets to the exclusion of our general creditors. In that event, our assets would first be used to repay in full all
indebtedness and other obligations secured by the lender, resulting in all or a portion of our assets being unavailable to satisfy
the claims of any unsecured indebtedness. Only after satisfying the claims of any unsecured creditors would any amount be available
for our equity holders.



The pledge of these
assets and other restrictions may limit our flexibility in raising capital for other purposes. Because substantially all of our
assets are pledged under the term loan, our ability to incur additional secured indebtedness or to sell or dispose of assets to
raise capital may be impaired, which could have an adverse effect on our financial flexibility.



Our loan and security
agreement contains customary events of default. In addition, an event of default will include the occurrence of a circumstance
that would reasonably be expected to have a material adverse effect upon (i) our business, operations, properties, assets, prospects
or condition (financial or otherwise), (ii) our ability to perform our obligations under the agreement and any related loan documents
or (iii) the collateral, the lender’s liens on the collateral or the priority of such liens.



We have a substantial amount of indebtedness,
which may adversely affect our cash flow and our ability to operate our business.



Pursuant to the terms
of our loan and security agreement, the lender made a term loan to us and InspireMD Ltd. in aggregate amount of $10 million. We
are required to make monthly payments of interest until August 31, 2014, monthly payments of principal and interest after such
date, and repay the entire principal balance and any unpaid interest on February 1, 2017.



The terms of our term
loan could have negative consequences to us, such as:





| | · | we may be unable to obtain additional financing to fund working capital, operating losses, capital expenditures or acquisitions on terms acceptable to us, or at all;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------





41







| | · | the amount of our interest expense may increase because our term loan has a variable rate of interest at any time that the prime rate, as reported in the Wall Street Journal, is above 5.5%;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we will need to use a substantial portion of our cash flows to pay principal and interest on our term loan, which will reduce the amount of money we have for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other business activities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we may have a higher level of debt than some of our competitors, which may put us at a competitive disadvantage;
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | we may be unable to refinance our indebtedness on terms acceptable to us, or at all; and
| | - | ----------------------------------------------------------------------------------------



| | · | we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general.
| | - | -------------------------------------------------------------------------------------------------------------------



Our ability to meet
our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic,
regulatory and other factors. We will be unable to control many of these factors, such as economic conditions. We cannot be certain
that our earnings will be sufficient to allow us to pay the principal and interest on our debt and meet any other obligations.
If we do not have enough money to service our debt, we may be required, but unable to refinance all or part of our existing debt,
sell assets, borrow money or raise equity on terms acceptable to us, if at all, and the lender could foreclose on its security
interests and liquidate some or all of our assets.



Our loan and security agreement contains
covenants that could limit our financing options and liquidity position, which would limit our ability to grow our business.



Covenants in our loan
and security agreement impose operating and financial restrictions on us. These restrictions prohibit or limit our ability, and
the ability of InspireMD Ltd., to, among other things:



| | · | pay cash dividends to our stockholders;
| | - | ---------------------------------------



| | · | redeem or repurchase our common stock or other equity;
| | - | ------------------------------------------------------



| | · | incur additional indebtedness;
| | - | ------------------------------



| | · | permit liens on assets;
| | - | -----------------------



| | · | make certain investments (including through the acquisition of stock, shares, partnership or limited liability company interests, any loan, advance or capital contribution)
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | sell, lease, license, lend or otherwise convey an interest in a material portion of our assets; and
| | - | ---------------------------------------------------------------------------------------------------



| | · | cease making public filings under the Securities Exchange Act of 1934, as amended.
| | - | ----------------------------------------------------------------------------------



These restrictions
may limit our ability to obtain additional financing, withstand downturns in our business or take advantage of business opportunities.
Moreover, additional debt financing we may seek, if permitted, may contain terms that include more restrictive covenants, may require
repayment on an accelerated schedule or may impose other obligations that limit our ability to grow our business, acquire needed
assets, or take other actions we might otherwise consider appropriate or desirable.



42







SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS



This Transition Report on Form 10-K/T contains
“forward-looking statements,” which include information relating to future events, future financial performance, strategies,
expectations, competitive environment and regulation. Words such as “may,” “should,” “could,”
“would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,”
“future,” “intends,” “plans,” “believes,” “estimates,” and similar
expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not
be read as a guarantee of future performance or results and will probably not be accurate indications of when such performance
or results will be achieved. Forward-looking statements are based on information we have when those statements are made or our
management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties
that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking
statements. Important factors that could cause such differences include, but are not limited to:



| | · | our history of recurring losses and negative cash flows from operating
activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue our complete business
objectives;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to complete clinical trials as anticipated and obtain
and maintain regulatory approvals for our products;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | our ability to adequately protect our intellectual property;
| | - | ------------------------------------------------------------



| | · | disputes over ownership of intellectual property;
| | - | -------------------------------------------------



| | · | our dependence on a single manufacturing facility and our ability
to comply with stringent manufacturing quality standards and to increase production as necessary;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the risk that the data collected from our current and planned clinical
trials may not be sufficient to demonstrate that the MGuard technology is an attractive alternative to other procedures and products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | intense competition in our industry, with competitors having substantially
greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution
and personnel resources than we do;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | entry of new competitors and products and potential technological
obsolescence of our products;
| | - | -----------------------------------------------------------------------------------------------



| | · | loss of a key customer or supplier;
| | - | -----------------------------------



| | · | technical problems with our research and products and potential product
liability claims;
| | - | -----------------------------------------------------------------------------------------



| | · | adverse economic conditions;
| | - | ----------------------------



| | · | adverse federal, state and local government regulation, in the U.S.,
Europe or Israel;
| | - | --------------------------------------------------------------------------------------



| | · | price increases for supplies and components;
| | - | --------------------------------------------



| | · | inability to carry out research, development and commercialization
plans; and
| | - | -----------------------------------------------------------------------------



| | · | loss or retirement of key executives and research scientists.
| | - | -------------------------------------------------------------



You should review carefully the risks and
uncertainties described under the heading “Item 1A. Risk Factors” in this Transition Report on Form 10-K/T for a discussion
of these and other risks that relate to our business and investing in shares of our common stock. The forward-looking statements
contained in this Transition Report on Form 10-K/T are expressly qualified in their entirety by this cautionary statement. We do
not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date
on which any such statement is made or to reflect the occurrence of unanticipated events.



43







Item 1B.                Unresolved Staff Comments.



Not applicable.



Item 2.                   Properties.



Our headquarters are located in Boston, Massachusetts, where we lease approximately 2,725 square feet
of executive office space. In addition, in Tel Aviv, Israel, we currently have a 1,000 square meter office and manufacturing facility
that has the capacity to manufacture and assemble 4,800 stents per month, based upon the production schedule of one shift per day.
We believe that our current facility is sufficient to meet anticipated future demand by adding additional shifts to our current
production schedule.



Item 3.                   Legal Proceedings.



From time to time,
we may be involved in litigation that arises through the normal course of business. As of the date of this filing, we are not a
party to any material litigation nor are we aware of any such threatened or pending litigation.



There are no material
proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of
our common stock is an adverse party or has a material interest adverse to our interest.



Item 4.                   Mine Safety Disclosures.



Not applicable.

PART
II



Item 5.                   Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.



Our common stock has
been quoted on the NYSE MKT since April 11, 2013 under the symbol “NSPR.” Prior to that date, it was traded on the
OTC Bulletin Board since April 11, 2011. Prior to that date, there was no active market for our common stock.



The following table sets forth (i) the intra-day high and low sales price per share for our common stock,
as reported on the NYSE MKT, for the period of April 11, 2013 to December 31, 2013, and (ii) the high and low bid prices for our
common stock, as reported by the OTC Bulletin Board, for the period of April 11, 2011 to April 10, 2013. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The OTC Bulletin
Board quotations prior to December 21, 2012 are adjusted for the one-for-four reverse stock split of our common stock that occurred
on such date.



|Transition Period Ended December 31, 2013 |  | High |      |  | Low |  
|----------------------------------------- |  | ---- | ---- |  | --- | -
|First Quarter                             |  | $    | 2.68 |  |     | $
|Second Quarter                            |  | $    | 3.67 |  |     | $



|Fiscal Year Ended June 30, 2013 |  | High |       |  | Low |  
|------------------------------- |  | ---- | ----- |  | --- | -
|First Quarter                   |  | $    | 10.00 |  |     | $
|Second Quarter                  |  | $    | 10.16 |  |     | $
|Third Quarter                   |  | $    | 4.25  |  |     | $
|Fourth Quarter                  |  | $    | 3.15  |  |     | $



44







|Transition Period Ended June 30, 2012 |  | High |      |  | Low |  
|------------------------------------- |  | ---- | ---- |  | --- | -
|First Quarter                         |  | $    | 8.60 |  |     | $
|Second Quarter                        |  | $    | 7.40 |  |     | $



|Fiscal Year Ended December 31, 2011 |  | High |       |  | Low |  
|----------------------------------- |  | ---- | ----- |  | --- | -
|Second Quarter                      |  | $    | 11.56 |  |     | $
|Third Quarter                       |  | $    | 10.96 |  |     | $
|Fourth Quarter                      |  | $    | 10.36 |  |     | $



The last reported
sales price of our common stock on the NYSE MKT on February 25, 2014, was $3.60 per share. As of February 25, 2014, there were
approximately 200 holders of record of our common stock.



Dividend Policy



In the past, we have not declared or paid cash dividends on our common stock. Our loan and security agreement
with Hercules Technology Growth Capital, Inc., dated October 23, 2013, prohibits us from paying dividends or distributions on our
common stock. Even if we are permitted to pay cash dividends in the future, we do not intend to do so. Rather, we intend to retain
future earnings, if any, to fund the operation and expansion of our business and for general corporate purposes.



Item 6.                   Selected Financial Data.



Not applicable.



Item 7.                   Management’s Discussion
and Analysis of Financial Condition and Results of Operations.



The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated
financial statements and related notes included elsewhere in this Transition Report on Form 10-K/T.



Overview



We are a medical device
company focused on the development and commercialization of our proprietary stent platform technology, MGuard. MGuard provides
embolic protection in stenting procedures by placing a micron mesh sleeve over a stent. Our initial products are marketed for use
mainly in patients with acute coronary syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary
interventions (bypass surgery).



We effectuated a one-for-four
reverse stock split of our common stock on December 21, 2012. Our authorized shares of common stock were not adjusted as a result
of this reverse stock split. All share and related option and warrant information presented in the following discussion and analysis
of our financial condition and results of operations and the accompanying consolidated interim financial statements have been retroactively
adjusted to reflect the reduced number of shares outstanding which resulted from this action.



45







On June 1, 2012, our
board of directors approved a change in our fiscal year-end from December 31 to June 30, effective June 30, 2012 and on September
16, 2013, our board of directors approved a change in our fiscal year-end from June 30 to December 31, effective December 31, 2013.



Critical Accounting
Policies



Use of estimates



The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates.



As applicable to these consolidated financial
statements, the most significant estimates and assumptions relate to inventory write-off, royalty buyout, legal contingencies and estimation of the fair value of warrants.



Functional currency





The currency of the
primary economic environment in which we and our subsidiaries conduct operations is the U.S. dollar (“$” or “dollar”).
Accordingly, our and our subsidiaries’ functional currency is the dollar.





The dollar figures
are determined as follows: transactions and balances originally denominated in dollars are presented in their original amounts.
Balances in foreign currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary
balances, respectively. The resulting translation gains or losses are recorded as financial income or expense, as appropriate.
For transactions reflected in the statements of operations in foreign currencies, the exchange rates at transaction dates are used.
Depreciation and changes in inventories and other changes deriving from non-monetary items are based on historical exchange rates.



Concentration of credit risk
and allowance for doubtful accounts





Financial
instruments that may potentially subject us to a concentration of credit risk consist of cash and cash equivalents, which are deposited in major financially sound institutions in the U.S, Israel and Germany, and trade
accounts receivable. Our trade accounts receivable are derived from revenues earned from customers from various countries. We
perform ongoing credit evaluations of our customers’ financial condition and, generally, require no collateral from
customers. We also have a credit insurance policy for some of customers. We maintain an allowance for doubtful accounts
receivable based upon the expected ability to collect the accounts receivable. We review our allowance for doubtful accounts
quarterly by assessing individual accounts receivable and all other balances based on historical collection experience and an
economic risk assessment. If we determine that a specific customer is unable to meet its financial obligations to us, we
provide an allowance for credit losses to reduce the receivable to the amount management reasonably believes will be
collected.





Inventory





Inventories include
finished goods, work in process and raw materials.  Inventories are stated at the lower of cost (cost is determined on
a “first-in, first-out” basis) or market value. Our inventories generally have a limited shelf life and are subject
to impairment as they approach their expiration dates. We regularly evaluate the carrying value of our inventories and when, in
our opinion, factors indicate that impairment has occurred, we established a reserve against the inventories’ carrying value.
Our determination that a valuation reserve might be required and the quantification of such reserve requires management to
utilize significant judgment.







46







Revenue recognition





Revenue is recognized
when delivery has occurred, evidence of an arrangement exists, title and risks and rewards for the products are transferred to
the customer, collection is reasonably assured and product returns can be reliably estimated. When product returns can be reliably
estimated a provision is recorded, based on historical experience, and deducted from revenues.







When returns cannot
be reliably estimated, both related revenues and costs are deferred.





As of December 31,
2013, June 30, 2013 and June 30, 2012, there were no deferred revenues related to sales for which the rate of return could not
be reliably estimated.





Our arrangements with
our distributors sometimes contain the right to receive free products from us upon the achievement of sales targets. Each period,
we estimate the amount of free products to which our distributors will be entitled based upon the expected achievement of sales
targets and defer a portion of revenues accordingly.







We recognize revenue
net of value added tax (VAT).





Research and development costs



Research and development costs are charged
to the statement of operations as incurred.



Share-based compensation





Employee option awards
are classified as equity awards and accounted for using the grant-date fair value method. The fair value of share-based awards
is estimated using the Black-Scholes valuation model and expensed over the requisite service period, net of estimated forfeitures.
We estimate forfeitures based on historical experience and anticipated future conditions.





We elected to recognize compensation expenses for awards with only service conditions that
have graded vesting schedules using the accelerated multiple option approach.





We account for equity
instruments issued to third party service providers (non-employees), by recording the fair value of the options granted using an
option pricing model, at each reporting period, until awards are vested in full. The expense is recognized over the vesting period
using the accelerated multiple option approach.







In addition, certain
share-based awards are performance based and dependent upon achieving certain goals. With respect to these awards, we estimate
the expected pre-vesting award probability that the performance conditions will be achieved. We only recognize expense for those
shares that are expected to vest.





Uncertain tax and value added
tax positions





We follow a two-step
approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained
on audit. If under the first step a tax provision is assessed to be more likely than not of being sustained on audit, the second
step is performed, under which the tax benefit is measured as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. Such liabilities are classified as long-term, unless the liability is expected to be resolved within twelve
months from the balance sheet date.





47







Fair value measurement





We measure fair value
and disclose fair value measurements for financial assets and liabilities. Fair value is based on 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.





The accounting standard
establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad
levels, which are described below:



Level 1: Quoted prices
(unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.



Level 2: Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data.



Level 3: Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.





In determining fair value, we utilize valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair
value.





Allocation of issuance proceeds



When debt is issued with other components that are subsequently measured at fair value, the proceeds are
allocated first to such components (such as warrants and embedded derivatives in the debt that require bifurcation at their fair
values), then the residual amount of the proceeds is allocated to the debt. When other components are classified in equity, the
proceeds are allocated based on relative fair values.



Results of Operations



Six month period ended December 31,
2013 compared to the six month period ended December 31, 2012



Revenues. For
the six month period ended December 31, 2013, revenue increased by $1.2 million, or 67.0%, to $3.1 million from $1.9 million during
the same period in 2012. This increase was predominantly driven by an increase in sales volume of $1.2 million, or 65.4%, with
price increases to our repeat distributors driving the remaining increase of $30,000, or 1.6%. The $1.2 million increase in sales
volume reflects the positive impact of recent steps taken to stabilize our global distribution strategy and targeted selling activities
in select European countries.



With respect to regions,
the increase in revenue was mainly attributable to an increase of $1.1 million in revenue from our distributors in Europe and an
increase of $0.1 million in revenue from our distributors in Latin America.



Gross Profit.
For the six month period ended December 31, 2013, gross profit (revenue less cost of revenues) increased
53.7%, or $0.6 million, to $1.7 million from $1.1 million during the same period in 2012. The increase in gross profit was attributable
to an increase in revenue of $1.2 million, as described above, partially offset by an increase in cost of revenues of $0.6 million,
which was composed of an increase in material and labor costs of $0.4 million associated with our increased sales and increase
of $0.2 million in non-recurring expenses related to the consolidation of our manufacturing facilities. Gross margin (gross profits
as a percentage of revenue) decreased from 58.2% in the six month period ended December 31, 2012 to 53.6% in same period in 2013.
If the non-recurring effects of the consolidation of our manufacturing facilities in the six month period ended December 31, 2013,
are removed, gross margin for the six month period ended December 31, 2013 would have been 59.3%.



48







|                                              |  | Six month period ended |      
|--------------------------------------------- |  | ---------------------- | -----
|                                              |  | December 31,           |      
|                                              |  | 2013                   |      
|                                              |  | ($ in thousands)       |      
|Gross profit                                  |  | $                      | 1,663
|Non-recurring expenses                        |  |                        | 178  
|Gross profit excluding non-recurring expenses |  | $                      | 1,841



Royalties’
Buyout Expenses. For the six month period ended December 31, 2012, we incurred $0.9 million in royalties’ buyout expenses
relating to the restructuring of our royalty agreement for MGuard Prime. In connection with the restructuring of this agreement,
the licensor of the stent design used for this product agreed to reduce the royalty from 7% of net sales outside of the United
States, 7% of the first $10,000,000 of net sales in the United States and 10% of net sales in the United States above $10,000,000
to 2.9% of all net sales both inside and outside the United States in exchange for (i) us waiving $85,000 in regulatory fees owed
to us, (ii) us making full payment of royalties owed as of September 30, 2012 in the amount of $205,587 and (iii) $1,763,000, payable
in 215,000 shares of our common stock that were valued at $8.20 per share. There was no such expense during the six month period
ended December 31, 2013. Royalties’ buyout expenses as a percentage of revenue was 49.4% for the six month period ended December
31, 2012.



Research and Development
Expenses. For the six month period ended December 31, 2013, research and development expenses increased 50.0%, or
$1.1 million, to $3.3 million, from $2.2 million during the same period in 2012. This increase in research and development expenses
resulted primarily from increases of $0.3 million in related salaries, $0.1 million in related travel expenses and $1.4 million
in clinical trial expenses associated with our MASTER II trial moving from the pre-clinical stage to the set-up and enrollment
phases, triggering costs associated with the selection and qualification of trial sites, contract research organization management
fees and patient fees, among others. This increase in research and development expenses, however, was partially offset by a decrease
of $0.4 million in expenses associated with our MASTER I trial, which has concluded, a decrease of $0.2 million in expenditures
related to the development of the MGuard Carotid product and a decrease of $0.1 million in share based compensation expense. Research
and development expense as a percentage of revenue decreased to 106.8% for the six month period ended December 31, 2013, from 118.5%
in the same period in 2012.



Selling and Marketing
Expenses. For the six month period ended December 31, 2013, selling and marketing expenses increased 64.6%, or $1.0
million, to $2.6 million, from $1.6 million during the same period in 2012. The increase in selling and marketing expenses resulted
primarily from an increase of $0.8 million in salaries, as we expanded our sales activities worldwide, an increase of $0.1 million
in travel expenses for our increased sales force and an increase of $0.1 million in miscellaneous expenses. Much of these sales
initiatives were driven by our efforts to capitalize on the publication of the MASTER I trial results, which represented our first
randomized data related to our MGuard technology, and efforts to support our new direct sales channels in key European countries.
Selling and marketing expenses as a percentage of revenue decreased to 85.2% in the six month period ended December 31, 2013 from
86.5% in the same period in 2012.



General and Administrative
Expenses. For the six month period ended December 31, 2013, general and administrative expenses increased 13.2%,
or $0.5 million, to $4.5 million from $4.0 million during the same period in 2012. The increase in general and administrative expenses
resulted primarily from an increase of $0.6 million in salaries (which predominately relates to the hiring of our new chief executive
officer and bonuses), an increase in share based compensation of $0.2 million, an increase in director’s compensation of
$0.1 million and an increase in travel expense of $0.1 million. This increase was partially offset by a decrease in legal fees
of $0.3 million and a decrease of $0.2 million in bad debt expense. General and administrative expenses as a percentage of revenue
decreased to 145.8% in the six month period ended December 31, 2013 from 215.2% in the same period in 2012.



49







Financial Expenses. For the six month period ended December 31, 2013, financial expenses decreased 71.2%, or $1.2 million,
to $0.5 million from $1.7 million during the same period in 2012. The decrease in financial expenses resulted primarily from a
decrease of $1.8 million of amortization and interest expenses. In the six month period ended December 31, 2013, we recognized
$0.3 million in amortization and interest expense, in contrast to the six month period ended December 31, 2012, during which we
recognized $2.1 million of amortization and interest expense pertaining to our previously outstanding senior convertible debentures
and their related issuance costs (of which $1.6 million represented the non-cash amortization of the discount of the convertible
debentures and their related issuance costs). This decrease in expenses was partially offset by $0.2 million of non-cash expense
in the six month period ended December 31, 2013 pertaining to our obligation to issue shares of common stock without new consideration
to the investors in our March 2011 private placement due to certain anti-dilution rights held by such stockholders and the absence
of any non-cash revaluations of our warrants during the six month period ended December 31, 2013. During the six month period ended
December 31, 2012, we recognized $0.3 million of financial income pertaining to the non-cash revaluation of certain of our warrants
due to our stock price decreasing from $4.24 to $3.90 during such period. No such income was recognized during the six month period
ended December 31, 2013. Financial expense as a percentage of revenue decreased to 16.1% in the six month period ended December
31, 2013, from 93.1% in the same period in 2012.



The following presentation is a non-GAAP financial measure. Management believes this measure provides
investors with useful supplemental information regarding our financial expenses and is useful for understanding the period-over-period
comparison. In addition, management used this non-GAAP financial measure internally in its review of financial expenses for the
periods presented. While management believes that this non-GAAP financial measure is useful in evaluating our financial expenses,
this information should be considered as supplemental in nature and should be viewed in addition to, and not in lieu of or superior
to, our financial expenses calculated in accordance with GAAP. In addition, this non-GAAP financial measure may not be the same
as similarly titled measures presented by other companies. If the non-cash effects of the warrant revaluation and amortization
expense in the six month period ended December 31, 2012, as well as the non-cash effects of the anti-dilution rights in the six
month period ended December 31, 2013 are removed, financial expenses for the six month period ended December 31, 2013 would have
totaled $0.3 million, as compared to $0.4 million for the same period in 2012, resulting in a decrease of $0.1 million.





|                                                        |  | Six month period ended |    
|------------------------------------------------------- |  | ---------------------- | ---
|                                                        |  | December 31,           |    
|                                                        |  | 2013                   |    
|                                                        |  | ($ in thousands)       |    
|Financial expenses, as reported under GAAP              |  | $                      | 499
|Non-cash expenses:                                      |  |                        |    
|Anti-dilution rights                                    |  |                        | 200
|Revaluation of warrants                                 |  |                        | -  
|Amortization expense                                    |  |                        | -  
|Total non-cash expenses                                 |  |                        | 200
|Financial expenses (income) excluding non-cash expenses |  | $                      | 299



Tax Expenses.For
the six month period ended December 31, 2013, tax expenses decreased $39,000 to $10,000 for the six month period ended December
31, 2013, from $49,000 during the same period in 2012.



Net Loss. Our
net loss decreased by $0.1 million, or 1.0%, to $9.3 million for the six month period ended December 31, 2013 from $9.4 million
during the same period in 2012. The decrease in net loss resulted primarily from a decrease of $1.2 million in financial expenses,
of which $1.1 million were non-cash (see above for explanation), and an increase of $0.6 million in gross profit (see above for
explanation), partially offset by an increase of $1.7 million in operating expenses (see above for explanation). If the non-cash
effects of the warrant revaluation and amortization expense in the six months ended December 31, 2012, as well as the anti-dilution
rights in the six month period ended December 31, 2013 are removed, our net loss would be $8.1 million for the six months ended
December 31, 2012, as compared to a net loss of $9.1 million for the same period in 2013, resulting in an increase of $1.0 million,
or 12.9%.



Twelve months ended June 30, 2013 compared
to twelve months ended June 30, 2012



Revenues. For the twelve months ended June 30, 2013, revenue decreased by $0.5 million, or 8.9%, to $4.9 million
from $5.3 million during the same period in 2012. This decrease was predominantly driven by a decrease in sales volume of $0.5
million, or 9.6%, partially offset by price increases to our repeat distributors of $36,000, or 0.7%. The $0.5 million decrease
in sales volume was due largely to the fact that we were in the process of replacing certain third party distributors with direct
sales channels in key countries where end user average selling prices, along with other limiting factors, continued to impair sales.
While we believe that this transition to direct selling will ultimately lead to greater sales in these markets, the transition
away from certain distributors adversely impacted revenue for the twelve months ended June 30, 2013, as we had fewer parties selling
our products.



With respect to regions,
the decrease in revenue was mainly attributable to a decrease of $0.6 million in revenue from our distributors in Latin America
and a decrease of $0.2 million in revenue from our distributors throughout the rest of the world. These decreases were partially
offset by an increase of $0.3 million in revenue from our distributors in Asia.



50







Gross Profit.
For the twelve months ended June 30, 2013, gross profit increased 3.6%, or $0.1 million, to $2.6 million
from $2.5 million during the same period in 2012. The increase in gross profit was attributable to a decrease in cost of revenues
of $0.6 million, primarily attributable to a non-recurring write-off of $0.4 million of slow moving inventory in the twelve months
ended June 30, 2012, which did not occur in the same period in 2013, as well as a decrease of $0.3 million of material and labor
costs due to the decrease in sales of $0.5 million, as discussed above, partially offset by $0.2 million of expenses related to
the consolidation of our manufacturing facilities. The decrease of $0.6 million in cost of revenues was partially offset by a decrease
in revenue of $0.5 million as discussed above. Gross margin increased from 46.7% in the twelve months ended June 30, 2012 to 53.2%
in the twelve months ended June 30, 2013.



Royalties’
Buyout Expenses. For the twelve months ended June 30, 2013, we incurred $0.9 million in royalties’ buyout expenses
relating to the restructuring of our royalty agreement for the MGuard Prime version of our MGuard Coronary stent, as described
above. There was no such expense during the twelve months ended June 30, 2012. Royalties’ buyout expenses as a percentage
of revenue was 18.8% for the twelve months ended June 30, 2013.



Research and Development
Expenses. For the twelve months ended June 30, 2013, research and development expenses increased 4.2%, or $0.2 million,
to $4.2 million, from $4.0 million during the same period in 2012. The increase in research and development expenses resulted primarily
from an increase of $0.1 million in salaries, an increase of $0.1 million in patent expenses, an increase of $0.1 million in expenditures
related to the development of the MGuard Carotid product and an increase of $0.2 million in miscellaneous expense. These increases
were partially offset by a decrease in clinical trial expenses of $0.3 million, attributable mainly to fewer expenses associated
with our MASTER I trial, as we approach the trial’s conclusion (decrease of $0.2 million), and our MASTER II trial (decrease
of $0.1 million). Research and development expense as a percentage of revenue increased to 85.3% for the twelve months ended June
30, 2013 from 74.6% in the same period in 2012.



Selling and Marketing
Expenses. For the twelve months ended June 30, 2013, selling and marketing expenses increased 66.3%, or $1.4 million,
to $3.6 million, from $2.2 million during the same period in 2012. The increase in selling and marketing expenses resulted primarily
from an increase of $0.7 million in salaries as we expanded our sales activities worldwide, an increase of $0.4 million in expenditures
related to promotional activities related to the Transcatheter Cardiovascular Therapeutics (TCT) conference in Miami, Florida,
where we announced our MASTER I trial results, an increase of $0.5 million in product promotion expenses and an increase of $0.3
million in travel expenses for our increased sales force. Much of these sales initiatives were driven by our efforts to capitalize
on the publication of the initial MASTER I trial results, which represented our first randomized data related to our MGuard technology.
These increases in sales and marketing expenses were partially offset by a decrease of $0.3 million in share-based compensation
expenses and a decrease of $0.2 million in miscellaneous expenses. With the growth of our sales force, and associated activities,
as described above, selling and marketing expenses as a percentage of revenue increased to 74.2% in the twelve months ended June
30, 2013 from 40.6% in the same period in 2012.



51







General and Administrative
Expenses. For the twelve months ended June 30, 2013, general and administrative expenses decreased 35.4%, or $4.9 million,
to $9.0 million from $13.9 million during the same period in 2012. The decrease in general and administrative expenses resulted
primarily from a decrease in share-based compensation of $6.1 million (which predominantly pertained to director’s compensation
paid in 2012) and a decrease of $0.3 million in expenses related to consultants. This decrease was partially offset by an increase
in salaries of $0.6 million (which predominately relates to the hiring of our new chief executive officer), an increase of $0.5
million in legal expenses largely associated with our previous financing efforts, an increase of $0.1 million in bad debt expense,
an increase of $0.1 million in audit fees, and an increase of $0.2 million in miscellaneous expenses. General and administrative
expenses as a percentage of revenue decreased to 184.1% in the twelve months ended June 30, 2013 from 259.5% in the same period
in 2012.



Financial Expenses.
For the twelve months ended June 30, 2013, financial expenses increased to $14.1 million from $38,000 during the same period in
2012. The increase in financial expenses resulted primarily from $9.9 million in non-recurring, non-cash effects of the debt inducement
related to the adjustment of the conversion ratio of our convertible debentures upon their retirement in April 2013, $4.3 million
of amortization expense pertaining to our convertible debentures and their related issuance costs (of which $3.5 million represented
the non-recurring, non-cash amortization of the discount of the convertible debentures and their related issuance costs). In addition
to these non-recurring, non-cash expenses, we also incurred $1.5 million of expense pertaining to our obligation to issue shares
of common stock without new consideration to the investors in our March 2011 private placement due to certain anti-dilution rights
held by such stockholders. These expenses were partially offset by $1.4 million of financial income pertaining to the revaluation
of certain of our warrants due to our stock price decreasing to $2.21 on June 30, 2013, from $4.24 on June 30, 2012 and $0.1 million
for the favorable impact of exchange rate differences for the twelve months ended June 30, 2013. Financial expense as a percentage
of revenue increased from 0.7% in the twelve months ended June 30, 2012, to 290.9% in the same period in 2013.



The following presentation is a non-GAAP financial measure. Management believes this measure provides
investors with useful supplemental information regarding our financial expenses and is useful for understanding the period-over-period
comparison. In addition, management used this non-GAAP financial measure internally in its review of financial expenses for the
periods presented. While management believes that this non-GAAP financial measure is useful in evaluating our financial expenses,
this information should be considered as supplemental in nature and should be viewed in addition to, and not in lieu of or superior
to, our financial expenses calculated in accordance with GAAP. In addition, this non-GAAP financial measure may not be the same
as similarly titled measures presented by other companies. If the non-recurring, non-cash effects of the debt inducement and amortization
expense are removed, financial expenses for the twelve months ended June 30, 2013 would have totaled $0.7 million, an increase
of $0.7 million from the same period in 2012.





|                                                        |  | Twelve month period ended |       
|------------------------------------------------------- |  | ------------------------- | ------
|                                                        |  | June 30,                  |       
|                                                        |  | 2013                      |       
|                                                        |  | ($ in thousands)          |       
|Financial expenses, as reported under GAAP              |  | $                         | 14,177
|Non-cash expenses:                                      |  |                           |       
|Debt inducement                                         |  |                           | 9,898 
|Amortization expense                                    |  |                           | 3,524 
|Anti-dilution rights                                    |  |                           | 1,476 
|Revaluation of warrants                                 |  |                           | (1,412
|Total non-cash expenses                                 |  |                           | 13,486
|Financial expenses (income) excluding non-cash expenses |  | $                         | 691   



Tax Expenses.For
the twelve months ended June 30, 2013, tax expenses decreased $6,000 to $8,000 for the twelve months ended June 30, 2013, from
$14,000 during the same period in 2012.



Net Loss. Our net loss increased by $11.7 million, or 66.3%, to $29.3 million for the twelve months ended June 30,
2013 from $17.6 million during the same period in 2012. The increase in net loss resulted primarily from an increase of $14.2 million
in financial expenses, of which $13.5 million were non-recurring, non-cash (see above for explanation), partially offset by a decrease
of $2.4 million in operating expenses (see above for explanation) and an increase of $0.1 million in gross profit (see above for
explanation). If the non-recurring, non-cash effects of the debt inducement and amortization expense are removed, our net loss
would be $15.8 million for the twelve months ended June 30, 2013, as compared to a net loss of $17.6 million for the same period
in 2012, an improvement of $1.8 million, or 10%.





Liquidity and Capital Resources





We have successfully raised funds through both the capital markets and loans. On April 16, 2013, we consummated
an underwritten public offering, pursuant to which we received aggregate net proceeds of $22.6 million, after the underwriters’
commissions and offering expenses. In addition, on October 23, 2013, we entered into a loan and security agreement and issued a
warrant in exchange for aggregate net proceeds of $9.8 million.





We have an accumulated deficit as well as a net loss and negative operating cash flows in the current
year. We anticipate that such losses will continue until our MGuard products reach commercial profitability. Our management believes
that we have sufficient resources to fund operations through December 31, 2014. Management also anticipates that the continued
successful commercialization of the MGuard product line, together with financing through our “At-the-Market” equity
program, should be sufficient to fund our current and planned operations into the second quarter of 2015. However, no assurance
can be provided that we will be able to secure sufficient capital (through sales of products or equity) to fund our operations
for such period.





If we are unable to
successfully commercialize our MGuard products or obtain sufficient future financing from our "At-the-Market" equity
program, we will be required to delay some of our planned research and development programs as well as curtail, discontinue or,
in the extreme case, cease operations.





52







Six month period ended December 31,
2013 compared to the six month period ended December 31, 2012



General. At
December 31, 2013, we had cash and cash equivalents of $17.5 million, as compared to $14.8 million as of June 30, 2013. We have
historically met our cash needs through a combination of issuing new shares, borrowing activities and sales. Our cash requirements
are generally for clinical trials, marketing and sales activities, finance and administrative cost, capital expenditures and general
working capital.



Cash used in our operating activities was $6.8 million for the six month period ended December 31, 2013
and $5.8 million for the same period in 2012. The principal reason for the usage of cash in our operating activities for the six
month period ended December 31, 2013 was a net loss of $9.3 million, offset by $1.5 million in non-cash share-based compensation
that was largely paid to our directors and chief executive officer, a decrease in working capital of $0.5 million, $0.4 million
of non-cash financial expense, and $0.1 million of depreciation expense. The principal reasons for the usage of cash in our operating
activities for the six months ended December 31, 2012 include a net loss of approximately $9.4 million and an increase in working
capital of approximately $0.2 million, offset by approximately $1.4 million in non-cash share-based compensation, approximately
$1.2 million in non-cash financial expenses, approximately $0.9 million in a non-cash royalties buyout, approximately $0.1 million
in depreciation and amortization expenses and approximately $0.2 million of all other miscellaneous expenditures.



Cash used in our investing
activities was $252,000 during the six month period ended December 31, 2013, compared to $193,000 during the same period in 2012.
The principal reason for the increase in cash used in investing activities during 2013 was the purchase of property, plant and
equipment of $180,000 (primarily new manufacturing equipment and leasehold improvements for our production facilities) and the
funding of employee retirement funds of $72,000.



Cash generated by financing
activities for the six month period ended December 31, 2013 was $9.8 million, compared to $1.0 million generated during the same
period in 2012. The principal source of cash generated from financing activities during the six month period ended December 31,
2013 was $9.8 million received pursuant to a loan and security agreement entered into in October 2013, net of issuance costs, as
described below.



As of December 31, 2013, our current assets exceeded our current liabilities by a multiple of 3.5. Current
assets increased $2.7 million during the six month period, mainly due to cash received from the loan and security agreement, partially
offset by cash used in operations, and current liabilities increased by 2.1 million during the period. As a result, our working
capital surplus increased by $0.6 million to $15.5 million at December 31, 2013.



Twelve months ended June 30, 2013 compared to twelve months
ended June 30, 2012



General. At
June 30, 2013, we had cash and cash equivalents of $14.8 million, as compared to $10.3 million as of June 30, 2012.



Cash used in our operating
activities was $10.3 million for the twelve months ended June 30, 2013 and $8.6 million for the same period in 2012. The principal
reasons for the usage of cash in our operating activities for the twelve months ended June 30, 2013 include a net loss of $29.3
million, offset by $13.5 million in non-cash financial expenses, $3.8 million in non-cash share-based compensation that was largely
paid to our directors, $0.9 million in a non-cash royalties buyout related to the restructuring of our royalty agreement for the
MGuard Prime version of our MGuard Coronary stent, as discussed above, a decrease in working capital of $0.4 million, $0.2 million
in depreciation and amortization expenses and $0.2 million of miscellaneous expenditures.



Cash used in our investing
activities was $376,000 during the twelve months ended June 30, 2013, compared to $43,000 during the same period in 2012. The principal
reason for the increase in cash used in investing activities during 2013 was the purchase of property, plant and equipment of $202,000
(primarily new manufacturing equipment and leasehold improvements for our production facilities), an increase in restricted cash
of $56,000 and the funding of employee retirement funds of $118,000.



53







Cash generated by financing
activities was $15.1 million for the twelve months ended June 30, 2013, compared to $11.1 million generated during the same period
in 2012. The principal source of cash from financing activities during the twelve months ended June 30, 2013 was funds received
from the issuance of shares in connection with the underwritten public offering of our common stock of $22.9 million, as well as
$1.0 million from the exercise of options and warrants, partially offset by the partial satisfaction of our convertible debentures
for $8.8 million as described below. In contrast, during the twelve months ended June 30, 2012, we received $9.9 million from the
initial issuance of these convertible debentures and associated warrants and $1.5 million from the exercise of options, partially
offset by a repayment of a long term loan of $0.3 million.



As of June 30, 2013,
our current assets exceeded our current liabilities by a multiple of 4.68. Current assets increased $4.6 million during the twelve
months period, mainly due to cash received from financing activities, and current liabilities increased by $0.5 million during
the same period. As a result, our working capital surplus increased by $4.1 million to $14.9 million at June 30, 2013.



Secured Loan



On October 23,
2013, we entered into a loan and security agreement, pursuant to which we received a loan of $10 million, before deduction of
issuance costs. Interest on the loan is determined on a daily basis at a variable rate equal to the greater of either (i) 10.5%,
or (ii) the sum of (A) 10.5% plus (B) the prime rate minus 5.5%. Payments under the loan and security agreement are interest
only for 9 months, followed by 30 monthly payments of principal and interest through the scheduled maturity date on February
1, 2017. Our obligations under the loan and security agreement are secured by a grant of a security interest in all of our
assets (other than our intellectual property). In addition, in connection with the loan and security agreement, we issued the
lender a five year warrant to purchase 168,351 shares of our common stock at a per share exercise price of $2.97.



MLV At-the-Market Agreement



On October 23, 2013, we entered into an at-the-market issuance sales agreement with MLV & Co. LLC,
pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $40.0 million directly
on the NYSE MKT or to or through a market maker other than on an exchange. With our prior written consent, sales may also be made
in negotiated transactions and/or any other method permitted by law. MLV & Co. LLC will receive a 3.0% commission from the
gross proceeds of any sales. Subject to the terms and conditions of the sales agreement, MLV & Co. LLC will use its commercially
reasonable efforts to sell the shares of our common stock from time to time, based upon our instructions (including any price,
time or size limits or other parameters or conditions that we may impose). We are not obligated to make any sales of common stock
under the sales agreement and no assurance can be given that we will sell any shares under the sales agreement, or, if we do, as
to the price or amount of shares that we will sell, or the dates on which any such sales will take place. The sales agreement may
be terminated by either party at any time upon 10 days’ notice to the other party, or by MLV & Co. LLC at any time in
certain circumstances, including the occurrence of a material adverse effect to us. In addition, the sales agreement will automatically
terminate upon the sale of all common stock subject to the sales agreement.



Convertible Debentures



On April 5, 2012, we
issued senior secured convertible debentures due April 5, 2014 in the original aggregate principal amount of $11,702,128 and five-year
warrants to purchase an aggregate of 835,866 shares of our common stock at an exercise price of $7.20 per share in exchange for
aggregate gross proceeds of $11.0 million, with corresponding net proceeds of $9.9 million. The convertible debentures were issued
with a 6% original issuance discount, bore interest at an annual rate of 8% and were convertible at any time into shares of common
stock at an initial conversion price of $7.00 per share. Upon conversion of the convertible debentures, investors were entitled
to receive a conversion premium equal to 8%, per annum, with a limit of 12% for the term of the convertible debentures, of the
principal amount being converted. In addition, the investors had the right to require us to redeem the convertible debentures at
any time after October 5, 2013 (18 months after the date of issuance) for 112% of the then outstanding principal amount, plus all
accrued interest, and we had the right to prepay the convertible debentures after six months for 112% of the then outstanding principal
amount, plus all accrued interest. In connection with this financing, we paid placement agent fees of $848,750 and issued placement
agents warrants to purchase 78,078 shares of common stock, with terms identical to the warrants issued to the investors.



54







On April 9, 2013, we
entered into an exchange and amendment agreement with the holders of these convertible debentures, pursuant to which, simultaneously
with the closing of our underwritten public offering on April 16, 2013, and in full satisfaction of our obligations under the convertible
debentures, we:



| | · | repaid $8,787,234 in cash;                                                                                                                                                                              
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | issued 2,159,574 shares of common stock to the holders of the convertible debentures, reflecting a conversion price of $2.00 per share for the remaining unpaid portion of the convertible debentures;  
| | · | issued five year warrants to the holders of these convertible debentures to purchase an aggregate of 659,091 shares of common stock for $3.00 per share;                                                
| | · | amended the securities purchase agreement pursuant to which the convertible debentures were originally issued to prohibit us from issuing securities containing anti-dilution protective provisions; and



| | · | amended the warrants issued in connection with the convertible debentures to (i) eliminate the automatic incorporation of the terms of any securities that are superior to those of such warrants, except with respect to exercise price and warrant coverage and (ii) provide that upon a fundamental transaction, the holders of such warrants will have the right to cause us to repurchase the unexercised portion of such warrants at their Black-Scholes value on the date of such fundamental transaction, payable in shares of common stock, rather than in cash as was previously provided.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Off Balance Sheet Arrangements



We have no off-balance
sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities
or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.



Recent Accounting Pronouncements



None.



Factors That May Affect Future Operations



We believe that our
future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the
cyclical nature of the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases
of our clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating
results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or NIS, both against the
U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement
policies pertaining to our products.



Item 7A.                Quantitative and Qualitative Disclosures About
Market Risk.



Not applicable.



Item 8.                    Financial Statements
and Supplementary Data.



The following financial statements are included
as part of this Report (See Item 15):





| | § | Report of Kesselman & Kesselman, Independent Registered Public Accounting Firm
| | - | ------------------------------------------------------------------------------



| | § | Consolidated Balance Sheets as of December 31, 2013 and June 30, 2013 and 2012
| | - | ------------------------------------------------------------------------------





55











| | § | Consolidated Statements of Operations for the Six Months Ended December 31, 2013 and Years Ended June 30, 2013 and 2012
| | - | -----------------------------------------------------------------------------------------------------------------------



| | § | Consolidated Statements of Operations for the Six Months Ended December 31, 2013 and Years Ended June 30, 2013 and 2012
| | - | -----------------------------------------------------------------------------------------------------------------------



| | § | Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2013 and Years Ended June 30, 2013 and 2012
| | - | -----------------------------------------------------------------------------------------------------------------------



| | § | Notes to Consolidated Financial Statements
| | - | ------------------------------------------





Item 9.                   Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.



Not applicable.



Item 9A.                Controls and
Procedures.



Management’s Conclusions Regarding
Effectiveness of Disclosure Controls and Procedures



We conducted an evaluation of the effectiveness
of our “disclosure controls and procedures”, as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as amended, as of December 31, 2013, the end of the period covered by this Transition Report on Form 10-K/T.
The disclosure controls and procedures evaluation was done under the supervision and with the participation of management, including
our chief executive officer and chief financial officer. There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2013.



Management's Report on Internal Control
Over Financial Reporting



Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external reporting
purposes in accordance with generally accepted accounting principles.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because
of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate over time.



Management, including our chief executive
officer and our chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December
31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control—Integrated Framework. Based on its assessment and those criteria, management
has concluded that we maintained effective internal control over financial reporting as of December 31, 2013.



Changes in Internal Control over Financial
Reporting





There have been no changes in our
internal control over financial reporting during the fiscal quarter ended December 31, 2013 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.





56







Item 9B.                Other Information.



Not applicable.



PART III





Item 10.                Directors,
Executive Officers and Corporate Governance.



The following table sets forth information
regarding our executive officers and the members of our board of directors.



|Name                  | Age | Position                                                                                       
|--------------------- | --- | -----------------------------------------------------------------------------------------------
|Alan Milinazzo        | 54  | President, Chief Executive Officer and Director                                                
|Craig Shore           | 52  | Chief Financial Officer, Secretary and Treasurer                                               
|Eli Bar               | 49  | Senior Vice President of Research and Development and Chief Technical Officer of InspireMD Ltd.
|Rick Olson            | 51  | Vice President of Global Sales Operations                                                      
|Sol J. Barer, Ph.D.   | 66  | Chairman of the Board of Directors                                                             
|James Barry, Ph.D.    | 54  | Director                                                                                       
|Michael Berman        | 56  | Director                                                                                       
|James J. Loughlin     | 71  | Director                                                                                       
|Campbell Rogers, M.D. | 52  | Director                                                                                       
|Paul Stuka            | 59  | Director                                                                                       



Our directors hold office until the earlier
of their death, resignation or removal by stockholders or until their successors have been qualified. Our directors are divided
into three classes. Alan Milinazzo, Sol J. Barer, Ph.D. and Paul Stuka are our Class 1 directors, with their terms of office to
expire at our 2015 annual meeting of stockholders. James J. Loughlin and Michael Berman are our Class 2 directors, with their terms
of office to expire at our 2016 annual meeting of stockholders. Campbell Rogers, M.D. and James Barry, Ph.D. are our Class 3 directors,
with their terms of office to expire at our 2014 annual meeting of stockholders. At each annual meeting of stockholders, directors
elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly
elected and qualified.



Our officers hold office until the earlier
of their death, resignation or removal by our board of directors or until their successors have been selected. They serve at the
pleasure of our board of directors.



Executive Officers and Directors



Alan Milinazzo has served as our
president, chief executive officer and director since January 3, 2013. Mr. Milinazzo served as president and chief executive officer
of Orthofix International N.V., a Nasdaq-listed medical device company, until August 2011, a position he was promoted to in 2006
after being hired a year earlier as chief operating officer. He also served as a director of Orthofix International N.V. from December
2006 until June 2012. From 2002 to 2005, Mr. Milinazzo was the general manager of Medtronic, Inc.’s coronary and peripheral
vascular businesses. Mr. Milinazzo also spent 12 years as an executive with Boston Scientific Corporation in numerous roles, including
vice president of marketing for SCIMED Europe. Mr. Milinazzo has over 20 years of experience in management and marketing, including
positions with Aspect Medical Systems and American Hospital Supply. As chief executive officer, Mr. Milinazzo’s position
on the board ensures a unity of vision between the broader goals of our company and our day-to-day operations.



Craig Shore has served as our chief
financial officer, secretary and treasurer since March 31, 2011 and as our chief administrative officer since May 3, 2013. In addition,
since November 10, 2010, Mr. Shore has served as InspireMD Ltd.’s vice president of business development. From February 2008
through June 2009, Mr. Shore served as chief financial officer of World Group Capital Ltd. and Nepco Star Ltd., both publicly traded
companies on the Tel Aviv Stock Exchange, based in Tel Aviv, Israel. From March 2006 until February 2008, Mr. Shore served as the
chief financial officer of Cellnets Solutions Ltd., a provider of advanced cellular public telephony solutions for low to middle
income populations of developing countries based in Azur, Israel. Mr. Shore has over 25 years of experience in financial management
in the U.S., Europe and Israel. His experience includes raising capital both in the private and public markets. Mr. Shore graduated
with honors and received a B.Sc. in Finance from Pennsylvania State University and an M.B.A. from George Washington University.



57







Eli Bar has served as InspireMD Ltd.’s
senior vice president of research and development and chief technical officer since February 2011. Prior to that, he served as
InspireMD Ltd.’s vice president of research and development since October 2006 and engineering manager since June 2005. Mr.
Bar has over 15 years’ experience in medical device product development. Mr. Bar has vast experience building a complete
research and development structure, managing teams from the idea stage to an advanced marketable product. He has been involved
with many medical device projects over the years and has developed a synthetic vascular graft for femoral and coronary artery replacement,
a covered stent and a fully implantable ventricular assist device. Mr. Bar has more than nine filed device and method patent applications
and he has initiated two medical device projects. Mr. Bar is also a director of Blue Surgical Ltd., a medical device company based
in Israel. Mr. Bar graduated from New Haven University in Connecticut with a B.Sc. in Mechanical Engineering.



Rick Olsonwas appointed as our vice president of global sales and operations on December 1, 2013. From October 2010 to September 2013,he served as the director of international strategy and high performance management system at Covidien Ltd. following its
acquisition of ev3 Inc. From 2001 to October 2010, Mr. Olson served in various roles at ev3 Inc., including as its director of
international neurovascular marketing & sales force development from September 2009 to October 2010, its regional director,
Northern Europe/UK country manager/UK PV sales manager from 2007 to 2009, its sales director, European and Middle Eastern distributors
from 2006 to 2007 and various other roles from 2001 to 2006 as one of ev3 Inc.’s original employees. Prior to that, Mr.
Olson spent nine years at Boston Scientific, where he served in various sales and marketing leadership positions both in Europe
and the U.S. Mr. Olson holds a bachelor's degree in Psychology from Oregon State University.



Sol J. Barer, Ph.D., has served as
a director since July 11, 2011 and has served as our chairman since November 16, 2011. Dr. Barer has 25 years of experience with
publicly traded biotechnology companies. In 1980, when Dr. Barer was with Celanese Research Company, he formed the biotechnology
group that was subsequently spun out to form Celgene Corporation. Dr. Barer spent 18 years leading Celgene Corporation as president,
chief operating officer and chief executive officer, culminating with his tenure as Celgene Corporation’s executive chairman
and chairman beginning in May 2006 until his retirement in June 2011. Dr. Barer is also a director of Cerecor, Inc., Edge Therapeutics,
Inc., Medgenics, Inc., ContraFect Corporation, Amicus Therapeutics, Inc. and Aegerion Pharmaceuticals, Inc. and serves as a senior
advisor to a number of other biotechnology companies. Dr. Barer received a Ph.D. in organic chemistry from Rutgers University.
Dr. Barer brings to the board significant scientific and executive leadership experience in the U.S. biotechnology industry and
prior service on the board of directors of other publicly-held biopharmaceutical companies, as well as a unique perspective on
the best methods of growth for a biotechnology company.



James Barry, Ph.D., has served as
a director since January 30, 2012. Dr. Barry has served as executive vice president and chief operating officer at Arsenal Medical
Inc., a medical device company focused on local therapy, since September 2011. Dr. Barry also heads his own consulting firm, Convergent
Biomedical Group LLC, advising medtech companies on product development, strategy, regulatory challenges and fund raising. Until
June 2010, he was senior vice president, corporate technology development at Boston Scientific Corporation, where he was in charge
of the corporate research and development and pre-clinical sciences functions. Dr. Barry joined Boston Scientific in 1992 and oversaw
its efforts in the identification and development of drug, device and biological systems for applications with implantable and
catheter-based delivery systems. He currently serves on a number of advisory boards including the College of Biomedical Engineering
at Yale University, the College of Sciences at University of Massachusetts-Lowell, and the Massachusetts Life Science Center. Dr.
Barry received his Ph.D. in Biochemistry from the University of Massachusetts-Lowell and holds a B.A. degree in Chemistry from
Saint Anselm College. Dr. Barry brings to the board over 20 years of experience in leadership roles in the medical device industry
and significant medical technology experience, in particular with respect to interventional cardiology products.



58







Michael Berman, has served as our
director since February 7, 2013. Mr. Berman is a medical device entrepreneur who works with high-potential development and early-stage
commercial companies. From 2005 to 2012, when the company was sold to Boston Scientific, Mr. Berman was a co-founder and the chairman
of BridgePoint Medical, Inc., which developed technology to treat coronary and peripheral vascular chronic total occlusions. Mr.
Berman was also a member of the board of UltraShape Ltd. from 2005 until 2011, when the company was sold to Syneron Medical Ltd.
Mr. Berman has served (i) since 2003 as co-founder and a director of Aetherworks I and II, a medical device incubator, (ii) since
2004 as a co-founder and director of Benechill, Inc., a company developing a therapeutic hypothermia system for the treatment of
cardiac arrest, (iii) since 2011 as an advisor to, and since 2012 as a director of, Cardiosonic, Inc., a company developing a system
for hypertension reduction via renal denervation, (iv) since 2005 as a director of PharmaCentra, LLC, which creates customizable
marketing programs that help pharmaceutical companies communicate with physicians and patients, (v) since 2011 as a co-founder
and director of Rebiotix Inc., a company developing an innovative treatment for C Diff colitis, (vi) since 2011 as a director of
AngioSlide Ltd., a medical device company that has developed an embolic capture angioplasty device, (vii) since 2011 as a director
of InterValve, Inc., a medical device company developing an aortic valvuloplasty balloon for treatment of calcific aortic stenosis,
and (viii) since 2013 as a Director of ClearCut Inc., a medical device company that has developed an MRI system for tumor margin
assessment. Mr. Berman was a member of the Data Sciences International, Inc. board from 2001 until 2012. Mr. Berman brings to the
board his extensive executive and entrepreneurial experiences in the field of medical devices and interventional cardiology, which
should assist in strengthening and advancing our strategic focus.



James J. Loughlinhas served as our
director since September 19, 2012. Mr. Loughlin served as the national director of the pharmaceuticals practice at KPMG LLP, and
a five-year term as member of the board of directors of KPMG LLP. Additionally, Mr. Loughlin served as chairman of the pension
and investment committee of the KPMG LLP board from 1995 through 2001. He also served as partner in charge of human resources,
chairman of the personnel and professional development committee, secretary and trustee of the Peat Marwick Foundation and a member
of the pension, operating and strategic planning committees. In addition, Mr. Loughlin has served as a member of the board of directors
of Celgene Corporation, a global biopharmaceutical company focused on novel therapies for the treatment of cancer and inflammatory
diseases, since 2006, including as chairman of the audit committee since June 2008 and a member of the compensation committee since
June 2008. Mr. Loughlin served as a member of the board of directors of Alfacell Corporation, a biopharmaceutical company primarily
focused on therapeutic drugs for the treatment of cancer and other pathological conditions, until 2008 and Datascope Corp., a medical
device company engaged in the interventional cardiology and radiology, cardiovascular and vascular surgery, and critical care fields,
until January 2009. Mr. Loughlin brings to the board his valuable experiences as national director of the pharmaceuticals practice
at KPMG LLP, an extensive background in accounting and financial reporting, qualifying him as an audit committee financial expert,
and prior service on the board of directors of other publicly-held biopharmaceutical companies.



Campbell Rogers, M.D., has served
as a director since September 3, 2013. Dr. Rogers has served as chief medical officer of HeartFlow, Inc., a cardiovascular diagnostics
company, since March 2012. Prior to joining HeartFlow, Inc., he was the chief scientific officer and global head of research and
development at Cordis Corporation, Johnson & Johnson, where he was responsible for leading investments and research in cardiovascular
devices, from July 2006 to March 2012. Prior to that, he was associate professor of medicine at Harvard Medical School and the
Harvard-M.I.T. Division of Health Sciences and Technology and director of the cardiac catheterization and experimental cardiovascular
interventional laboratories at Brigham and Women’s Hospital. He served as principal investigator for numerous interventional
cardiology device, diagnostic, and pharmacology trials, is the author of numerous journal articles, chapters, and books in the
area of coronary artery and other cardiovascular diseases and was the recipient of research grant awards from the National Institute
of Health and the American Heart Association. He received his A.B. from Harvard College and his M.D. from Harvard Medical School.
Dr. Rogers’ qualifications to serve on the board include his significant experience in cardiovascular devices, as well as
his familiarity with the operations of medical device companies.



Paul Stuka has served as a director
since August 8, 2011. Mr. Stuka has served as the managing member of Osiris Partners, LLC, an investment fund, since 2000. Prior
to forming Osiris Partners, LLC, Mr. Stuka, with 30 years of experience in the investment industry, was a managing director of
Longwood Partners, managing small cap institutional accounts. In 1995, Mr. Stuka joined State Street Research and Management as
manager of its Market Neutral and Mid Cap Growth Funds. From 1986 to 1994, Mr. Stuka served as the general partner of Stuka Associates,
where he managed a U.S.-based investment partnership. Mr. Stuka began his career in 1980 as an analyst at Fidelity Management and
Research. As an analyst, Mr. Stuka followed a wide array of industries including healthcare, energy, transportation, and lodging
and gaming. Early in his career he became the assistant portfolio manager for three Fidelity Funds, including the Select Healthcare
Fund which was recognized as the top performing fund in the U.S. for the five-year period ending December 31, 1985. Mr. Stuka has
served as a director of Lucid, Inc. since June 2013. Mr. Stuka’s qualifications to serve on the board include his significant
strategic and business insight from his years of experience investing in the healthcare industry.



59







Messrs. Milinazzo, Shore and Bar are parties
to certain agreements related to their service as executive officers and directors described under “Item 11. Executive Compensation
– Agreements with Executive Officers.”



Family Relationships



We have no family relationships amongst
our directors and executive officers.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who own more than ten percent
of our common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in
ownership of our common stock. Directors, officers and persons who own more than ten percent of our common stock are required by
Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms they file.



To our knowledge, based
solely on a review of the copies of such reports furnished to us, during the six months ended December 31, 2013, each of our directors,
officers and greater than ten percent stockholders complied with all Section 16(a) filing requirements applicable to our directors,
officers and greater than ten percent stockholders.



Board Committees



Our board of directors has established an
audit committee, a nominating and corporate governance committee and a compensation committee, each of which has the composition
and responsibilities described below.



Audit Committee. Our audit committee
is currently comprised of Messrs. Loughlin and Stuka and Dr. Barer, each of whom our board has determined to be financially literate
and qualify as an independent director under Section 803(B)(2) of the NYSE MKT rules. Mr. Loughlin is the chairman of our audit
committee and qualifies as a financial expert, as defined in Item 407(d)(5)(ii) of Regulation S-K. The audit committee’s
duties are to recommend to our board of directors the engagement of independent auditors to audit our financial statements and
to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit
and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations
to improve the system of accounting and internal controls.



Nominating and Corporate Governance Committee.
Our nominating and corporate governance committee is currently comprised of Messrs. Berman and Stuka and Dr. Barer, each of whom
qualify as an independent director under Section 803(A) of the NYSE MKT rules. Mr. Berman is the chairman of our nominating and
corporate governance committee. The nominating and corporate governance committee identifies and recommends to our board of directors
individuals qualified to be director nominees. In addition, the nominating and corporate governance committee recommends to our
board of directors the members and chairman of each board committee who will periodically review and assess our code of business
conduct and ethics and our corporate governance guidelines. The nominating and corporate governance committee also makes recommendations
for changes to our code of business conduct and ethics and our corporate governance guidelines to our board of directors, reviews
any other matters related to our corporate governance and oversees the evaluation of our board of directors and our management.



The nominating and
corporate governance committee will consider all proposed nominees for the board of directors, including those put forward by stockholders.
Stockholder nominations should be in writing, addressed to the nominating and corporate governance committee in care of the secretary
at InspireMD, Inc., 321 Columbus Avenue, Boston, MA 02116, in accordance with the provisions of our Amended and Restated Bylaws.



60







Compensation Committee.
Our compensation committee is currently comprised of Messrs. Stuka and Loughlin and Dr. Barer, each of whom qualify as an independent
director under Sections 803(A) and 805(c)(1) of the NYSE MKT rules. Mr. Stuka is the chairman of our compensation committee. The
compensation committee reviews and approves our salary and benefits policies, including compensation of executive officers and
directors. The compensation committee also administers our stock option plans and recommends and approves grants of stock options
under such plans.



Code of Ethics



We have adopted a code
of ethics and business conduct that applies to our officers, directors and employees, including our principal executive officer,
principal financial officer and principal accounting officer, which is posted on our website at www.inspire-md.com. We intend to
disclose future amendments to certain provisions of the code of ethics, or waivers of such provisions granted to executive officers
and directors, on this website within four business days following the date of such amendment or waiver.



Item 11.                Executive
Compensation.



Summary Compensation Table



The table below sets forth, for the sixth
month transition period ended December 31, 2013, the twelve month period ended June 30, 2013, the six month period ended June 30,
2012 and the twelve month period ended December 31, 2011, the compensation earned by Alan Milinazzo, our president and chief executive
officer, Craig Shore, our chief financial officer, secretary and treasurer and Eli Bar, the senior vice president of research and
development and chief technical officer of InspireMD Ltd.





|Name and PrincipalPosition  |  | Year     |  | Salary($)(1) |         |  | Bonus($)(1) |  |         | RestrictedStock Awards($)(2) |  |  | OptionAwards($)(2) |  |  | All OtherCompensation($)(1) |           |      | Total($)(1) | 
|--------------------------- |  | -------- |  | ------------ | ------- |  | ----------- |  | ------- | ---------------------------- |  |  | ------------------ |  |  | --------------------------- | --------- | ---- | ----------- | 
|                            |  |          |  |              |         |  |             |  |         |                              |  |  |                    |  |  |                             |           |      |             | 
|Alan Milinazzo              |  | 2013(4)  |  |              | 225,000 |  |             |  | 275,000 | (5)                          |  |  | 267,608            |  |  |                             | 164,736   |      |             | 
|President and Chief         |  | 2013(7)  |  |              | 222,500 |  |             |  | -       |                              |  |  | 1,988,725          |  |  |                             | 1,837,440 |      |             | 
|Executive Officer (3)       |  |          |  |              |         |  |             |  |         |                              |  |  |                    |  |  |                             |           |      |             | 
|                            |  |          |  |              |         |  |             |  |         |                              |  |  |                    |  |  |                             |           |      |             | 
|Craig Shore                 |  | 2013(4)  |  |              | 92,150  |  |             |  | 50,137  | (5)                          |  |  | 238,700            |  |  |                             | 146,941   |      |             | 
|Chief Financial Officer,    |  | 2013(7)  |  |              | 165,083 |  |             |  | -       |                              |  |  | -                  |  |  |                             | 45,059    |      |             | 
|Secretary and Treasurer (8) |  | 2012(10) |  |              | 76,717  |  |             |  | -       |                              |  |  | -                  |  |  |                             | 139,499   |      |             | 
|                            |  | 2011(11) |  |              | 118,333 |  |             |  | -       |                              |  |  | -                  |  |  |                             | 260,554   |      |             | 
|                            |  |          |  |              |         |  |             |  |         |                              |  |  |                    |  |  |                             |           |      |             | 
|Eli Bar                     |  | 2013(4)  |  |              | 92,150  |  |             |  | 44,184  | (5)                          |  |  | -                  |  |  |                             | -         |      |             | 
|Senior Vice President of    |  | 2013(7)  |  |              | 165,083 |  |             |  | -       |                              |  |  | -                  |  |  |                             | -         |      |             | 
|Research and Development    |  | 2012(10) |  |              | 77,100  |  |             |  | 12,850  |                              |  |  | -                  |  |  |                             | -         |      |             | 
|and Chief Technical Officer |  | 2011(11) |  |              | 122,760 |  |             |  | -       |                              |  |  | -                  |  |  |                             | 185,175   | (13) |             | 
|of InspireMD Ltd. (14)      |  |          |  |              |         |  |             |  |         |                              |  |  |                    |  |  |                             |           |      |             | 







| | (1) |  | Compensation amounts received in non-U.S.
    currency have been converted into U.S. dollars using the average exchange rate for the applicable period. The average
    exchange rate for the sixth month transition period ended December 31, 2013 was 3.545 NIS per dollar, the average exchange
    rate for the twelve month period ended June 30, 2013 was 3.7944 NIS per dollar, the average exchange rate for  the six month
    period ended June 30, 2012 was 3.80     NIS     per     dollar     and the     average     exchange rate for  the twelve
    month period ended December 31, 2011 was 3.5781     NIS per dollar.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



61







| | (2)  |  | The amounts in this column reflect the dollar amounts recognized
for financial statement reporting purposes with respect to the six month transition period ended December 31, 2013, the twelve
month period ended June 30, 2013, the six month period ended June 30, 2012 and the twelve month period ended December 31, 2011
in accordance with FASB ASC Topic 718. Fair value is based on the Black-Scholes option pricing model using the fair value of the
underlying shares at the measurement date. For additional discussion of the valuation assumptions used in determining stock-based
compensation and the grant date fair value for stock options, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies-Share-based compensation” and Note 2-“Significant
Accounting Policies” and Note 9-“Equity” of the Notes to the Consolidated Financial Statements for the Six Months
Ended December 31, 2013 included herein.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3)  |  | Mr. Milinazzo served as our director during the six months ended December 31, 2013 and the twelve months ended June 30, 2013 but did not receive any additional compensation for his services as director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (4)  |  | Refers to our transition period from July 1, 2013 to December 31, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (5)  |  | Bonuses for the 2013 calendar year were approved by the
    Compensation Committee in January 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (6)  |  | Mr. Milinazzo’s other compensation consisted solely of benefits related to health insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (7)  |  | Refers to the twelve month period ended June 30, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (8)  |  | For the twelve months ended June 30, 2012, Mr. Shore’s total compensation was $334,208, consisting of $156,873 in salary, $139,499 in option awards and $37,836 in other compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (9)  |  | Mr. Shore’s other compensation consisted solely of benefits in the six months ended December 31, 2013, the twelve months ended June 30, 2013 and the six months ended June 30, 2012 and consisted of a warrant award valued at $5,266 and $35,280 in benefits in the twelve months ended December 31, 2011. In each of the periods reported, Mr. Shore’s benefits included our contributions to his severance, pension, vocational studies and disability funds, an annual recreation payment, a company car and cell phone, and a daily food allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (10) |  | Refers to the six month period ended June 30, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (11) |  | Refers to the twelve month period ended December 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (12) |  | Mr. Bar’s other compensation in each of the periods reported consisted solely of benefits, including our contributions to his severance, pension, vocational studies and disability funds, an annual recreation payment, a company car and cell phone, and a daily food allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (13) |  | On June 1, 2011, Mr. Bar was awarded options to acquire up to
    50,000 shares of common stock at an exercise price of $11.00 per share (as adjusted for the one-for-four reverse stock split
    of our common stock) as a bonus payment for his contributions to our company in 2010. The options had a fair market value of
    $268,381. In August 2011, we cancelled these options and reissued an option to purchase 50,000 shares of common stock at an
    exercise price of $7.72 because our board of directors determined that the $11.00 (as adjusted for the one-for-four reverse
    stock split of our common stock) exercise price was too far out of the money to achieve the compensatory and incentive
    purposes of the options. The new options had a fair market value of $185,175.                                                                                                                                                                                          
| | (14) |  | For the twelve months ended June 30, 2012, Mr.Bar’s total compensation was $390,379, consisting of $156,873 in salary, $12,850 in bonus, $185,175 in option awards and $35,481 in other compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



Agreements with Executive Officers



Alan Milinazzo



On January 3, 2013,
we entered into an employment agreement with Alan Milinazzo to serve as our president, chief executive officer and a director.
The employment agreement has an initial term that ends on January 1, 2016 and will automatically renew for additional one-year
periods on January 1, 2016 and on each January 1 thereafter unless either party gives the other party written notice of its election
not to extend such employment at least six months prior to the next January 1 renewal date. If a change in control occurs when
less than two full years remain in the initial term or during any renewal term, the employment agreement will automatically be
extended for two years from the change in control date and will terminate on the second anniversary of the change in control date.



62









Under this employment
agreement, Mr. Milinazzo is entitled to an annual base salary of at least $450,000. Such amount may be reduced only as part of
an overall cost reduction program that affects all senior executives of the company and does not disproportionately affect Mr.
Milinazzo, so long as such reductions do not reduce the base salary to a rate that is less than 90% of the amount set forth above
(or 90% of the amount to which it has been increased). The base salary will be reviewed annually by the board for increase as
part of its annual compensation review. Mr. Milinazzo is also eligible to receive an annual bonus of at least $275,000 upon the
achievement of reasonable target objectives and performance goals, to be determined by the board of directors in consultation
with Mr. Milinazzo on or before the end of the first quarter of the fiscal year to which the bonus relates and, in the event actual
performance exceeds the goals, the board may, in its sole discretion, pay Mr. Milinazzo bonus compensation of more than $275,000.
In addition, Mr. Milinazzo is eligible to receive such additional bonus or incentive compensation as the board may establish from
time to time in its sole discretion. In accordance with this employment agreement, on January 3, 2013, we granted Mr. Milinazzo
a nonqualified stock option to purchase 525,927 shares of our common stock, made pursuant to a nonqualified stock option agreement,
an incentive stock option to purchase 74,073 shares of our common stock, made pursuant to an incentive stock option agreement,
and 400,000 shares of restricted stock, which are subject to forfeiture until the vesting of such shares, made pursuant to a restricted
stock award agreement. The options have an exercise price of $4.05, which was the fair market value of our common stock on the
date of grant. The options are subject to a three-year vesting period subject to Mr. Milinazzo’s continued service with
us, with one-thirty-sixth (1/36th) of such awards vesting each month. The shares of restricted stock initially vested monthly
over thirty-six months, with 1/36 vesting on February 3, 2013, March 3, 2013 and April 3, 2013. The grant was then amended to
vest annually over three years, with 9/36 vesting on January 3, 2014, and one-third vesting on January 3, 2015 and January 3,
2016. On or before December 31 of each calendar year, Mr. Milinazzo will be eligible to receive an additional grant of equity
awards equal, in the aggregate, to up to 0.5% of actual outstanding shares of our common stock on the date of grant, provided
that the actual amount of the grant will be based on his achievement of certain performance objectives as established by the board,
in its reasonable discretion, for each such calendar year. Each additional grant will, with respect to any awards that are options,
have an exercise price equal to the fair market value of our common stock, and will be subject to a three-year vesting period
subject to Mr. Milinazzo’s continued service with us, with one-third of each additional grant vesting equally on the first,
second, and third anniversary of the date of grant for such awards. The additional grant for the 2013 calendar year was made on
January 29, 2014, pursuant to which Mr. Milinazzo received 86,235 shares of our restricted common stock and an option to purchase
86,235 shares of our common stock, at an exercise price of $3.10 per share. On January 31, 2014, Mr. Milinazzo also received a
2014 annual equity grant consisting of 96,400 shares of restricted common stock and an option to purchase 313,350 shares of our
common stock, at an exercise price of $2.97 per share. Each grant vests in three equal annual installments, with one-third vesting
on the first, second and third anniversaries of the date of grant, subject to Mr. Milinazzo’s continued service with us.



Mr. Milinazzo’s
employment agreement also contains certain noncompetition, no solicitation, confidentiality, and assignment of inventions requirements
for Mr. Milinazzo.



Pursuant to Mr. Milinazzo’s
employment agreement, if Mr. Milinazzo’s employment is terminated upon his death or disability, by Mr. Milinazzo for good
reason (as such term is defined in Mr. Milinazzo’s employment agreement), or by us without cause (as such term is defined
in Mr. Milinazzo’s employment agreement), Mr. Milinazzo will be entitled to receive, in addition to other unpaid amounts
owed to him (e.g., for base salary and accrued vacation): (i) the pro rata amount of any bonus for the fiscal year of such termination
(assuming full achievement of all applicable goals under the bonus plan) that he would have received had his employment not been
terminated; (ii) a one-time lump sum severance payment equal to 200% of his base salary, provided that he executes a release relating
to employment matters and the circumstances surrounding his termination in favor of the company, our subsidiaries and our officers,
directors and related parties and agents, in a form reasonably acceptable to us at the time of such termination; (iii) vesting
of 50% of all unvested stock options, restricted stock, stock appreciation rights or similar stock based rights granted to Mr.
Milinazzo, and lapse of any forfeiture included in such restricted or other stock grants; (iv) an extension of the term of any
outstanding stock options or stock appreciation rights until the earlier of (a) two (2) years from the date of termination, or
(b) the latest date that each stock option or stock appreciation right would otherwise expire by its original terms; (v) to the
fullest extent permitted by our then-current benefit plans, continuation of health, dental, vision and life insurance coverage
for the lesser of 18 months after termination or until Mr. Milinazzo obtains coverage from a new employer; and (vi) a cash payment
of $35,000, which Mr. Milinazzo may use for executive outplacement services or an education program. The payments described above
will be reduced by any payments received by Mr. Milinazzo pursuant to any of our employee welfare benefit plans providing for payments
in the event of death or disability. If Mr. Milinazzo continues to be employed by us after the term of his employment agreement,
unless otherwise agreed by the parties in writing, and Mr. Milinazzo’s employment is terminated upon his death or disability,
by Mr. Milinazzo for good reason, or by us without cause, Mr. Milinazzo will be entitled to receive, in addition to other unpaid
amounts owed to him, the payments set forth in (i), (ii) and (iv) above. If, during the term of his employment agreement, we terminate
Mr. Milinazzo’s employment for cause, Mr. Milinazzo will only be entitled to unpaid amounts owed to him and whatever rights,
if any, are available to him pursuant to our stock-based compensation plans or any award documents related to any stock-based compensation.



63







Mr. Milinazzo has no
specific right to terminate the employment agreement or right to any severance payments or other benefits solely as a result of
a change in control. However, if within 24 months following a change in control, (a) Mr. Milinazzo terminates his employment for
good reason, or (b) we terminate his employment without cause, the lump sum severance payment to which he is entitled will be increased
from 200% of his base salary to 250% of his base salary and all stock options, restricted stock units, stock appreciation rights
or similar stock-based rights granted to him will vest in full and be immediately exercisable and any risk of forfeiture included
in restricted or other stock grants previously made to him will immediately lapse.



Craig Shore



On November 28,
2010, InspireMD Ltd. entered into an employment agreement with Craig Shore to serve as InspireMD Ltd.’s vice president
of business development. Pursuant to the employment agreement, Mr. Shore was entitled to a monthly gross salary of $8,750,
which amount increased to $10,200 upon consummation of our share exchange transactions on March 31, 2011 and was further
increased to $10,620 as of July 1, 2011. In addition, Mr. Shore’s annual base salary was increased to $175,000 on April
22, 2013, retroactive to January 1, 2013, and to $220,200 on January 31, 2014, retroactive to January 1, 2014. Mr. Shore is
also entitled to certain social and fringe benefits as set forth in the employment agreement. The employment agreement also
contains certain confidentiality, non-competition and non-solicitation requirements for Mr. Shore. Mr. Shore is also entitled
to, and received, a grant of options to purchase 45,000 restricted ordinary shares of InspireMD Ltd. which were converted
into options to purchase 91,306 shares of our common stock (as adjusted for the one-for-four reverse stock split of our
common stock that occurred on December 21, 2012) following the consummation of our share exchange transactions on March 31,
2011. Pursuant to Mr. Shore’s employment agreement, in the event of a change of control of our company, the majority of
shares of our common stock or our intellectual property that results in the termination of Mr. Shore’s employment
within one year of such change of control, the stock options granted to Mr. Shore in accordance with the terms of his
employment agreement that were unvested will vest immediately upon such termination. Furthermore, pursuant to terms contained
in Mr. Shore’s stock option award agreement, in the event of a change of control of our company, the stock options
granted to Mr. Shore that were unvested will vest immediately upon such change of control if such stock options are
not assumed or substituted by the surviving company. If Mr. Shore’s employment is terminated without cause, Mr. Shore
shall be entitled to at least 30 days’ prior notice and shall be paid his salary in full and all social and fringe
benefits during such notice period. If a major change of control of InspireMD Ltd. occurs, Mr. Shore will be entitled to at
least 180 days’ prior written notice and shall be paid his salary in full and all social and fringe benefits during
such notice period. If Mr. Shore is terminated for cause, he is not entitled to any notice. On April 22, 2013, we modified
the compensation package for Mr. Shore to provide for (i) the aforementioned increase in base salary, (ii) Mr. Shore being
eligible to receive an annual bonus equal to up to 30% of his base salary, at the sole discretion of our compensation
committee, in consultation with our chief executive officer, and (iii) the following termination benefits upon Mr.
Shore’s termination of service as a result of death, disability, resignation for “good reason” or
termination by us without “cause”: (a) a one-time lump sum severance payment in an amount equal to 100% of Mr.
Shore’s annual base salary; (b) 50% vesting of all unvested stock options, restricted stock, restricted stock units,
stock appreciation rights or similar stock based rights outstanding at the time of termination of service; and (c) the right
to exercise any outstanding stock options or stock appreciation rights for a period equal to the lesser of (x) two years from
the date of termination of service, or (y) the period remaining until the original expiration date of any such
outstanding stock options or stock appreciation rights. We also amended Mr. Shore’s outstanding options as of April 22,
2013 to provide that, upon a termination of service as a result of death, disability, resignation by Mr. Shore for
“good reason, or by us without “cause,” (i) 50% of the remaining unvested portion of such outstanding
options shall vest, and (ii) Mr. Shore has a period equal to the lesser of (A) two years from the date of termination of
service, or (B) the period remaining until the original expiration date of such outstanding options, to exercise such
outstanding options. On January 29, 2014, we further modified the compensation package for Mr. Shore so that he would be
eligible to receive an annual bonus of up to 45% of his base salary for 2014.



On January 29, 2014, Mr. Shore received 77,000 shares of our restricted common stock and an option to
purchase 77,000 shares of our common stock, at an exercise price of $3.10 per share. On January 31, 2014, Mr. Shore also received
a 2014 annual equity grant consisting of 29,735 shares of our restricted common stock and an option to purchase 96,670 shares of
our common stock, at an exercise price of $2.97 per share. Each grant vests in three equal annual installments, with one-third
vesting on the first, second and third anniversaries of the date of grant, subject to Mr. Shore’s continued service with
us.



64







Subject to certain
conditions, either party to our employment agreement with Mr. Shore may terminate the employment agreement without “cause”
(as such term is defined in Mr. Shore’s employment agreement with us) upon at least 30 days’ prior notice to the other
party or, in the event of a major change of control in terms of the ownership of shares of our common stock or our intellectual
property, upon at least 180 days’ prior notice. During such notice period, we will continue to compensate Mr. Shore according
to his employment agreement and Mr. Shore will be obligated to continue to discharge and perform all of his duties and obligations
under his employment agreement, and to cooperate with us and use his best efforts to assist with the integration of any persons
that we have delegated to assume Mr. Shore’s responsibilities. We believe that this arrangement with Mr. Shore will assist
us in achieving a successful transition upon Mr. Shore’s departure. In addition, upon termination without “cause,”
we have the right to pay Mr. Shore a lump payment representing his compensation for the notice period and terminate Mr. Shore’s
employment immediately.



If we terminate Mr.
Shore’s employment without cause, Mr. Shore will be entitled, under Israeli law, to severance payments equal to his last
month’s salary multiplied by the number of years Mr. Shore has been employed with us. In order to finance this obligation,
we make monthly contributions equal to 8.33% of Mr. Shore’s salary to a severance payment fund. The total amount accumulated
in Mr. Shore’s severance payment fund as of December 31, 2013 was $37,050 as adjusted for the conversion from New Israeli
Shekels to U.S. dollars. However, if Mr. Shore’s employment is terminated without cause, on account of a disability or upon
his death, as of December 31, 2013, Mr. Shore would have been entitled to receive $48,679 in severance under Israeli law, thereby
requiring us to pay Mr. Shore $11,629, in addition to releasing the $37,050 in Mr. Shore’s severance payment fund. On the
other hand, pursuant to his employment agreement, Mr. Shore is entitled to the total amount contributed to and accumulated in his
severance payment fund in the event of the termination of his employment as a result of his voluntary resignation. In addition,
Mr. Shore would be entitled to receive his full severance payment under Israeli law, including the total amount contributed to
and accumulated in his severance payment fund, if he retires from our company at or after age 67.



We are entitled to
terminate Mr. Shore’s employment immediately at any time for “cause” (as such term is defined in the agreement
and the Israeli Severance Payment Act 1963), upon which, after meeting certain requirements under the applicable law and recent
Israeli Labor court requirements, we believe we will have no further obligation to compensate Mr. Shore.



Also, upon termination
of Mr. Shore’s employment for any reason, we will compensate him for all unused vacation days accrued.



On May 3, 2013, we appointed Mr. Shore as
our chief administrative officer and granted him an option to purchase 25,000 shares of common stock, at an exercise price of $2.95,
with a term of ten years, vesting in three equal annual installments, subject to Mr. Shore’s continued service with us.



Eli Bar



On June 26, 2005, InspireMD Ltd. entered
into an employment agreement with Eli Bar to serve as InspireMD Ltd.’s engineering manager. Pursuant to this employment agreement,
Mr. Bar is entitled to a monthly gross salary of $8,750, which amount increased to $10,620 as of July 1, 2011 and further increased
to $175,000 on April 22, 2013, retroactive to January 1, 2013. Mr. Bar is also entitled to certain social and fringe benefits as
set forth in the employment agreement including a company car. The employment agreement also contains certain confidentiality,
non-competition and non-solicitation requirements for Mr. Bar. If Mr. Bar’s employment is terminated, with or without cause,
he is entitled to at least 60 days’ prior written notice and shall be paid his salary in full and all social and fringe benefits
during such notice period. On April 22, 2013, we modified the compensation package for Mr. Bar to provide for (i) the aforementioned
increase in base salary, (ii) Mr. Bar being eligible to receive an annual bonus equal to up to 30% of his base salary, at the sole
discretion of our compensation committee, in consultation with our chief executive officer, and (iii) the following termination
benefits upon Mr. Bar’s termination of service as a result of death, disability, resignation for “good reason”
or termination by us without “cause”: (a) a one-time lump sum severance payment in an amount equal to 100% of Mr. Bar’s
annual base salary; (b) 50% vesting of all unvested stock options, restricted stock, restricted stock units, stock appreciation
rights or similar stock based rights outstanding at the time of termination of service; and (c) the right to exercise any outstanding
stock options or stock appreciation rights for a period equal to the lesser of (x) two years from the date of termination of service,
or (y) the period remaining until the original expiration date of any such outstanding stock options or stock appreciation rights.
We also modified Mr. Bar’s outstanding options as of April 22, 2013 to provide that, upon a termination of service as a result
of death, disability, resignation by Mr. Bar for “good reason, or by us without “cause,” (i) 50% of the remaining
unvested portion of such outstanding options shall vest, and (ii) Mr. Bar has a period equal to the lesser of (A) two years from
the date of termination of service, or (B) the period remaining until the original expiration date of such outstanding options,
to exercise such outstanding options. On January 29, 2014, we further modified the compensation package for Mr. Bar so that he
would be eligible to receive an annual bonus of up to 45% of his base salary for 2014.



In June 2011, Mr. Bar was awarded an
option to acquire up to 50,000 shares of common stock at an exercise price of $11.00 per share (as adjusted for the one-for-four
reverse stock split of our common stock that occurred on December 21, 2012) as a bonus payment for his significant contributions
to our company, including Mr. Bar’s continued exemplary performance and contributions to the clinical development of our
product and the desire to continue to retain his services and keep his compensation consistent with what we pay to our other senior
executives.  We determined that granting Mr. Bar more of an equity interest would further increase his opportunity to
share in our future financial success and align his objectives with those of our stockholders.  The option vests on an
annual basis over a three year period.   The exercise price was the fair market value of our common stock on the date
of grant.  In August 2011, we cancelled this option and reissued an option to purchase 50,000 shares of common stock
at an exercise price of $7.72 because our board of directors determined that the $11.00 exercise price was too far out of the money
to achieve the compensatory and incentive purposes of the options.  The exercise price of the new option was the
fair market value of our common stock on the date of grant.



On January 31, 2014, Mr. Bar received a 2014 annual equity grant
consisting of 29,735 shares of our restricted common stock and an option to purchase 96,670 shares of our common stock, at an exercise
price of $2.97 per share. Each grant vests in three equal annual installments, with one-third vesting on the first, second and
third anniversaries of the date of grant, subject to Mr. Bar’s continued service with us.



65







Subject to certain conditions, either party
to our employment agreement with Mr. Bar may terminate the employment agreement without “cause” (as such term is defined
in Mr. Bar’s employment agreement with us) upon at least 60 days’ prior written notice to the other party. During such
notice period, we will continue to compensate Mr. Bar according to his employment agreement and Mr. Bar will be obligated to continue
to discharge and perform all of his duties and obligations under his employment agreement, and to cooperate with us and use his
best efforts to assist with the integration of any persons that we have delegated to assume Mr. Bar’s responsibilities. We
believe that our severance arrangement with Mr. Bar will assist us in achieving a successful transition upon Mr. Bar’s departure.
In addition, upon termination without “cause,” we have the right to pay Mr. Bar a lump payment representing his compensation
for the notice period and terminate Mr. Bar’s employment immediately.



If Mr. Bar’s employment is terminated
without cause, Mr. Bar will also be entitled under Israeli law to severance payments equal to his last month’s salary multiplied
by the number of years Mr. Bar has been employed with us. In order to finance this obligation, we make monthly contributions equal
to 8.33% of Mr. Bar’s salary each month to a severance payment fund. The total amount accumulated in his severance payment
fund as of December 31, 2013 was $92,906, as adjusted for conversion from New Israeli Shekels to U.S. dollars. However, if Mr.
Bar’s employment was terminated without cause, on account of a disability or upon his death, as of December 31, 2013, Mr.
Bar would be entitled to receive $134,357 in severance under Israeli law, thereby requiring us to pay Mr. Bar $41,451, in addition
to releasing the $92,906 in his severance payment fund. In addition, Mr. Bar would be entitled to receive his full severance payment
under Israeli law, including the total amount contributed to and accumulated in his severance payment fund, if he retires from
our company at or after age 67.



We are entitled to terminate Mr. Bar’s
employment immediately at any time for “cause” (as such term is defined in the agreement and the Israeli Severance
Payment Act 1963), upon which, after meeting certain requirements under the applicable law and recent Israeli Labor court requirements,
we believe we will have no further obligation to compensate Mr. Bar.



In addition, pursuant to terms contained
in Mr. Bar’s stock option award agreement, in the event of a change of control of our company, the stock options granted
to Mr. Bar that were unvested will vest immediately upon such change of control if such stock options are not assumed or substituted
by the surviving company. Also, upon termination of Mr. Bar’s employment for any reason, we will compensate him for all unused
vacation days accrued.



Grants of Plan-Based Awards – Transition Period



There have been no grants of plan-based
awards to our named executive officers in the sixth month transition period ended December 31, 2013.



Outstanding Equity Awards at December 31, 2013



The following table shows information concerning
unexercised options and unvested restricted shares outstanding as of December 31, 2013 for each of our named executive officers.



66







|                |  | Option Awards                                                  |         |  | Stock Awards                                                     | 
|--------------- |  | -------------------------------------------------------------- | ------- |  | ---------------------------------------------------------------- | 
|Name            |  | Number ofsecuritiesunderlyingunexercisedoptions (#)exercisable |         |  | Number ofsecuritiesunderlyingunexercisedoptions (#)unexercisable | 
|Alan  Milinazzo |  |                                                                | 183,333 |  |                                                                  | 
|                |  |                                                                |         |  |                                                                  | 
|                |  |                                                                |         |  |                                                                  | 
|                |  |                                                                |         |  |                                                                  | 
|                |  |                                                                |         |  |                                                                  | 
|Craig Shore     |  |                                                                | 91,306  |  |                                                                  | 
|                |  |                                                                | 25,000  |  |                                                                  | 
|                |  |                                                                |         |  |                                                                  | 
|                |  |                                                                |         |  |                                                                  | 
|Eli Bar         |  |                                                                | 38,044  |  |                                                                  | 
|                |  |                                                                | 20,290  |  |                                                                  | 
|                |  |                                                                | 33,333  |  |                                                                  | 



67







| | (1) | These options were granted in January 2013 and vest monthly, commencing on February 3, 2013 and vesting on the next thirty-five months of that date.                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | These restricted shares were granted in January 2013 and initially vested monthly over thirty-six months, with 1/36 vesting on February 3, 2013, March 3, 2013 and April 3, 2013. The grant was then amended to vest annually over three years, with 9/36 vesting in January 2014, and one-third vesting on January 3, 2015 and January 3, 2016.
| | (3) | These options were granted on April 25, 2013 and vest annually, with one-third vesting on April 25, 2014, April 25, 2015 and April 25, 2016.                                                                                                                                                                                                    
| | (4) | These restricted shares were granted on April 25, 2013 and vest annually, with one-third vesting on April
25, 2014, April 25, 2015 and April 25, 2016.                                                                                                                                                                                          
| | (5) | These options were granted in February 2011 and vested annually, with one-third vesting on November 23, 2011, November 23, 2012 and November 23, 2013.                                                                                                                                                                                          
| | (6) | These options were granted on May 25, 2012 and vest annually, with one-third vesting on May 25, 2013, May 25, 2014 and May 25, 2015.                                                                                                                                                                                                            
| | (7) | These options were granted on May 3, 2013 and vest annually, with one-third vesting on May 3, 2014, May 3, 2015 and May 3, 2016.                                                                                                                                                                                                                
| | (8) | These options were granted in July 2010 and vested quarterly over three years, commencing with the quarter in which they were granted.                                                                                                                                                                                                          
| | (9) | These options were granted in August 2011 and vest annually, with 1/3 vesting on May 23, 2012, May 23, 2013 and May 23, 2014.                                                                                                                                                                                                                   



Option Exercises and Stock Vested



There were no stock options exercised by
our named executive officers during the six months ended December 31, 2013.



2011 UMBRELLA Option Plan



On March 28, 2011, our board of directors
and stockholders adopted and approved the InspireMD, Inc. 2011 UMBRELLA Option Plan, which was subsequently amended on October
31, 2011 and December 21, 2012. Under the InspireMD, Inc. 2011 UMBRELLA Option Plan, we have reserved 5,000,000 shares of our common
stock (as adjusted for the one-for-four reverse stock split of our common stock that occurred on December 21, 2012) as awards to
the employees, consultants, and service providers to InspireMD, Inc. and its subsidiaries and affiliates worldwide.



The InspireMD, Inc. 2011 UMBRELLA Option
Plan currently consists of three components, the primary plan document that governs all awards granted under the InspireMD, Inc.
2011 UMBRELLA Option Plan, and two appendices: (i) Appendix A, designated for the purpose of grants of stock options and restricted
stock awards to Israeli employees, consultants, officers and other service providers and other non-U.S. employees, consultants,
and service providers, and (ii) Appendix B, which is the 2011 U.S. Equity Incentive Plan, designated for the purpose of grants
of stock options and restricted stock awards to U.S. employees, consultants, and service providers who are subject to the U.S.
income tax. On December 21, 2012, the stockholders approved the awarding of “incentive stock options” pursuant to the
U.S. portion of the plan.



68







The purpose of the InspireMD, Inc. 2011
UMBRELLA Option Plan is to provide an incentive to attract and retain employees, officers, consultants, directors, and service
providers whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of
such persons in our development and financial success. The InspireMD, Inc. 2011 UMBRELLA Option Plan is administered by our compensation
committee. Unless terminated earlier by the board of directors, the InspireMD, Inc. 2011 UMBRELLA Option Plan will expire on March
27, 2021.



2013 Long-Term Incentive Plan



On December 16, 2013, our stockholders approved
the InspireMD, Inc. 2013 Long-Term Incentive Plan, which was adopted by our board of directors on October 25, 2013.



The purpose of the InspireMD, Inc. 2013
Long-Term Incentive Plan is to provide an incentive to attract and retain employees, officers, consultants, directors, and service
providers whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of
such persons in our development and financial success. The InspireMD, Inc. 2013 Long-Term Incentive Plan provides for the granting
of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance
awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem. The InspireMD,
Inc. 2013 Long-Term Incentive Plan is administered by our compensation committee. A total of 5,000,000 shares of common stock are
reserved for awards under the InspireMD, Inc. 2013 Long-Term Incentive Plan.



The InspireMD, Inc. 2013 Long-Term Incentive
Plan is intended serve as an “umbrella” plan for us and our subsidiaries worldwide. Therefore, if so required, appendices
may be added to the InspireMD, Inc. 2013 Long-Term Incentive Plan in order to accommodate local regulations that do not correspond
to the scope of the InspireMD, Inc. 2013 Long-Term Incentive Plan. Attached as Appendix A to the InspireMD, Inc. 2013 Long-Term
Incentive Plan is the InspireMD, Inc. 2013 Employee Stock Incentive Plan, for the purpose of making grants of stock options, restricted
stock, and other stock incentive awards pursuant to Sections 102 and 3(i) of the Israeli Income Tax Ordinance (New Version), 1961
to Israeli employees and officers and any other service providers or control holders of us who are subject to Israeli Income Tax.



Director Compensation



The following table shows information concerning our directors,
other than Alan Milinazzo, during the six months ended December 31, 2013.



|Name                    |  | Fees Earned or Paid in Cash ($) |        |  | Stock Awards ($) |  |   | Option Awards(1)($) |  |  | All Other Compensation ($) |     |  | Total ($) |  
|----------------------- |  | ------------------------------- | ------ |  | ---------------- |  | - | ------------------- |  |  | -------------------------- | --- |  | --------- | -
|Sol J. Barer, Ph.D.     |  |                                 | 12,500 |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|James Barry, Ph.D.      |  |                                 | 12,500 |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|Paul Stuka              |  |                                 | 12,500 |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|Eyal Weinstein (2)      |  |                                 | 11,470 |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|Asher Holzer, Ph.D. (2) |  |                                 | —      |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|James J. Loughlin       |  |                                 | 12,500 |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|Michael Berman          |  |                                 | 12,500 |  |                  |  | — |                     |  |  | —                          |     |  |           | —
|Campbell Rogers, M.D.   |  |                                 | 8,104  |  |                  |  | — |                     |  |  | 164,436                    | (3) |  |           | —
|Ofir Paz (4)            |  |                                 | —      |  |                  |  | — |                     |  |  | —                          |     |  |           | —



69


















| | (1) | The amounts in this column reflect the dollar amounts recognized for financial statement reporting purposes with respect to
the six months ended December 31, 2013, in accordance with FASB ASC Topic 718. Fair value is based on the Black-Scholes option
pricing model using the fair value of the underlying shares at the measurement date. For additional discussion of the valuation
assumptions used in determining stock-based compensation and the grant date fair value for stock options, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policies — Share-based
compensation” and Note 2 — “Significant Accounting Policies” and Note 9 — “Equity” of the Notes to the Consolidated Financial Statements for the Six Months Ended December 31, 2013 included herein.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The term of our Class 2 directors expired at the annual meeting of stockholders held on December 16, 2013. Mr.
                                                                 Weinstein and Dr. Holzer did not stand for re-election and thus ceased to be members of the board of directors following
                                                                 the annual meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (3) | Represents the fair market value on the date of grant of an option to purchase 125,000 shares of our common stock granted to Dr. Rogers on September 3, 2013 in connection with his appointment as a member of our board of directors.  The option has an exercise price of $2.12 per share and vests annually, with one-third vesting in 2014, 2015 and 2016 on the anniversary of the date of grant, provided that if Dr. Rogers fails to be reelected or nominated for reelection at the 2014 annual meeting of stockholders, the option vests and becomes exercisable as of such date.  The option will expire on September 3, 2023. This grant was made under the InspireMD, Inc. 2011 UMBRELLA Option Plan.                                                                                                                               
| | (4) | Mr. Paz served as our director until his resignation on September 3, 2013 but did not receive any additional compensation for his services as director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         





We reimburse our directors for reasonable
expenses incurred in connection with their service as directors. For the 2013 calendar year, our board approved the following compensation
for our independent directors serving as of January 1, 2013, in recognition of their board service: (i) a $25,000 stipend, payable
quarterly, and (ii) an option to purchase 50,000 shares of our common stock. In addition, Dr. Barer, as chairman of the board,
received an additional option to purchase 50,000 shares of our common stock and each director serving as chairman of a board committee
received an additional option to purchase 25,000 shares of our common stock. Dr. Barry also received an additional option to purchase
25,000 shares of our common stock in recognition of his extraordinary contributions to our operations. On September 3, 2013, we
also granted to Dr. Rogers an option to purchase 125,000 shares of our common stock in connection with his appointment as a member
of our board of directors.



For the 2014 calendar year, our board approved
the following compensation for our independent directors: (i) a $25,000 stipend, payable quarterly; (ii) annual committee chair
compensation (effective April 1, 2014) of $12,000 for the chairman of the audit committee, $8,000 for the chairman of the compensation
committee and $5,000 for the chairmen of the nominating and corporate governance committee and the research and development committee;
(iii) annual committee membership compensation (effective April 1, 2014) of $4,000 for members of the audit committee and the
compensation committee and $2,000 for members of the nominating and corporate governance committee and the research and development
committee; (iv) an option to purchase 50,000 shares of our common stock for each board member; and (v) an option to purchase an
additional 35,000 shares of our common stock for the chairman of the board. In addition, on February 25, 2014, we entered into
a consulting agreement with Dr. Barry, pursuant to which Dr. Barry agreed to provide us with consulting services in exchange for
a monthly consultancy fee calculated at the rate of $313 per hour.



70







| | Item 12. | Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
| | -------- | -----------------------------------------------------------------------------------------------



The following table sets forth information
with respect to the beneficial ownership of our common stock as of February 25, 2014 by:



| | · | each person known by us to beneficially own more than 5.0% of our
common stock;
| | - | -------------------------------------------------------------------------------



| | · | each of our directors;
| | - | ----------------------



| | · | each of the named executive officers; and
| | - | -----------------------------------------



| | · | all of our directors and executive officers as a group.
| | - | -------------------------------------------------------



The percentages of common stock beneficially
owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial
ownership of securities. Under the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security,
or investment power, which includes the power to dispose of or to direct the disposition of the security. Except as indicated in
the footnotes to this table, each beneficial owner named in the table below has sole voting and sole investment power with respect
to all shares beneficially owned and each person’s address is c/o InspireMD, Inc., 321 Columbus Avenue, Boston, MA 02116.
As of February 25, 2014, we had 34,925,920 shares outstanding.



|Name of Beneficial Owner                                    |  | Number
    of Shares Beneficially Owned(1) |           |      | Percentage
    Beneficially Owned(1) | 
|----------------------------------------------------------- |  | ------------------------------------------ | --------- | ---- | ------------------------------------ | 
|5% Owners                                                   |  |                                            |           |      |                                      | 
|Orbimed Advisors LLC(2)                                     |  |                                            | 3,395,000 | (3)  |                                      | 
|Asher Holzer, Ph.D.                                         |  |                                            | 1,925,110 | (4)  |                                      | 
|Opaleye Management Inc.(5)                                  |  |                                            | 2,086,100 | (6)  |                                      | 
|Jennison Associates LLC (7)                                 |  |                                            | 1,756,873 | (8)  |                                      | 
|Officers and Directors                                      |  |                                            |           |      |                                      | 
|Alan W. Milinazzo                                           |  |                                            | 1,187,948 | (9)  |                                      | 
|Craig Shore                                                 |  |                                            | 223,791   | (10) |                                      | 
|Sol J. Barer, Ph.D.                                         |  |                                            | 2,754,167 | (11) |                                      | 
|James Barry, Ph.D.                                          |  |                                            | 20,833    | (10) |                                      | 
|Michael Berman                                              |  |                                            | 71,472    | (10) |                                      | 
|James J. Loughlin                                           |  |                                            | 23,333    | (10) |                                      | 
|Campbell Rogers, M.D.                                       |  |                                            | -         |      |                                      | 
|Paul Stuka                                                  |  |                                            | 932,704   | (12) |                                      | 
|Eli Bar                                                     |  |                                            | 387,712   | (10) |                                      | 
|All directors and executive officers as a group (9 persons) |  |                                            | 5,601,959 |      |                                      | 





71









_________________



| | * | Represents ownership of less than one percent.
| | - | ----------------------------------------------



| | (1) | Shares of common stock beneficially owned and the respective percentages of beneficial ownership of common stock assumes the
exercise of all options, warrants and other securities convertible into common stock beneficially owned by such person or entity
currently exercisable or exercisable within 60 days of February 25, 2014. Shares issuable pursuant to the exercise of stock options
and warrants exercisable within 60 days are deemed outstanding and held by the holder of such options or warrants for computing
the percentage of outstanding common stock beneficially owned by such person, but are not deemed outstanding for computing the
percentage of outstanding common stock beneficially owned by any other person.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Orbimed Advisors LLC’s address is 601 Lexington Avenue, 54th Floor, New York, NY 10022.
| | --- | ---------------------------------------------------------------------------------------



| | (3) | Based on Amendment No. 1 to Schedule 13G filed with the Securities and Exchange Commission on February 13, 2014 and
                                                            comprised                                                             of (i) 1,018,500 shares of common stock owned directly
                                                            by OrbiMed Israel Partners Limited Partnership and (ii) 2,376,500
                                                            shares of common stock owned directly by OrbiMed Private Investments IV, LP. OrbiMed Israel GP Ltd. is the general partner
                                                            of                                                             OrbiMed Israel BioFund GP Limited Partnership, which is the
                                                            general partner of OrbiMed Israel Partners Limited Partnership,
                                                            and each shares voting and dispositive power over the securities directly owned by OrbiMed Israel Partners Limited
                                                            Partnership. Each of OrbiMed Israel GP Ltd. and OrbiMed Israel BioFund GP Limited Partnership disclaims beneficial ownership
                                                            of the securities owned directly by OrbiMed Private Investments IV, LP. Samuel D. Isaly is the managing member of OrbiMed
                                                            Advisors LLC and OrbiMed Advisors LLC is the managing member of OrbiMed Capital GP IV LLC, which is the general partner of
                                                            OrbiMed Private Investments IV, LP. Therefore, each of Mr. Isaly, OrbiMed Advisors LLC and OrbiMed Capital GP IV LLC shares
                                                            voting and dispositive power over the securities owned directly by OrbiMed Private Investments IV, LP, but disclaims
                                                            beneficial                                                             ownership of the securities owned directly by OrbiMed
                                                            Israel Partners Limited Partnership.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Based on a Schedule 13D filed with the Securities and Exchange Commission on January 16, 2014.
| | --- | ----------------------------------------------------------------------------------------------



| | (5) | Opaleye Management Inc.’s address is 9B Russell Street, Cambridge, MA 02140.
| | --- | ----------------------------------------------------------------------------



| | (6) | Based on a Schedule 13G filed with the Securities and Exchange Commission on January 16, 2014.
| | --- | ----------------------------------------------------------------------------------------------



| | (7) | Jennison Associates LLC’s address is 466 Lexington Avenue, New York, NY 10017. These shares are also reported as
                                                            beneficially owned by Prudential Financial, Inc. Prudential Financial, Inc.’s address is 751 Broad Street, Newark, NJ 07102.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Based on a Schedule 13G filed with the Securities and Exchange Commission on February 7, 2014 by Jennison Associates LLC
                                                            and a Schedule 13G fixed with the Securities and Exchange Commission on February 5, 2014 by Prudential Financial, Inc.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Includes options to purchase 349,149 shares of common stock that are currently exercisable or exercisable within 60 days of
February 25, 2014.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Represents options that are currently exercisable or exercisable within 60 days of February 25, 2014.
| | ---- | -----------------------------------------------------------------------------------------------------



| | (11) | Comprised of (i) 1,900,000 shares of common stock and (ii) options to purchase 854,167 shares of common stock that are currently
exercisable or exercisable within 60 days of February 25, 2014.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



72







| | (12) | Paul Stuka is the principal and managing member of Osiris Investment Partners, L.P., and, as such, has beneficial ownership
of the (i) 745,204 shares of common stock and (ii) currently exercisable warrants to purchase 166,667 shares of common stock held
by Osiris Investment Partners, L.P., in addition to personally holding options to purchase 20,833 shares of common stock that are
currently exercisable or exercisable within 60 days of February 25, 2014.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Equity Compensation Plan Information



The following table provides certain information
as of December 31, 2013 with respect to our equity compensation plans under which our equity securities are authorized for issuance:



|                                                           |  |                         |           |     |                      |  |      | Number of securities   
|---------------------------------------------------------- |  | ----------------------- | --------- | --- | -------------------- |  | ---- | -----------------------
|                                                           |  |                         |           |     |                      |  |      | remaining available for
|                                                           |  |                         |           |     |                      |  |      | future issuance under  
|                                                           |  | Number of securities to |           |     | Weighted-average     |  |      | equity compensation    
|                                                           |  | be issued upon exercise |           |     | exercise price of    |  |      | plans (excluding       
|                                                           |  | of outstanding options, |           |     | outstanding options, |  |      | securities reflected in
|                                                           |  | warrants and rights     |           |     | warrants and rights  |  |      | column (a))            
|Plan Category                                              |  | (a)                     |           |     | (b)                  |  |      | (c)                    
|Equity compensation  plans approved by  security holders   |  |                         | 3,231,890 |     |                      |  | 3.68 |                        
|Equity compensation plans not approved by security holders |  |                         | 1,174,508 | (1) |                      |  | 5.78 |                        
|Total                                                      |  |                         | 4,406,399 |     |                      |  | 4.24 |                        



________________

(1) Comprised of awards made to individuals outside the InspireMD,
Inc. 2011 UMBRELLA Option Plan and 2013 Long Term Incentive Plan, as described below:



| | · | In April 2008, we issued options to purchase 1,461 shares of common
stock to a provider of finder services who assisted InspireMD Ltd. in raising funds in 2008. The exercise price of these options
is $4.93 per share. These options are fully vested and expire in June 2016.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Options issued to a consultant: in May 2006, we issued options to
purchase 83,636 shares of common stock to a consultant. The exercise price of these options was $0.76 per share. We believe these
options have expired, but they are included above because such expiration is currently under legal dispute.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Options issued to former directors: in August 2011, we issued options
to purchase an aggregate of 81,161 shares of common stock to David Ivry and Fellice Pelled. Both Mr. Ivry and Mr. Pelled resigned
as directors of InspireMD, Ltd. on March 31, 2011. Pursuant to the terms of the directors’ vested options, the vested options
expired thirty days after the directors’ resignations. However, in connection with their resignation, we granted Mr. Ivry
and Mr. Pelled each replacement options to purchase 40,581 shares of common stock. During September and November 2012 Mr. Ivry
exercised 17,500 of his options into our common stock. The exercise price of these options is $4.92 per share and they expire on
December 31, 2014.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



73







| | · | Options issued to current director: in November 2011, we issued options
to purchase an aggregate of 725,000 shares of common stock to Dr. Barer, the chairman of our board of directors. The exercise price
of these options is $7.80 per share. An option to purchase 181,250 shares of common stock vested on April 11, 2013, when our common
stock was first listed on a national securities exchange. An option to purchase 181,250 shares of common stock vested on May 10,
2013, after we received research coverage from a second investment bank that ranked in the top twenty investment banks in terms
of life science underwritings. The option to purchase 362,500 shares of common stock vests in substantially equal monthly installments
(with any fractional shares vesting on the last vesting date) on the last business day of each calendar month over a two year period
from the date of grant, with the first installment vesting on November 30, 2011, provided that Dr. Barer is still providing services
to us in some capacity as of each such vesting date.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Warrant issued to current officer: in March 2011, for work performed
in connection with the share exchange transactions and as bonus compensation, we issued Craig Shore, our chief financial officer,
secretary and treasurer, a five-year warrant to purchase up to 750 shares of common stock at an exercise price of $7.20 per share.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Options issued to current vice president of global marketing and
                                                                                                               strategy: in September 2013, we issued options to purchase 150,000 shares of common stock to David Blossom. The exercise
                                                                                                               price of these options was $2.23 per share. The options vest annually with one-third vesting on September 16, 2014,
                                                                                                               September 16, 2015 and September 16, 2016. The options expire on September 16, 2023.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Options issued to current vice president of global sales operations: in December 2013, we issued
                                                                                                                   options to purchase 150,000 shares of common stock to Rick Olson. The exercise price of these options was $2.75 per share.
                                                                                                                   The options vest annually with one-third vesting on December 2, 2014, December 2, 2015 and December 2, 2016. The options expire on December 2, 2023.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Item 13. | Certain Relationships and Related Transactions, and
Director Independence.
| | -------- | --------------------------------------------------------------------------





On January 3, 2013, Ofir Paz resigned as
our chief executive officer, and in connection with Mr. Paz’s resignation, InspireMD Ltd. and A.S. Paz Management and Investment
Ltd. entered into a separation agreement and release, pursuant to which, among other things, the consultancy agreement, dated as
of April 1, 2012, by and between InspireMD Ltd. and A.S. Paz Management, was terminated and Mr. Paz resigned as chief executive
officer of InspireMD Ltd. and as a director of InspireMD Ltd. In accordance with the terms of the consultancy agreement, we continued
to pay Mr. Paz’s monthly consultancy fee of $21,563 for six months following termination of the consultancy agreement.



On June 1, 2012, in connection with his
resignation as president and director of InspireMD Ltd. and our president, we entered into a consulting agreement with Dr. Holzer,
which terminated on November 30, 2012, pursuant to which Dr. Holzer provided us with consulting services in exchange for monthly
payments of $20,337. On February 21, 2013, we agreed to pay Dr. Holzer $64,195 in consideration for consulting services provided
by Dr. Holzer to us since the expiration of his consulting agreement. The amount equals three months of payments under the expired
consulting agreement plus applicable value added tax.



In accordance with our audit committee charter,
the audit committee is required to approve all related party transactions. In general, the audit committee will review any proposed
transaction that has been identified as a related party transaction under Item 404 of Regulation S-K, which means a transaction,
arrangement or relationship in which we and any related party are participants in which the amount involved exceeds $120,000. A
related party includes (i) a director, director nominee or executive officer of us, (ii) a security holder known to be an owner
of more than 5% of our voting securities, (iii) an immediate family member of the foregoing or (iv) a corporation or other entity
in which any of the foregoing persons is an executive, principal or similar control person or in which such person has a 5% or
greater beneficial ownership interest.





Director Independence



The board of directors
has determined that Drs. Barer, Barry and Rogers and Messrs. Loughlin, Stuka and Berman satisfy the requirement for independence
set out in Section 803 of the NYSE MKT rules and that each of these directors has no material relationship with us (other than
being a director and/or a stockholder). In making its independence determinations, the board of directors sought to identify and
analyze all of the facts and circumstances relating to any relationship between a director, his immediate family or affiliates
and our company and our affiliates and did not rely on categorical standards other than those contained in the NYSE MKT rule referenced
above.



| | Item 14. | Principal Accountant Fees and Services.
| | -------- | ---------------------------------------



The fees billed for professional services
provided to us by Kesselman & Kesselman, Certified Public Accountants (“Kesselman”), a member of PricewaterhouseCoopers
International Limited, for the six month period ended December 31, 2013, the twelve month period ended June 30, 2013, the six month
period ended June 30, 2012 and the twelve month period ended December 31, 2011, respectively, are described below.



74







Audit Fees



Kesselman billed us audit fees in the aggregate
amount of $110,000 for the six month period ended December 31, 2013, $290,000 for the twelve month period ended June 30, 2013,
$155,000 for the six month period ended June 30, 2012, $255,000 for the twelve month period ended June 30, 2012 and $205,000 for
the twelve month period ended December 31, 2011. These fees relate to the audit of our annual financial statements and the review
of our interim quarterly financial statements.



Audit-Related Fees



Kesselman billed us audit-related fees in the aggregate amount of $35,000 for the six month period ended
December 31, 2013, $135,000 for the twelve month period ended June 30, 2013, $20,000 for the six month period ended June 30, 2012,
$60,000 for the twelve month period ended June 30, 2012 and $106,300 for the twelve month period ended December 31, 2011. The fees
for the six month period ended December 31, 2013 related to performance of audit-related services for our registration statement
on Form S-3 initially filed with the Securities and Exchange Commission on October 24, 2013. The fees for the twelve month period
ended June 30, 2013 related to the performance of audit-related services for our registration statement on Form S-1 initially filed
with the Securities and Exchange Commission on September 24, 2012 and amendments thereto. The fees for the six month period ended
June 30, 2012 related to the performance of audit-related services for our registration statement on Form S-1 initially filed with
the Securities and Exchange Commission on May 17, 2012 and amendments thereto. The fees for the twelve month period ended December
31, 2011 related to the performance of audit-related services for our registration statement on Form S-1 initially filed with the
Securities and Exchange Commission on June 16, 2011, amendments thereto and documentation of processes and controls related to
Sarbanes-Oxley Act compliance.



Tax Fees



Kesselman billed us tax fees in the aggregate amount of $35,000 for the six month period ended December
31, 2013, $55,500 for the twelve month period ended June 30, 2013, $44,000 for the six month period ended June 30, 2012, $59,000
for the twelve month period ended June 30, 2012 and $26,000 for the twelve month period ended December 31, 2011. These fees relate
to professional services rendered for tax compliance, tax advice and tax planning.



All Other Fees



Kesselman did not bill us for any other
fees for the six month period ended December 31, 2013,the twelve month period ended June 30, 2013, the six month period
ended June 30, 2012 or the twelve month period ended December 31, 2011.



For the portion of the fiscal year ended
December 31, 2011 prior to our formation of the audit committee, the board of directors considered the audit fees, audit-related
fees, tax fees and other fees paid to our accountants, as disclosed above, and determined that the payment of such fees was compatible
with maintaining the independence of the accountants. Our audit committee pre-approves all auditing services, internal control-related
services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent auditor,
except for de minimis non-audit services that are approved by the audit committee prior to the completion of the audit. The audit
committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority
to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals
is presented to the full audit committee at its next scheduled meeting.



PART IV



| | Item 15. | Exhibits
                                         and Financial Statement Schedules.
| | -------- | ------------------------------------------------------------------------------------



Documents filed as part of report:



1. Financial Statements



75







The following financial statements are included herein:



| | § | Report of Kesselman & Kesselman, Independent Registered Public
Accounting Firm
| | - | ------------------------------------------------------------------------------



| | § | Consolidated Balance Sheets as of December 31, 2013 and June 30, 2013
and 2012
| | - | ------------------------------------------------------------------------------



| | § | Consolidated Statements of Operations for the Six Months Ended December
31, 2013 and Years Ended June 30, 2013 and 2012
| | - | -----------------------------------------------------------------------------------------------------------------------



| | § | Consolidated Statements of Changes in Equity for the Six Months Ended December 31, 2013 and Years Ended
June 30, 2013 and 2012
| | - | ------------------------------------------------------------------------------------------------------------------------------







| | § | Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2013 and Years Ended June 30, 2013 and 2012
| | - | -----------------------------------------------------------------------------------------------------------------------



| | § | Notes to Consolidated Financial Statements
| | - | ------------------------------------------



2. Financial Statement Schedules



None



3. Exhibits



See Index to Exhibits



76







SIGNATURES



Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|                          | INSPIREMD, INC.
|------------------------- | ---------------
|                          |                
|Date:  September 25, 2014 | By:            
|                          |                
|                          |                



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.



|Signature             |  | Title                                            |  | Date              
|--------------------- |  | ------------------------------------------------ |  | ------------------
|/s/ Alan Milinazzo    |  | President, Chief Executive Officer and Director  |  | September 25, 2014
|Alan Milinazzo        |  | (principal executive officer)                    |  |                   
|                      |  |                                                  |  |                   
|/s/ Craig Shore       |  | Chief Financial Officer, Secretary and Treasurer |  | September 25, 2014
|Craig Shore           |  | (principal financial and accounting officer)     |  |                   
|                      |  |                                                  |  |                   
|/s/ Sol J. Barer      |  | Chairman of the Board of Directors               |  | September 25, 2014
|Sol J. Barer          |  |                                                  |  |                   
|                      |  |                                                  |  |                   
|/s/ James Barry       |  | Director                                         |  | September 25, 2014
|James Barry           |  |                                                  |  |                   
|                      |  |                                                  |  |                   
|/s/ Michael Berman    |  | Director                                         |  | September 25, 2014
|Michael Berman        |  |                                                  |  |                   
|                      |  |                                                  |  |                   
|/s/ James J. Loughlin |  | Director                                         |  | September 25, 2014
|James J. Loughlin     |  |                                                  |  |                   
|                      |  |                                                  |  |                   
|/s/ Campbell Rogers   |  | Director                                         |  | September 25, 2014
|Campbell Rogers       |  |                                                  |  |                   
|                      |  |                                                  |  |                   
|/s/ Paul Stuka        |  | Director                                         |  | September 25, 2014
|Paul Stuka            |  |                                                  |  |                   



77







Index to Exhibits





|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2011)                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                               
|3.2         |  | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2011)                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                               
|3.3         |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2012)                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                               
|3.4         |  | Certificate of Designation, Preferences and Rights of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                               
|4.1         |  | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 5, 2013)                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                               
|4.2         |  | Rights Agreement dated as of October 22, 2013 between InspireMD, Inc. and Action Stock transfer Corporation, as Rights Agent, including exhibits thereto (incorporated by reference to an exhibit to the Registration Statement on Form 8-A filed with Securities and Exchange Commission on October 25, 2013)
|            |  |                                                                                                                                                                                                                                                                                                               
|10.1+       |  | Amended and Restated 2011 Umbrella Option Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on November 4, 2011)                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                               
|10.2+       |  | Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                               
|10.3        |  | Securities Purchase Agreement, dated as of March 31, 2011, by and among InspireMD, Inc. and certain purchasers set forth therein (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)    
|            |  |                                                                                                                                                                                                                                                                                                               
|10.4        |  | Form of $7.20 Warrant (incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                               
|10.5        |  | Form of $4.92 Warrant (incorporated by reference to Exhibit 10.7 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                               
|10.6        |  | Manufacturing Agreement, by and between InspireMD Ltd. and QualiMed Innovative Medizinprodukte GmbH, dated as of September 11, 2007 (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)
|            |  |                                                                                                                                                                                                                                                                                                               
|10.7        |  | Development Agreement, by and between InspireMD Ltd. and QualiMed Innovative Medizinprodukte GmbH, dated as of January 15, 2007 (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)    
|            |  |                                                                                                                                                                                                                                                                                                               
|10.8        |  | License Agreement, by and between Svelte Medical Systems, Inc. and InspireMD Ltd., dated as of March 19, 2010 (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)                       
|            |  |                                                                                                                                                                                                                                                                                                               
|10.9+       |  | Personal Employment Agreement, by and between InspireMD Ltd. and Eli Bar, dated as of June 26, 2005 (incorporated by reference to Exhibit 10.19 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                             







78









|10.10+ |  | Employment Agreement, by and between InspireMD Ltd. and Craig Shore, dated as of November 28, 2010 (incorporated by reference to Exhibit 10.21 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                  
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.11+ |  | Form of Indemnity Agreement between InspireMD, Inc. and each of the directors and executive officers thereof (incorporated by reference to Exhibit 10.22 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)                           
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.12  |  | Form of Warrant (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2011)                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.13  |  | Agreement by and between InspireMD Ltd. and MeKo Laser Material Processing, dated as of April 15, 2010 (incorporated by reference to Exhibit 10.26 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)                                 
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.14  |  | Agreement by and between InspireMD Ltd. and Natec Medical Ltd, dated as of September 23, 2009 (incorporated by reference to Exhibit 10.27 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)                                          
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.15  |  | Exclusive Distribution Agreement by and between InspireMD Ltd. and Hand-Prod Sp. Z o.o, dated as of December 10, 2007 (incorporated by reference to Exhibit 10.28 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011)                 
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.16+ |  | $6.00 Nonqualified Stock Option Agreement, dated as of July 11, 2011, by and between InspireMD, Inc. and Sol J. Barer, Ph.D. (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2011)                                         
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.17  |  | Exclusive Distribution Agreement by and between InspireMD GmbH. and IZASA Distribuciones Tecnicas SA, dated as of May 20, 2009 (incorporated by reference to Exhibit 10.36 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011)        
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.18  |  | Amendment to the Distribution Agreement by and between InspireMD GmbH. and IZASA Distribuciones Tecnicas SA, dated as of February 2011 (incorporated by reference to Exhibit 10.37 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011)
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.19  |  | Exclusive Distribution Agreement by and between InspireMD Ltd. and Tzamal-Jacobsohn Ltd., dated as of December 24, 2008 (incorporated by reference to Exhibit 10.38 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011)               
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.20  |  | Exclusive Distribution Agreement by and between InspireMD Ltd. and Kirloskar Technologies (P) Ltd., dated as of May 13, 2010 (incorporated by reference to Exhibit 10.39 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011)          
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.21  |  | Letter Agreement by and between InspireMD Ltd. and Tzamal-Jacobsohn Ltd., dated as of May 9, 2011 (incorporated by reference to Exhibit 10.43 to Amendment No. 4 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 1, 2011)                                     
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.22+ |  | Stock Award Agreement, dated as of November 16, 2011, by and between InspireMD, Inc. and Sol J. Barer, Ph.D. (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2011)                                                     
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.23+ |  | Nonqualified Stock Option Agreement, dated as of November 16, 2011, by and between InspireMD, Inc. and Sol J. Barer, Ph.D. (Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2011)                                       







79











|10.24  |  | Amendment No. 1 to Securities Purchase Agreement, dated as of June 21, 2011, by and among InspireMD, Inc. and the purchasers that are signatory thereto (incorporated by reference to Exhibit 10.43 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2012)    
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                           
|10.25  |  | Amendment No. 2 to Securities Purchase Agreement, dated as of November 14, 2011, by and among InspireMD, Inc. and the purchasers that are signatory thereto (incorporated by reference to Exhibit 10.44 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2012)
|       |  |                                                                                                                                                                                                                                                                                                           
|10.26+ |  | Consultancy Agreement, dated March 27, 2012, by and between InspireMD Ltd. and Robert Ratini (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 2, 2012)                                                                 
|       |  |                                                                                                                                                                                                                                                                                                           
|10.27  |  | Form of April 2012 $1.80 Warrant (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                           
|10.28  |  | Registration Rights Agreement, dated April 5, 2012, by and between InspireMD, Inc. and the purchasers set forth therein (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                      
|       |  |                                                                                                                                                                                                                                                                                                           
|10.29  |  | Exclusive Distribution Agreement, dated as of August 1, 2007, by and between InspireMD Ltd. and Kardia Srl. (incorporated by reference to Exhibit 10.59 to Transition Report on Form 10-K/T filed with the Securities and Exchange Commission on September 11, 2012)                                      
|       |  |                                                                                                                                                                                                                                                                                                           
|10.30  |  | Addendum to the Distribution Agreement, dated as of January 18, 2011, by and between InspireMD Ltd. and Kardia Srl. (incorporated by reference to Exhibit 10.60 to Transition Report on Form 10-K/T filed with the Securities and Exchange Commission on September 11, 2012)                              
|       |  |                                                                                                                                                                                                                                                                                                           
|10.31  |  | Exclusive Distribution Agreement, dated as of May 26, 2011, by and between InspireMD Ltd. and Bosti Trading Ltd. (incorporated by reference to Exhibit 10.62 to Transition Report on Form 10-K/T filed with the Securities and Exchange Commission on September 11, 2012)                                 
|       |  |                                                                                                                                                                                                                                                                                                           
|10.32  |  | Addendum to the Distribution Agreement, dated as of August 29, 2011, by and between InspireMD Ltd. and Bosti Trading Ltd. (incorporated by reference to Exhibit 10.63 to Transition Report on Form 10-K/T filed with the Securities and Exchange Commission on September 11, 2012)                        
|       |  |                                                                                                                                                                                                                                                                                                           
|10.33  |  | Amendment No. 1 to Registration Rights Agreement, dated May 31, 2012, by and between InspireMD, Inc. and the purchasers set forth therein (incorporated by reference to Exhibit 10.65 to Transition Report on Form 10-K/T filed with the Securities and Exchange Commission on September 11, 2012)        
|       |  |                                                                                                                                                                                                                                                                                                           
|10.34  |  | First Amendment to License Agreement, dated October 20, 2012, by and among Svelte Medical Systems, Inc., InspireMD, Inc. and InspireMD Ltd. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 23, 2012)               
|       |  |                                                                                                                                                                                                                                                                                                           
|10.35  |  | Exclusive Distribution Agreement, dated June 7, 2010, by and between InspireMD Ltd. and Tau Medical Supplies (incorporated by reference to Exhibit 10.68 to Amendment No. 2 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 9, 2012)                  
|       |  |                                                                                                                                                                                                                                                                                                           
|10.36+ |  | Second Amendment to the InspireMD, Inc. Amended and Restated 2011 UMBRELLA Option Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 26, 2012)                                                                   
|       |  |                                                                                                                                                                                                                                                                                                           
|10.37+ |  | Employment Agreement, dated January 3, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2013)                                                             
|       |  |                                                                                                                                                                                                                                                                                                           
|10.38+ |  | Nonqualified Stock Option Agreement, dated January 3, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2013)                                              







80









|10.39+ |  | Incentive Stock Option Agreement, dated January 3, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2013)                                           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                     
|10.40+ |  | Restricted Stock Award Agreement, dated January 3, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2013)                                           
|       |  |                                                                                                                                                                                                                                                                                                     
|10.41  |  | Form of $3.00 Warrant (incorporated by reference to Exhibit 10.76 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 9, 2013)                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                     
|10.42  |  | Letter Agreement, dated as of April 15, 2013, by and among InspireMD, Inc. and each holder of Senior Secured Convertible Debentures Due April 15, 2014 (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15, 2013)
|       |  |                                                                                                                                                                                                                                                                                                     
|10.43  |  | Form of Amended $3.00 Warrant (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15, 2013)                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                     
|10.44+ |  | First Amendment to Employment Agreement, dated April 24, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2013)                                      
|       |  |                                                                                                                                                                                                                                                                                                     
|10.45+ |  | First Amendment to Restricted Stock Award Agreement, dated April 24, 2013, by and between InspireMD, Inc. and Alan Milinazzo (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2013)                          
|       |  |                                                                                                                                                                                                                                                                                                     
|10.46  |  | Master Service Agreement, dated May 31, 2013, by and between InspireMD Ltd. and Medpace, Inc. (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2013)                                                   
|       |  |                                                                                                                                                                                                                                                                                                     
|10.47  |  | Second Amendment to License Agreement, dated August 22, 2013, by and among Svelte Medical Systems, Inc., InspireMD, Inc. and InspireMD Ltd. (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2013)     
|       |  |                                                                                                                                                                                                                                                                                                     
|10.48  |  | Loan and Security Agreement, dated October 23, 2013, by and among InspireMD, Inc., InspireM.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)      
|       |  |                                                                                                                                                                                                                                                                                                     
|10.49  |  | Fixed Charge Debenture, dated October 23, 2013, by and among InspireMD, Inc., Inspire M.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)          
|       |  |                                                                                                                                                                                                                                                                                                     
|10.50  |  | Floating Charge Debenture, dated October 23, 2013, by and among InspireMD, Inc., Inspire M.D Ltd and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)       
|       |  |                                                                                                                                                                                                                                                                                                     
|10.51  |  | Warrant Agreement, dated October 23, 2013, by and between InspireMD, Inc. and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)                              
|       |  |                                                                                                                                                                                                                                                                                                     
|10.52  |  | Account Control Agreement, dated October 23, 2013, among InspireMD, Inc., Hercules Technology Growth Capital, Inc. and Bank Leumi USA (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013)               



81









|10.53+     |  | InspireMD, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2013)                                                                                                                                                                                                                                                                                                                  
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.54+ (1) |  | Nonqualified Stock Option Agreement, dated December 2, 2013, by and between InspireMD, Inc. and Rick Olson                                                                                                                                                                                                                                                                                                                                                                                                      
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.55+ (1) |  | Consulting Agreement, dated February 25, 2014, by and between InspireMD, Inc. and James Barry                                                                                                                                                                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|21.1       |  | List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|23.1 (1)   |  | Consent
        of Kesselman & Kesselman, Certified Public Accountants                                                                                                                                                                                                                                                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|31.1*      |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                  
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|31.2*      |  | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                  
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|32.1*      |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|32.2*      |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|101** (1)  |  | The following materials from the Company’s Transitional Report on Form 10-K/T for the six months ended December 31, 2013, formatted in XBRL (eXtensible Business Reporting Language), (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statement of Stockholders’ Equity and (vi) Notes to Consolidated Financial Statements





* Filed herewith.



** Pursuant to Rule 406T of Regulation S-T, the Interactive
Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections
11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange
Act of 1934, as amended, and otherwise are not subject to liability under those sections.



+ Management contract or compensatory plan or arrangement.



(1) Previously filed as an exhibit to the Original
Report



82









INSPIREMD, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX MONTH PERIOD ENDED
DECEMBER 31, 2013











INSPIREMD, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX MONTH PERIOD ENDED
DECEMBER 31, 2013



TABLE
OF CONTENTS







|                                                        | Page      
|------------------------------------------------------- | ----------
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-2       
|CONSOLIDATED FINANCIAL STATEMENTS:                      |           
|Consolidated Balance Sheets                             | F-3 - F-4 
|Consolidated Statements of Operations                   | F-5       
|Consolidated Statements of Changes in Equity            | F-6       
|Consolidated Statements of Cash Flows                   | F-7       
|Notes to the Consolidated Financial Statements          | F-8 - F-51







The amounts are stated in U.S. dollars
in thousands

_______________

_________________________

_______________



F-1







report
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the shareholders of

InspireMD, Inc.



In our opinion, the
accompanying consolidated balance sheets and the related consolidated statements of operations changes in equity and cash
flows present fairly, in all material respects, the financial positions of InspireMD , Inc. (the “Company”) and
its subsidiaries at December 31, 2013, June 30, 2013 and 2012, and the results of their operations and their cash flows for
6 months period ended December 31, 2013 and for each of the two years in the period ended June 30, 2013 in conformity
with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States) Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used significant estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audit provide a reasonable basis for our opinion.





|Tel-Aviv, Israel  | Kesselman & Kesselman                                        
|----------------- | -------------------------------------------------------------
|February 26, 2014 | Certified Public Accountants (Isr.)                          
|                  | A member firm of PricewaterhouseCoopers International Limited
|                  |                                                              
|                  |                                                              





F-2







INSPIREMD, INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)



|                                                   |  | December 31, |        |  | June 30, |  
|-------------------------------------------------- |  | ------------ | ------ |  | -------- | -
|                                                   |  | 2013         |        |  | 2013     |  
|ASSETS                                             |  |              |        |  |          |  
|                                                   |  |              |        |  |          |  
|CURRENT ASSETS:                                    |  |              |        |  |          |  
|Cash and cash equivalents                          |  | $            | 17,535 |  |          | $
|Restricted cash                                    |  |              | 93     |  |          |  
|Accounts receivable:                               |  |              |        |  |          |  
|Trade                                              |  |              | 1,855  |  |          |  
|Other                                              |  |              | 387    |  |          |  
|Prepaid expenses                                   |  |              | 141    |  |          |  
|Inventory:                                         |  |              |        |  |          |  
|On hand                                            |  |              | 1,593  |  |          |  
|On consignment                                     |  |              |        |  |          |  
|Total current assets                               |  |              | 21,604 |  |          |  
|                                                   |  |              |        |  |          |  
|PROPERTY, PLANT AND EQUIPMENT,
    net             |  |              | 652    |  |          |  
|NON-CURRENT ASSETS:                                |  |              |        |  |          |  
|Deferred issuance costs                            |  |              | 310    |  |          |  
|Fund in respect of employee rights upon retirement |  |              | 434    |  |          |  
|Long term prepaid expenses                         |  |              | 114    |  |          |  
|Royalties buyout                                   |  |              | 852    |  |          |  
|Total non-current assets                           |  |              | 1,710  |  |          |  
|Total assets                                       |  | $            | 23,966 |  |          | $



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



F-3







INSPIREMD, INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)





|                                                                                                                                                                                                            |  | December 31, |         |   | June 30, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | -------- | -
|                                                                                                                                                                                                            |  | 2013         |         |   | 2013     |  
|LIABILITIES AND EQUITY                                                                                                                                                                                      |  |              |         |   |          |  
|                                                                                                                                                                                                            |  |              |         |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                                        |  |              |         |   |          |  
|Accounts payable and accruals:                                                                                                                                                                              |  |              |         |   |          |  
|Trade                                                                                                                                                                                                       |  | $            | 1,623   |   |          | $
|Other                                                                                                                                                                                                       |  |              | 3,141   |   |          |  
|Advanced payment from customers                                                                                                                                                                             |  |              | 179     |   |          |  
|Current maturity of loan                                                                                                                                                                                    |  |              | 1,181   |   |          |  
|Deferred revenues                                                                                                                                                                                           |  |              |         |   |          |  
|Total current liabilities                                                                                                                                                                                   |  |              | 6,124   |   |          |  
|                                                                                                                                                                                                            |  |              |         |   |          |  
|LONG-TERM LIABILITIES:                                                                                                                                                                                      |  |              |         |   |          |  
|Liability for employees rights upon retirement                                                                                                                                                              |  |              | 610     |   |          |  
|Long term loan                                                                                                                                                                                              |  |              | 8,593   |   |          |  
|Convertible loan                                                                                                                                                                                            |  |              |         |   |          |  
|Contingently redeemable warrants                                                                                                                                                                            |  |              |         |   |          |  
|Total long-term liabilities                                                                                                                                                                                 |  |              | 9,203   |   |          |  
|                                                                                                                                                                                                            |  |              |         |   |          |  
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)                                                                                                                                                             |  |              |         |   |          |  
|Total liabilities                                                                                                                                                                                           |  |              | 15,327  |   |          |  
|                                                                                                                                                                                                            |  |              |         |   |          |  
|EQUITY:                                                                                                                                                                                                     |  |              |         |   |          |  
|                                                                                                                                                                                                            |  |              |         |   |          |  
|Common stock, par value $0.0001 per share; 125,000,000 shares authorized; 33,983,346, 33,888,845 and 17,040,040 shares issued and outstanding at December 31, 2013 and June 30, 2013 and 2012, respectively |  |              | 3       |   |          |  
|Additional paid-in capital                                                                                                                                                                                  |  |              | 90,952  |   |          |  
|Accumulated deficit                                                                                                                                                                                         |  |              | (82,316 | ) |          |  
|Total equity                                                                                                                                                                                                |  |              | 8,639   |   |          |  
|Total liabilities and equity                                                                                                                                                                                |  | $            | 23,966  |   |          | $



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



F-4







INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



|                                                                                                                                                                                                       |  | 6 month period 
ended 
December 31, |            |   | Year ended June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------- | ---------- | - | ------------------- | -
|                                                                                                                                                                                                       |  | 2013                                |            |   | 2013                |  
|                                                                                                                                                                                                       |  |                                     |            |   |                     |  
|REVENUES                                                                                                                                                                                               |  | $                                   | 3,105      |   |                     | $
|COST OF REVENUES                                                                                                                                                                                       |  |                                     | 1,442      |   |                     |  
|GROSS PROFIT                                                                                                                                                                                           |  |                                     | 1,663      |   |                     |  
|OPERATING EXPENSES:                                                                                                                                                                                    |  |                                     |            |   |                     |  
|Royalties buyout expenses                                                                                                                                                                              |  |                                     |            |   |                     |  
|Other research and development expenses                                                                                                                                                                |  |                                     | 3,315      |   |                     |  
|Selling and marketing                                                                                                                                                                                  |  |                                     | 2,647      |   |                     |  
|General and administrative (including $1,417, $3,433 and $9,549 of share-based compensation for the six month period ended December 31, 2013 and the years ended June 30, 2013 and 2012, respectively) |  |                                     | 4,528      |   |                     |  
|Total operating expenses                                                                                                                                                                               |  |                                     | 10,490     |   |                     |  
|LOSS FROM OPERATIONS                                                                                                                                                                                   |  |                                     | (8,827     | ) |                     |  
|INTEREST EXPENSE                                                                                                                                                                                       |  |                                     | 273        |   |                     |  
|OTHER FINANCIAL EXPENSES,
    net                                                                                                                                                                      |  |                                     | 226        |   |                     |  
|LOSS BEFORE TAX EXPENSES                                                                                                                                                                               |  |                                     | (9,326     | ) |                     |  
|TAX EXPENSES                                                                                                                                                                                           |  |                                     | 10         |   |                     |  
|NET LOSS                                                                                                                                                                                               |  | $                                   | (9,336     | ) |                     | $
|NET LOSS PER SHARE - basic
    and diluted                                                                                                                                                             |  | $                                   | (0.27      | ) |                     | $
|WEIGHTED
    AVERAGE NUMBER OF ORDINARY SHARES USED IN COMPUTING NET LOSS PER SHARE - basic
    and diluted                                                                                            |  |                                     | 33,963,901 |   |                     |  





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



F-5







INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY



|                                                                       |  | Ordinary
    shares      |            |   |                           |   |   |                                         |  |   |                         |  
|---------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ------------------------- | - | - | --------------------------------------- |  | - | ----------------------- | -
|                                                                       |  | Number
    of
    shares |            |   | Par

    value            |   |   | Additional
    
    paid-in
    capital |  |   | Accumulated
    deficit |  
|                                                                       |  |                          |            |   | U.S. dollars in thousands |  
|BALANCE AT JULY 1, 2011                                                |  |                          | 16,046,290 |   |                           | $ | 2 |                                         |  | $ | 33,283                  |  
|CHANGES DURING 2012:                                                   |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Net loss                                                               |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Employee and non-employee
    share-based compensation expenses        |  |                          | 748,446    |   |                           |   | * |                                         |  |   | 10,554                  |  
|Acquisition and cancellation of shares                                 |  |                          | (4,696     | ) |                           |   | * |                                         |  |   | (21                     | )
|Exercise of options by employee                                        |  |                          | 250,000    |   |                           |   | * |                                         |  |   | 1,500                   |  
|Beneficial
    conversion feature of convertible loan                  |  |                          |            |   |                           |   |   |                                         |  |   | 3,790                   |  
|BALANCE AT JUNE 30, 2012                                               |  |                          | 17,040,040 |   |                           | $ | 2 |                                         |  | $ | 49,106                  |  
|CHANGES DURING 2013:                                                   |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Net loss                                                               |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Employee and non-employee
    share-based compensation expenses        |  |                          |            |   |                           |   |   |                                         |  |   | 3,839                   |  
|Issuance of shares -
    public offering, net of $2,121 issuance costs |  |                          | 12,500,000 |   |                           |   | 1 |                                         |  |   | 22,879                  |  
|Issuance of shares                                                     |  |                          | 1,168,515  |   |                           |   | * |                                         |  |   | 3,238                   |  
|Exercise of Warrants                                                   |  |                          | 195,652    |   |                           |   | * |                                         |  |   | 962                     |  
|Exercise of options by
    employees and non- employees                |  |                          | 834,570    |   |                           |   | * |                                         |  |   | 95                      |  
|Shares of common stock
    used to satisfy tax withholding obligations |  |                          | (9,506     | ) |                           |   | * |                                         |  |   | (27                     | )
|2013
    Exchange agreement:                                           |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Induced conversion of convertible debt                                 |  |                          | 2,159,574  |   |                           |   | * |                                         |  |   | 8,105                   |  
|Reclassification of 2012 warrants                                      |  |                          |            |   |                           |   |   |                                         |  |   | 314                     |  
|Issuance of warrants                                                   |  |                          |            |   |                           |   |   |                                         |  |   | 568                     |  
|BALANCE AT JUNE 30, 2013                                               |  |                          | 33,888,845 |   |                           | $ | 3 |                                         |  | $ | 89,079                  |  
|CHANGES DURING THE 6 MONTH PERIOD ENDED DECEMBER
    31, 2013          |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Net loss                                                               |  |                          |            |   |                           |   |   |                                         |  |   |                         |  
|Issuance of shares                                                     |  |                          | 17,398     |   |                           |   | * |                                         |  |   | 44                      |  
|Issuance of warrants                                                   |  |                          |            |   |                           |   |   |                                         |  |   | 280                     |  
|Employee and non-employee share-based
    compensation     expenses    |  |                          |            |   |                           |   |   |                                         |  |   | 1,549                   |  
|Exercise of options by employees
    and non- employees                |  |                          | 77,103     |   |                           |   | * |                                         |  |   |                         |  
|BALANCE
    AT DECEMBER 31, 2013                                       |  |                          | 33,983,346 |   |                           | $ | 3 |                                         |  | $ | 90,952                  |  



*Represents an amount less than
$1



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



F-6







INSPIREMD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)



|                                                                                       |  | 6 month period 
ended December 31, |        |   | Year ended June 30, |  
|-------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | - | ------------------- | -
|                                                                                       |  | 2013                               |        |   | 2013                |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                  |  |                                    |        |   |                     |  
|Net loss                                                                               |  | $                                  | (9,336 | ) |                     | $
|Adjustments required to reconcile net loss to net cash  used in operating activities:  |  |                                    |        |   |                     |  
|Depreciation and amortization                                                          |  |                                    | 110    |   |                     |  
|Change in liability for employees right upon retirement                                |  |                                    | 69     |   |                     |  
|Financial expenses (income)                                                            |  |                                    | 358    |   |                     |  
|Share-based compensation expenses                                                      |  |                                    | 1,549  |   |                     |  
|Gains on amounts funded in respect of employee rights upon retirement, net             |  |                                    | (15    | ) |                     |  
|Royalties buyout expenses                                                              |  |                                    |        |   |                     |  
|Changes in operating asset and liability items:                                        |  |                                    |        |   |                     |  
|Decrease (increase) in prepaid expenses                                                |  |                                    | 17     |   |                     |  
|Decrease (increase) in trade receivables                                               |  |                                    | (116   | ) |                     |  
|Decrease (increase) in other receivables                                               |  |                                    | 1      |   |                     |  
|Decrease in inventory on consignment                                                   |  |                                    |        |   |                     |  
|Decrease (increase) in inventory on hand                                               |  |                                    |        |   |                     |  
|Increase (decrease) in trade payables                                                  |  |                                    | 737    |   |                     |  
|Increase (decrease) in deferred revenues                                               |  |                                    | (10    | ) |                     |  
|Increase (decrease)  in other payable and advance payment from customers               |  |                                    | (163   | ) |                     |  
|Net cash used in operating activities                                                  |  |                                    | (6,799 | ) |                     |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                  |  |                                    |        |   |                     |  
|Decrease (increase) in restricted cash                                                 |  |                                    |        |   |                     |  
|Purchase of property, plant and equipment                                              |  |                                    | (180   | ) |                     |  
|Proceeds from sale of property, plant and equipment                                    |  |                                    |        |   |                     |  
|Amounts funded in respect of employee rights upon retirement, net                      |  |                                    | (72    | ) |                     |  
|Net cash used in investing activities                                                  |  |                                    | (252   | ) |                     |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                  |  |                                    |        |   |                     |  
|Proceeds from issuance of shares, net of  $2,121 issuance costs                        |  |                                    |        |   |                     |  
|Proceeds from issuance of convertible loan and warrants, net of  $1,132 issuance costs |  |                                    |        |   |                     |  
|Exercise of options and warrants                                                       |  |                                    |        |   |                     |  
|Repayment of long term loan                                                            |  |                                    |        |   |                     |  
|Proceeds from  long term loan and warrants, net of $237 issuance costs                 |  |                                    | 9,763  |   |                     |  
|Acquisition and cancellation of shares                                                 |  |                                    |        |   |                     |  
|Shares of common stock used to satisfy tax withholding obligations                     |  |                                    |        |   |                     |  
|Induced conversion of convertible debt                                                 |  |                                    |        |   |                     |  
|Net cash provided by financing activities                                              |  |                                    | 9,763  |   |                     |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                           |  |                                    | 3      |   |                     |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                                  |  |                                    | 2,715  |   |                     |  
|BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            |  |                                    | 14,820 |   |                     |  
|BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  |  | $                                  | 17,535 |   |                     | $
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                     |  |                                    |        |   |                     |  
|Taxes on income  paid                                                                  |  | $                                  | 8      |   |                     | $
|Interest paid                                                                          |  | $                                  | 111    |   |                     | $
|SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:                             |  |                                    |        |   |                     |  
|Classification of contingently redeemable warrants from Long-term liability to equity  |  |                                    |        |   |                     | $
|Royalties buyout  in consideration of shares and waiver                                |  |                                    |        |   |                     | $
|Decrease in fund and liabilities in respect of employee rights upon retirement         |  | $                                  | 59     |   |                     |  
|Deferred issuance costs                                                                |  | $                                  | 90     |   |                     |  



In the year ended June 30, 2013,
in connection with the Exchange and Amendment Agreement, the Company issued the debentures holders 2,159,574 shares of common
stock and five year warrants to purchase 659,091 shares of common stock of the Company. See Note 6.



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



F-7







NOTE 1 - DESCRIPTION OF BUSINESS



InspireMD, Inc., a Delaware
corporation (the “Company”), together with its subsidiaries, is a medical device company focused on the development
and commercialization of its proprietary stent platform technology, MGuardTM. MGuard provides embolic protection in stenting
procedures by placing a micron mesh sleeve over a stent. The Company’s initial products are marketed for use in patients
with acute coronary syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions
(bypass surgery). The Company markets its products mainly through distributors in international markets, predominantly in Europe
and Latin America.



The Company has successfully
raised funds in the capital markets and through loans:



On April 16, 2013, the Company
consummated an underwritten public offering, The aggregate net proceeds of the Offering to the Company were approximately $22.6
million, after the underwriters’ commissions and offering expenses (See Note 9).



On October 23, 2013 the Company
entered into a Loan and Security Agreement and Warrant agreement in the aggregate net amount of $9.8 million (See note 6).



The Company has an accumulated
deficit as well as a net loss and negative operating cash flows in the current year.  The Company anticipates that such losses
will continue until its MguardTM products reach commercial profitability.  Management of the Company presently anticipates
that it has sufficient resources to fund operations through December 31, 2014. Management believes that the continued successful
commercialization of the MguardTM product line together with financing through the Company “At-the-Market” equity
program ,see Note 9f, although there is no assurance such funds will be generated, should be sufficient to fund its current and
planned operations into the second quarter of 2015.



If the Company is unable to
successfully commercialize its MGuardTM products or obtain sufficient future financing from its "At-the-Market"
equity program, the Company will be required to delay some of its planned research and development programs as well as curtail,
discontinue or, in the extreme case, cease operations.



NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES



| | a. | Accounting principles
| | -- | ---------------------



The consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”).



| | b. | Use of estimates
| | -- | ----------------



The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates.



F-8







As applicable to these consolidated
financial statements, the most significant estimates and assumptions relate to inventory write-off, royalty buyout, legal contingencies
and estimation of the fair value of warrants.



| | c. | Functional currency
| | -- | -------------------



The currency of the primary economic
environment in which the operations of the Company and its subsidiaries are conducted is the U.S. dollar (“$” or “dollar”).
Accordingly, the functional currency of the Company and its subsidiaries is the U.S. dollar.



The dollar figures are determined
as follows: transactions and balances originally denominated in dollars are presented in their original amounts. Balances in foreign
currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively.
The resulting translation gains or losses are recorded as financial income or expense, as appropriate. For transactions reflected
in the statements of operations in foreign currencies, the exchange rates at transaction dates are used. Depreciation and changes
in inventories and other changes deriving from non-monetary items are based on historical exchange rates.



| | d. | Principles of consolidation
| | -- | ---------------------------



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



| | e. | Cash and cash equivalents
| | -- | -------------------------



The Company
considers all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit), that
are not restricted as to withdrawal or use, to be cash equivalents.



| | f. | Restricted cash
| | -- | ---------------



The Company
maintains certain cash amounts restricted as to withdrawal or use, related to credit cards. Restricted cash is denominated in
dollars and New Israeli Shekel (“NIS”). See also Note 8c(2).



| | g. | Concentration of credit risk and allowance for doubtful
accounts
| | -- | ----------------------------------------------------------------



Financial instruments
that may potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, which are deposited
in major financially sound institutions in the U.S, Israel and Germany, and trade accounts receivable. The Company’s trade
accounts receivable are derived from revenues earned from customers from various countries. The Company performs ongoing credit
evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company
also has a credit insurance policy for some of its customers. The Company maintains an allowance for doubtful accounts receivable
based upon the expected ability to collect the accounts receivable. The Company reviews its allowance for doubtful accounts quarterly
by assessing individual accounts receivable and all other balances based on historical collection experience and an economic risk
assessment. If the Company determines that a specific customer isunable to meet its financial obligations to the Company,
the Company provides an allowance for credit losses to reduce the receivable to the amount management reasonably believes will
be collected, which is netted against "Accounts receivable Trade".



F-9







| | h. | Inventory
| | -- | ---------



Inventories
include finished goods, work in process and raw materials.  Inventories are stated at the lower of cost (cost is determined
on a “first-in, first-out” basis) or market value. The Company’s inventories generally have a limited shelf
life and are subject to impairment as they approach their expiration dates. The Company regularly evaluates the carrying value
of the Company’s inventories and when, in the Company’s opinion, factors indicate that impairment has occurred, the
Company establishes a reserve against the inventories’ carrying value. The Company’s determination that a valuation
reserve might be required and the quantification of such reserve require management to utilize significant judgment. With
respect to inventory on consignment, see Note 2k.



| | i. | Property, plant and
                                         equipment
| | -- | ----------------------------------------------------------------------



Property,
plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets: over three years for computers and other electronic
equipment, and seven to fifteen years for office furniture and equipment and machinery and equipment (mainly seven years).
Leasehold improvements are amortized on a straight-line basis over the term of the lease, which is shorter than the estimated
life of the improvements.



| | j. | Impairment in value
                                         of long-lived assets
| | -- | ---------------------------------------------------------------------------------



The Company tests long-lived intangible
and tangible assets, for impairment, whenever events or circumstances present an indication of impairment. If the sum of expected
future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such
assets, an impairment would be recognized and the assets would be written down to their estimated fair values, based on expected
future discounted cash flows.



To date, the
Company has not recorded any impairment charges relating to its long-lived assets.



| | k. | Revenue recognition
| | -- | -------------------



Revenue is
recognized when delivery has occurred, evidence of an arrangement exists, title and risks and rewards for the products are transferred
to the customer, collection is reasonably assured and product returns can be reliably estimated. When product returns can be reliably
estimated a provision is recorded, based on historical experience, and deducted from revenues. The provision for product returns
and related costs are included in “Accounts payable and accruals-other” under “Current liabilities” and
“Inventory-On consignment,” respectively.



F-10







When returns
cannot be reliably estimated, both related revenues and costs are deferred, and presented under “Deferred revenues”
and “Inventory-On consignment,” respectively.



As of December
31, 2013, June 30, 2013 and June 30, 2012, there were no deferred revenues related to sales for which the rate of return could
not be reliably estimated.



The Company’s
arrangements with its distributors sometimes contain the right to receive free products from the Company upon the achievement
of sales targets. Each period, the Company estimates the amount of free products to which its distributors will be entitled based
upon the expected achievement of sales targets and defers a portion of revenues accordingly.



The Company
recognizes revenue net of value added tax (VAT).



| | l. | Research and development costs
| | -- | ------------------------------



Research and
development costs are charged to the statement of operations as incurred.



| | m. | Share-based compensation
| | -- | ------------------------



Employee option
awards are classified as equity awards and accounted for using the grant-date fair value method. The fair value of share-based
awards is estimated using the Black-Scholes valuation model and expensed over the requisite service period, net of estimated forfeitures.
The Company estimates forfeitures based on historical experience and anticipated future conditions.



The Company
elected to recognize compensation expenses for awards with only service conditions that have graded vesting schedules using the
accelerated multiple option approach.



The Company
accounts for equity instruments issued to third party service providers (non-employees), by recording the fair value of the options
granted using an option pricing model, at each reporting period, until awards are vested in full. The expense is recognized over
the vesting period using the accelerated multiple option approach.



In addition,
certain share-based awards of the Company are performance based and dependent upon achieving certain goals. With respect to these
awards, the Company estimates the expected pre-vesting award probability that the performance conditions will be achieved. The
Company only recognizes expense for those shares that are expected to vest.



| | n. | Uncertain tax positions
| | -- | -----------------------



The Company
follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position
will be sustained on audit. If under the first step a tax provision is assessed to be more likely than not of being sustained
on audit, the second step is performed, under which the tax benefit is measured as the largest amount that is more than 50% likely
to be realized upon ultimate settlement. Such liabilities are classified as long-term, unless the liability is expected to be
resolved within twelve months from the balance sheet date. The Company’s policy is to include interest related to unrecognized
tax benefits within “Financial expenses (income)-net”.



F-11







| | o. | Deferred income taxes
| | -- | ---------------------



Deferred taxes
are determined utilizing the “asset and liability” method based on the estimated future tax effects of differences
between the financial accounting and tax bases of assets and liabilities under the applicable tax laws, and on tax rates anticipated
to be in effect when the deferred taxes are expected to be paid or realized. The Company assesses realization of deferred income
tax assets and, based on all available evidence, concludes whether it is more likely than not that the net deferred income tax
assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to be realizable.



The Company
may incur additional tax liability in the event of intercompany dividend distributions by its subsidiaries. Such additional tax
liability in respect of these foreign subsidiaries has not been provided for in these financial statements as it is the Company’s
policy to permanently reinvest the subsidiaries’ earnings and to consider distributing dividends only in connection with
a specific tax opportunity that may arise.



Taxes that
would apply in the event of disposal of investments in a foreign subsidiary have not been taken into account in computing the
deferred taxes, as it is the Company’s intention to hold, and not to realize, these investments.



| | p. | Advertising
| | -- | -----------



Costs related
to advertising and promotion of products are charged to sales and marketing expense as incurred. Advertising expenses were approximately
$0.8 million for the six month period ended December 31, 2013 and $1.1 million and $0.6 million for the years ended June 30, 2013
and 2012, respectively.



| | q. | Net loss per share
| | -- | ------------------



Basic and diluted
net loss per share is computed by dividing the net loss for the year by the weighted average number of shares of common stock
outstanding during the year. The calculation of diluted net loss per share excludes potential share issuances of common stock
upon the exercise of share options, warrants and convertible loans, as the effect is anti-dilutive.



For the six
month period ended December 31, 2013, as well as the years ended June 30, 2013 and 2012, all shares of common stock underlying
outstanding options, warrants, convertible loans and restricted stock have been excluded from the calculation of the diluted loss
per share since their effect was anti-dilutive. The total number of share of common stock related to outstanding options and warrants
and restricted stock excluded from the calculations of diluted loss per share were 8,431,252 for the six month period ended December
31, 2013, and 8,006,837 and 8,117,577 for the years ended June 30, 2013 and 2012, respectively.



F-12







| | r. | Segment reporting
| | -- | -----------------



The Company
has one operating and reportable segment.



| | s. | Fair value measurement:
| | -- | -----------------------



The Company
measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on 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.



The accounting
standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into
three broad levels, which are described below:



Level 1: Quoted
prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.



Level 2: Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data.



Level 3: Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.



In determining
fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.



| | t. | Put warrants
| | -- | ------------



| |  | Put warrants that embody an obligation
                                         to repurchase the Company’s equity shares, or are indexed to such an obligation,
                                         and that require or may require the Company to settle the obligation by transferring
                                         assets are within the scope of Accounting Standards Codification (“ASC”)
                                         480-10-25-8, and are recognized as a liability and measured at fair value at each reporting
                                         date, with changes in fair value recorded in earnings. See Note 6.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | u. | Beneficial conversion
                                         feature (“BCF”)
| | -- | ------------------------------------------------------------------------------



| |  | When the Company issues convertible
                                         debt, if the stock price is greater than the effective conversion price (after allocation
                                         of the total proceeds) on the measurement date, the conversion feature is considered
                                         "beneficial" to the holder.If there is no contingency, this difference is treated as issued equity and reduces
                                         the carrying value of the host debt; the discount is accreted as deemed interest on the
                                         debt. See Note 6.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | v. | Embedded derivatives
| | -- | --------------------



Embedded
derivatives in debt contracts that are not clearly and closely related to the host debt are bifurcated and accounted for separately.
Those embedded derivatives are measured at fair value each reporting date, with changes in fair value recorded in earnings. See
Note 6.



F-13







| | w. | Allocation of issuance
                                         proceeds
| | -- | ------------------------------------------------------------------------



When
debt is issued with other components that are subsequently measured at fair value, the proceeds are allocated first to such
components (such as warrants and embedded derivatives in the debt that require bifurcation at their fair values) then the
residual amount of the proceeds to the debt. When other components are classified in equity, the proceeds are allocated based
on relative fair values. See Note 6.



NOTE 3 - FAIR VALUE MEASURMENT



Items
Measured at Fair Value on a Recurring Basis



| | a. | The following table summarizes
                                         the balances for those financial liabilities where fair value measurements are estimated
                                         utilizing Level 2 and Level 3 inputs:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                            |  |  | Level |  |                  | December 31,  2013 |     |  | June 30, 2013 |   |  | June 30, 2012 | 
|--------------------------- |  |  | ----- |  | ---------------- | ------------------ | --- |  | ------------- | - |  | ------------- | 
|                            |  |  |       |  | ($ in thousands) |                   
|Anti- Dilution Rights       |  |  | 3     |  |                  | $                  | 156 |  |               | $ |  |               | 
|2012 Warrants at fair value |  |  | 2     |  |                  |                    |     |  |               |   |  |               | 
|Embedded derivative         |  |  | 3     |  |                  |                    |     |  |               |   |  |               | 
|                            |  |  |       |  |                  | $                  | 156 |  |               |   |  |               | 



The Company values Level 3 Anti- Dilution
Rights using an internally developed valuation model, whose inputs include potential equity transactions (such as fund raising
and share based awards), probability of completing successful fund raising during the relevant period and stock prices.



In connection with the classification
of the 2012 Warrants (as defined in Note 6) to equity, see Note 6.



| | b. | The following tables summarize
                                         the activity for those financial liabilities where fair value measurements are estimated
                                         utilizing Level 3 inputs:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                         |  | Anti-Dilution
Rights |        |   | Embedded
Derivative |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | - | ------------------- | -
|                                                                                                         |  | ($ in thousands)     |       
|                                                                                                         |  |                      |        |   |                     |  
|Balance as of July 1, 2011                                                                               |  | $                    | -      |   |                     | $
|Issuances                                                                                                |  |                      |        |   |                     |  
|Total losses (gains) (realized and unrealized) - included in earnings - Financial expenses (income), net |  |                      |        |   |                     |  
|Balance as of June 30, 2012                                                                              |  | $                    | -      |   |                     | $
|Total losses (gains) (realized and unrealized) - included in earnings - Financial expenses (income), net |  |                      | 1,475  |   |                     |  
|Settlement by issuance shares                                                                            |  |                      | (1,475 | ) |                     |  
|Conversion of convertible debt                                                                           |  |                      |        |   |                     |  
|Balance as of June 30, 2013                                                                              |  |                      |        |   |                     |  
|Total losses (gains) (realized and unrealized) - included in earnings - Financial expenses (income), net |  |                      | 200    |   |                     |  
|Settlement by issuance shares                                                                            |  |                      | (44    | ) |                     |  
|Balance as of December 31, 2013                                                                          |  | $                    | 156    |   |                     | $



F-14







Level 3 liabilities
include an embedded derivative related to the Company’s 2012 Convertible Debentures (as defined in Note 6a). The Company
values the Level 3 embedded derivative using an internally developed valuation model, whose inputs include recovery rates,
credit spreads, stock prices, and volatilities, as described below.



The fair value
of the warrants included in Level 2 is estimated using the Black & Scholes model.



For a discussion
regarding the calculation of the fair value of the 2012 Warrants as of the transaction date, as of June 30, 2012 and as of the
Closing Day (as defined in Note 6), see Note 6.



As of the Closing
Day, the Company recalculated the fair value of the embedded derivative of the 2012 Warrants using the following assumptions:
the Company's credit spread of 28.5%, the Company's recovery rate of 49.8%, and a 10% probability of non-financial event of default.



The carrying
amounts of financial instruments included in working capital approximate their fair value either because these amounts are presented
at fair value or due to the relatively short-term maturities of such instruments. The carrying amount of the Company’s other
financial long-term assets and other financial long-term liabilities (other than the debentures) approximate their fair value.
The fair value of the Loan (as defined in Note 6) approximated its carrying amount.



NOTE 4 - PROPERTY, PLANT AND EQUIPMENT



| | a. | Composition of assets, grouped by major classifications,
                                         is as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------



|                                                 |  | December 31,     |       |   | June 30, |  
|------------------------------------------------ |  | ---------------- | ----- | - | -------- | -
|                                                 |  | 2013             |       |   | 2013     |  
|                                                 |  | ($ in thousands) |      
|Cost:                                            |  |                  |       |   |          |  
|Computer equipment                               |  | $                | 199   |   |          | $
|Office furniture and equipment                   |  |                  | 90    |   |          |  
|Machinery and equipment                          |  |                  | 891   |   |          |  
|Leasehold improvements                           |  |                  | 184   |   |          |  
|                                                 |  |                  | 1,364 |   |          |  
|Less - accumulated depreciation and amortization |  |                  | (712  | ) |          |  
|                                                 |  |                  |       |   |          |  
|Net carrying amount                              |  | $                | 652   |   |          | $



| | b. | Depreciation and amortization
                                         expenses totaled approximately $78,000 for the six month period ended December 31, 2013
                                         and approximately $162,000 and $120,000 for the years ended June 30, 2013 and 2012, respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-15







NOTE 5 - LIABILITY FOR EMPLOYEES RIGHT
UPON RETIREMENT



Israeli
labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain
other circumstances.



Pursuant
to section 14 of the Israeli Severance Compensation Act, 1963, some of the Company’s employees are entitled to have monthly
deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Payments in accordance with
section 14 relieve the Company from any future severance payments to these employees.



The severance
pay liability of the Company for the rest of its employees, which reflects the undiscounted amount of the liability, is based
upon the number of years of service and the latest monthly salary. The severance pay liability is partly covered by insurance
policies and by regular deposits with recognized severance payment funds. The Company may only withdraw funds previously deposited
for savings in connection with the payment of severance. The severance pay expenses were approximately $139,000 for the six month
period ended December 31, 2013 and $311,000 and $177,000 for the years ended June 30, 2013 and 2012, respectively.



Defined
contribution plan expenses were approximately $168,000 for the six month period ended December 31, 2013 and $208,000 and $206,000
for the years ended June 30, 2013 and 2012, respectively. Gain on amounts funded with respect to employee rights upon retirement
totaled to approximately $15,000 for the six month period ended December 31, 2013 and $6,000 and $1,000 for the years ended June
30, 2013 and 2012, respectively.



The Company
expects contribution plan expenses in 2014 to be approximately $335,000.



NOTE 6 –
LOANS



| | I. | 2012
                                         Convertible Loan
| | -- | --------------------------------------------------------------



On April 5, 2012, the Company
issued senior secured convertible debentures (the “2012 Convertible Debentures”) due April 5, 2014 in the original
aggregate principal amount of $11,702,128 and five-year warrants (the “2012 Warrants”) to purchase an aggregate of
835,866 shares of its common stock at an exercise price of $7.20 per share in a private placement transaction in exchange for
aggregate gross proceeds of approximately $11 million. The 2012 Convertible Debentures beared interest at an annual rate of 8%
(payable quarterly beginning on July 1, 2012) and were convertible at any time into shares of common stock at an initial conversion
price of $7.00 per share.



The relevant features of the
2012 Convertible Debentures and 2012 Warrants at the time of issuance are summarized below:



| | a. | 2012 Convertible Debentures
| | -- | ---------------------------



| | 1. | Conversion and contingent
                                         conversion
| | -- | -----------------------------------------------------------------------------



The 2012 Convertible Debentures,
including accrued interest on such 2012 Convertible Debentures, were convertible at any time, in whole or part, at the option
of the holders into shares of common stock at an initial conversion price of $7.00 per share, subject to adjustment for stock
splits, fundamental transactions or similar events and an additional conversion adjustment described below.



F-16







The number of conversion shares
issuable upon a conversion was determined by the quotient obtained by dividing (x) the sum of (a) the outstanding principal amount
to be converted, (b) at the option of the holder, a portion or all of any accrued and unpaid interest to be converted and (c)
the conversion adjustment amount by (y) the conversion price.



The “conversion adjustment
amount” was calculated by multiplying the principal amount being converted by a fraction, the numerator of which is (a)
the number of days elapsed from the original issue date multiplied by (b) .021917808; and the denominator of which is 100. The
maximum number of days elapsed to be used in calculating the conversion adjustment amount was not permitted to be greater than
548 days regardless of the actual number of days elapsed from the original issue date.



The Company had the right to force
conversion of the 2012 Convertible Debentures if the closing bid price of the Company’s common stock equaled or exceeded
165% of the conversion price for twenty consecutive trading days, the minimum daily trading volume for such period was $1,100,000,
all of the shares of the common stock underlying the 2012 Convertible Debentures during such period were either registered for
resale with the Securities and Exchange Commission or eligible for resale pursuant to Rule 144 and there was no event of default
or existing event which, with the passage of time or the giving of notice, would have constituted an event of default existed
during such period.



The 2012 Convertible Debentures
contained certain limitations on conversion. No conversion by a holder was permitted if, after giving effect to the conversion,
such holder would have beneficially owned in excess of 4.99% of the Company’s outstanding shares of common stock. This percentage
could have been increased to a percentage not to exceed 9.99%, at the option of such holder, except any increase would not have
been effective until 61 days’ following notice to the Company.



The 2012 Convertible Debentures
impose penalties on the Company for any failure to timely deliver any shares of its common stock issuable upon conversion.



| | 2. | Events of default and holder’s
                                         contingent redemption option
| | -- | ----------------------------------------------------------------------------------------------------



If there was an event of default
as stipulated in the agreement, then by election of the holders holding at least 60% of the 2012 Convertible Debentures, the Company
was required to redeem all of the 2012 Convertible Debentures in cash for 112% of the outstanding principal, together with all
unpaid and accrued interest, all interest that would have been payable through the maturity date and any other amounts due under
the 2012 Convertible Debentures (such amount, the “Mandatory Default Amount”). The Mandatory Default Amount was to
accrue interest at a rate of 24% per annum commencing on the fifth calendar date following the relevant event of default.



F-17







| | 3. | Holder’s noncontingent
                                         redemption option
| | -- | ---------------------------------------------------------------------------------



Commencing 18 months following
the original issuance date of the 2012 Convertible Debentures, the holders had the right to require the Company to redeem all
or a portion of the 2012 Convertible Debentures, for a price equal to 112% of the amount of principal to be redeemed plus all
accrued but unpaid interest and other amounts due under the 2012 Convertible Debentures.



| | 4. | Company’s noncontingent
                                         redemption option
| | -- | ----------------------------------------------------------------------------------



Commencing 6 months following
the original issuance date of the 2012 Convertible Debentures, the Company had the right to redeem all or a portion of the 2012
Convertible Debentures for a price equal to 112% of the amount of principal to be redeemed plus all accrued but unpaid interest
and other amounts due under the 2012 Convertible Debentures.



| | 5. | Covenants
| | -- | ---------



The 2012 Convertible Debentures
contained certain covenants which prohibited or limited the Company’s and its subsidiaries ability to, among other things:



| | · | pay
                                         cash dividends to its stockholders;
| | - | --------------------------------------------------------------------------------

| | · | redeem,
                                         repurchase or otherwise acquire more than a de minimis number of shares of its common
                                         stock or common stock equivalents;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | incur
                                         additional indebtedness;
| | - | -----------------------------------------------------------------------

| | · | permit
                                         liens on assets or conduct sales of assets;
| | - | -------------------------------------------------------------------------------------------

| | · | effectuate
                                         stock splits until April 5, 2013, except in connection with an initial listing on a national
                                         securities exchange or to meet the continued listing requirements of such exchange;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | cease
                                         making public filings under the Securities Exchange Act of 1934, as amended;
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | engage
                                         in transactions with affiliates; and
| | - | ------------------------------------------------------------------------------------

| | · | amend
                                         its charter documents in a way that would materially and adversely affect any holder
                                         of the 2012 Convertible Debentures.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Pro rata distributions
| | -- | ----------------------



If the Company, at any time while
the 2012 Convertible Debentures were outstanding, distributed to all holders of common stock evidences of its indebtedness or
assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the common
stock, then, upon any conversion of the 2012 Convertible Debentures, the holder would have been entitled to receive such distribution
to the same extent that the holder would have if the holder had held the number of conversion shares issued upon such conversion
of the 2012 Convertible Debentures immediately before the date on which a record was taken for such distribution, or, if no such
record was taken, the date as of which the record holders of shares of common stock were determined for the participation in such
distribution.



F-18







| | b. | 2012 Warrants
| | -- | -------------



| | 1. | Exercisability
| | -- | --------------



The 2012 Warrants, upon issuance
were immediately exercisable and, in the aggregate, entitle the holders to purchase up to 835,866 shares of common stock. The
2012 Warrants had an initial exercise price of $7.20 per share payable in cash. The 2012 Warrants would have expired on April
5, 2017.



Similar to the 2012 Convertible
Debentures, the 2012 Warrants also contained limitations on exercise that would cause the holder to beneficially own in excess
of 4.99% or 9.99% of the Company’s outstanding common stock.



| | 2. | Anti-dilution protection
| | -- | ------------------------



The exercise price of the 2012
Warrants and the number of shares issuable upon exercise of the 2012 Warrants were subject to adjustments for stock splits, combinations
or similar events.



| | 3. | “Most favored nation”
| | -- | ---------------------



The 2012 Warrants were also
subject to an adjustment pursuant to which, in the event that the Company issues or was deemed to have issued certain securities
with terms that are superior to those of the 2012 Warrants, except with respect to exercise price and warrant coverage, the superior
terms would have automatically been incorporated into the 2012 Warrants (a "Most Favored Nation Adjustment").



| | 4. | Contingent holder redemption
                                         option
| | -- | ----------------------------------------------------------------------------



Upon the occurrence of a transaction
involving a change of control that was (i) an all cash transaction, (ii) a “Rule 13e-3 transaction” as defined in
Rule 13e-3 under the Securities Exchange Act of 1934, as amended, or (iii) involving a person or entity not traded on a national
securities exchange, the holders of the 2012 Warrants had the right, among others, to have the 2012 Warrants repurchased for a
purchase price in cash equal to the Black-Scholes value of the then unexercised portion of the 2012 Warrants.



| | 5. | Pro rata distributions
| | -- | ----------------------



Similar to the 2012 Convertible
Debentures, the 2012 Warrants allowed exercising holders to participate in pro rata distributions.



| | 6. | Public information failure
| | -- | --------------------------



If the Company failed for any
reason to satisfy the current public information requirement under Rule 144(c) then, in addition to any other remedies available
to the holders, the Company was required to pay to the holders, in cash, partial liquidated damages as set forth in the agreement.



F-19







| | c. | Transaction costs
| | -- | -----------------



In connection with the Transaction,
the Company paid issuance costs, including placement agent and legal fees, of approximately $1,200,000, and issued five-year warrants
(“2012 Placement Agents Warrants”) to purchase 78,078 shares of the Company’s common stock at an exercise price
of $7.20 per share to the placement agent.



| | d. | Accounting treatment
| | -- | --------------------



| | 1. | 2012 Warrants
| | -- | -------------



The Company determined, based
on the provisions of ASC 480-10-25-8, that equity classification of the 2012 Warrants was precluded because of the redeemable
option of the holders in the event of a change in control (in certain conditions), which is an event that is not within the Company’s
control. Accordingly, the 2012 Warrants were classified as a liability in the consolidated balance sheets at June 30, 2012 and
measured at fair value at each reporting period. The fair value of the 2012 Warrants as estimated using the Black-Scholes valuation
model. See Note 2t.



In calculating
the fair value of the 2012 Warrants (including the 2012 Placement Agents Warrants) on the transaction date and at June 30, 2012,
the Company used the following assumptions: expected term of 5 and 4.76 years, respectively; expected volatility of 66.1% and
69.6%, respectively; risk-free interest rate of 1.01% and 0.72%, respectively; and dividend yield of 0%.



As
of the closing day of the Exchange Agreement (see also Note 6) the Company recalculated the fair value of the 2012 Warrants by
using the following assumptions: expected term of 3.79-4years, expected volatility of 63.5%-64.7%,
risk-free interest rate of 0.52%-0.78% and dividend yield of 0%.



| | 2. | 2012 Convertible Debentures
| | -- | ---------------------------



In accordance with ASC 470-20,
“Debt with Conversion and Other Options,” the Company determined that a BCF existed at the issuance date of the 2012
Convertible Debentures. The BCF amounting to approximately $3,790,000 was recorded in equity.



In addition, the Company analyzed
the holders’ contingent redemption option based on the guidance stipulated in Topic 815, and concluded that the holders’
contingent redemption option is not clearly and closely related to the debt host contract. Thus, the Company bifurcated and accounted
for it separately as an embedded derivative and classified it, together with the 2012 Convertible Debentures, in its statement
of financial position. This embedded derivative was measured at fair value at each reporting period. The fair value of the embedded
derivative is estimated using the binominal valuation model.



In addition, the Company analyzed
the holders’ noncontingent redemption option and determined that the prepayment options were clearly and closely related
to the debt host contract and should not have been bifurcated from the 2012 Convertible Debentures.



F-20







The gross proceeds amounting
to approximately $11,000,000 from the 2012 Convertible Debentures transaction were allocated as follows:



| | · | 2012
                                         Warrants at fair value - approximately $2,807,000 based on their fair value;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | · | embedded
                                         derivative - approximately $8,000 based on its fair value; and
| | - | ----------------------------------------------------------------------------------------------------------------

| | · | 2012
                                         Convertible Debentures - approximately $8,185,000 based on the residual amount after
                                         the allocation of other components as described above.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition,
an amount of approximately $3,790,000 was recognized as a BCF against the 2012 Convertible Debentures.



The 2012 Convertible Debentures
were subsequently measured at amortized cost on the basis of the effective interest method over the loan period until the maturity
date.



| | 3. | Transaction costs
| | -- | -----------------



Direct transaction costs of
approximately $1,394,000, which included the placement agents fees and the 2012 Placement Agents Warrants valued at approximately
$262,000 as of the transaction date, as well as other issuance costs, were allocated to the various instruments associated with
the 2012 Convertible Debentures pro-rata to the amount such instruments were recorded as of the transaction date. The amounts
that were allocated to the 2012 Warrants at fair value and embedded derivative were recorded in “Financial expenses”
and the remainder amounting to approximately $1,037,000 was recorded as “Deferred debt issuance costs” in the consolidated
balance sheets and amortized over the loan period using the effective interest method until the maturity date.



| | 4. | Exchange and amendment
                                         agreement
| | -- | -------------------------------------------------------------------------



On April 9, 2013, the Company,
entered into an exchange and amendment agreement with the holders of the Company’s
2012 Convertible Debentures due April 5, 2014 and as subsequently amended on April 15, 2013 (the “Exchange Agreement”).
Simultaneously with the closing of the Offering (as defined in Note 9a), the Company consummated the transactions under the Exchange
Agreement on April 16, 2013 (the "Closing Day"). Pursuant the Exchange Agreement and in full satisfaction of the Company’s
obligations under the 2012 Convertible Debentures, the Company:



| | · | repaid
    $8,787,234 in cash;
| | - | ------------------------------



| | · | issued
    2,159,574 shares of common stock to the holders of the 2012 Convertible Debentures, reflecting a conversion price of $2.00
    per share for the remaining unpaid portion of the 2012 Convertible Debentures;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | issued
    five year warrants to the holders of the 2012 Convertible Debentures to purchase an aggregate of 659,091 shares of common
    stock for $3.00 per share (“$3.00 Warrants”);
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21







In accordance
with the provisions of ASC 470-20, the terms of the Exchange Agreement were considered to be an induced conversion and the retirement
of the 2012 Convertible Debentures was accounted for as if the 2012 Convertible Debentures had been converted according to their
original conversion price of $7 valued at $3,538,723. This value was compared to the fair value of the consideration paid to the
holders of the 2012 Convertible Debentures, including the 2,159,574 shares issued (which reflected a conversion price of $2.00
per share) that were valued at $4,081,595, the $8,787,234 of cash paid to the holders of the 2012 Convertible Debentures and the
$3.00 Warrants valued at $568,098. As a result, the Company incurred approximately $9.9 million of expenses in connection with
the Exchange Agreement which were recorded in "Financial expenses (income), net" within the consolidated statements
of operations.



In calculating
the fair value of the $3.00 Warrants, the Company used the following assumptions: dividend yield of 0% and expected term of 5
years; expected volatility of 68%; and risk-free interest rate of 0.71%.



In connection with the Exchange
Agreement the Company amortized the deferred debt issuance costs. The expenses amounting to approximately $641,000 were recorded
in "Financial expenses (income), net" within the consolidated statements of operations.



In addition,
pursuant to the Exchange Agreement, the Company:



| | · | amended
    the securities purchase agreement pursuant to which the 2012 Convertible Debentures were originally issued to prohibit the
    Company from issuing securities containing anti-dilution protective provisions; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | amended
    the 2012 Warrants to (i) eliminate the Most Favored Nation Adjustment and (ii) provide that upon a fundamental transaction,
    the holders of such warrants will now have the right to cause the Company to repurchase the unexercised portion of such warrants
    at their Black-Scholes value on the date of such fundamental transaction, payable in shares of common stock, rather than in
    cash as was previously provided.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company
determined, based on the provisions of ASC 480-10-25-8, that following the amendment to the 2012 Warrants described above, equity
classification is no longer precluded and accordingly, the 2012 Warrants valued at approximately $314,000 as of the Closing Day
of the Exchange Agreement were classified from a liability to equity in the consolidated balance sheets.



F-22







| | II. | 2013 Security and Loan Agreement
| | --- | --------------------------------



| | a. | Loan and Security Agreement
| | -- | ---------------------------



On October
23, 2013, the Company and InspireMD Ltd. entered into a Loan and Security Agreement (the “Loan and Security Agreement”),
pursuant to which a lender made a term loan to the Company and InspireMD Ltd. in the aggregate amount of $10 million (the “Loan”).
The annual interest rate on the Loan is prime plus 4%, but shall not be reduced below 10.5%. Payments under the Loan and Security
Agreement are for the interest portion only for 9 months, followed by 30 monthly payments of principal and interest through the
scheduled maturity date on February 1, 2017. The Company and InspireMD Ltd.’s obligations under the Loan and Security Agreement
are secured by a grant of a security interest in all of the Company’s and InspireMD Ltd.’s assets (other than their
intellectual property).



The Company is permitted to
prepay all or a portion of the Loan. However, any prepayments of the Loan will be subject to a penalty of (i) 2%, if the prepayment
occurs within 12 months of the Loan being requested by the Company and InspireMD Ltd. (the “Advance Date”), (ii) 1%,
if the prepayment occurs between 12 and 24 months after the Advance Date, and (iii) 0.5%, if the prepayment occurs more than 24
months after the Advance Date. The Company and InspireMD Ltd. will also pay the lender an aggregate end of term charge (the “End
of Term Charge”) of $500,000 when the Loan is paid in full or matures. In addition, upon the occurrence of a change in control,
the Company shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and all unpaid
lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge) together with the penalties
stated above.



| | b. | Warrant Agreement
| | -- | -----------------



On October
23, 2013, in connection with the Loan and Security Agreement, the Company issued the lender a warrant to purchase 168,351 shares
of common stock at a per share exercise price of $2.97 (the “ 2013 Warrant”). The Warrant is immediately exercisable
and has a five year term. The 2013  Warrant may also be exercised on a cashless basis. The exercise price of the 2013 Warrant
and the number of shares issuable upon exercise of the Warrant are subject to adjustments for stock splits, combinations or similar
events.



Upon the
occurrence of a transaction involving a change of control of the Company in which the consideration is either all cash or securities
that are either registered for sale on an exchange or quotation system or otherwise unrestricted, the Warrant, to the extent not
previously exercised, may be exchanged, at the holder’s request, for the consideration, to be paid by the acquirer, that
the holder would have received, less the exercise price, had the holder exercised the Warrant immediately prior to the change
of control. For all other changes of control of the Company, the 2013 Warrant will be assumed by the successor or surviving entity
with similar rights to the 2013 Warrant as if it had been exercised immediately prior to the change of control.

F-23









| | c. | Security Documents
| | -- | ------------------



On October
23, 2013, InspireMD Ltd. issued the lender a Fixed Charge Debenture and a Floating Charge Debenture (collectively, the “Israeli
Security Agreements”) in order to create a security interest in all the assets and property of InspireMD Ltd., securing
the Company’s and InspireMD Ltd.’s obligations under the Loan and Security Agreement. In addition, on October 23,
2013 and November 8, 2013, the Company entered into Deposit Account Control Agreements with the lender and two banking institutions
in the US (the “Deposit Account Control Agreements”) in order to perfect the lender’s security interest in the
Company’s bank account. Pursuant to the Loan and Security Agreement, the Israeli Security Agreements and the Deposit Account
Control Agreement, the Company’s obligations to the lender are secured by a first priority perfected security interest in
all of the assets and properties of the Company and InspireMD Ltd., other than the intellectual property of the Company and InspireMD
Ltd.



The Company is required under
the Loan and Security Agreement to maintain at all times in the bank accounts under the Deposit Account Control Agreements, cash
and cash equivalents, in each case unrestricted and unencumbered, in an aggregate amount of at least the lesser of (a) an amount
equal to one hundred percent (100.0%) of the then outstanding principal amount of the Loan and (b) an amount equal to seventy-five
percent (75.0%) of the aggregate amount of all of the Company’s worldwide cash and cash equivalents



| | d. | Accounting treatment
| | -- | --------------------



The Company
evaluated whether the 2013 Warrants can be classified as equity and determined that equity classification is appropriate. Accordingly,
proceeds from the Loan and 2013 Warrant were allocated to the two elements based on the relative fair value. The portion of the
proceeds so allocated to the 2013 Warrant, of approximately $280,000 was recorded in additional paid-in capital. The portion of
the proceeds so allocated to the Loan, of approximately $9.7 million (before deduction of approximately $237,000 of issuance costs)
was recorded in long term liabilities.



The Loan
was subsequently measured at amortized cost on the basis of the effective interest method over the loan period until the maturity
date.



Direct transactions
costs of approximately $237,000, were allocated to the Loan and the Warrants pro-rata to the amount such instruments were recorded
as of the transaction date. The amounts that were allocated to the Warrants were deducted from the Warrants and the amount related
to the Loan was recorded as "Deferred issuance costs" in the consolidated balance sheets and is amortized over the loan
period using the effective interest method until the maturity date.



The Company has evaluated and
concluded that the Prepayment options and the prepayment under an event of Change in control are clearly and closely related to
the debt host contract and thus should not be bifurcated from the debt host.



In addition the Company evaluated
whether the default interest mechanism, as defined in the Loan and Security Agreement, results in an interest rate derivative
that should be bifurcated and determined that based on the provisions of ASC 815-15-25-1, an interest rate derivative should not
be bifurcated.



F-24











As of December
31, 2013, the future principal payments obligation for the Loan were as follows:



|                        |  | ($ in thousands) |       
|----------------------- |  | ---------------- | ------
|Year Ended December 31: |  |                  |       
|2014                    |  | $                | 1,181 
|2015                    |  |                  | 3,809 
|2016                    |  |                  | 4,234 
|2017                    |  |                  | 776   
|                        |  | $                | 10,000



NOTE 7 - RELATED PARTIES TRANSACTIONS



| | a. | In January 2009, InspireMD Ltd. signed a sub-lease agreement with a company controlled by a former
officer and director, for a period of 12.5 months, for a monthly rent payment of approximately $1,000. In 2010, the rent period
was extended for an additional year, and the rent payments increased by 10%. In 2011, the rent period was extended for an additional
year, through February 2012. The sub-lease agreement was not renewed.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Prior to December 1, 2011, the Company’s CEO and president were treated as consultants. At
the request of the compensation committee, the Company’s CEO and president at the time agreed, effective as of December 1,
2011, to be treated as employees for purposes of paying their salary and benefits, rather than as consultants under their consulting
agreements. In addition, the Company’s CEO and president agreed to formally terminate their consulting agreement upon the
execution of an employment agreement with the Company on substantially the same terms as their consultancy agreements. A new employment
agreement, however, was never executed with either party.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On June 1, 2012, the Company's former president resigned. Following his resignation, as president,
effective June 1, 2012, the Company's former president remained on the Company’s board of directors. In connection with the
resignation, the Company and its former president entered into a consulting agreement, pursuant to which, among other things, the
former president agreed to provide the Company with consulting services for a period of six months, terminating on November 30,
2012, in exchange for payments by the Company of approximately $20,000 per month. The consulting agreement was subsequently extended
until February 2013.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On January
3, 2013, the Company's CEO at the time resigned as CEO (the "Former CEO"). The Former CEO subsequently continued to serve
as a member of the Company’s board of directors. In accordance with the terms of a Separation Agreement and Release, the
Company paid the Former CEO $21,563 for six months.



| | c. | On January 3, 2013 and in connection with the Former CEO’s resignation, the Company appointed
a new CEO.
| | -- | --------------------------------------------------------------------------------------------------------



F-25







In connection
with the appointment of the CEO, the Company entered into an Employment Agreement (the “Employment Agreement”) with
the CEO. Under the Employment Agreement, the CEO is entitled to an annual base salary of at least $450,000. The CEO is also eligible
to receive an annual bonus of at least $275,000 upon the achievement of reasonable target objectives and performance goals, to
be determined by the board of directors (see Note 14). In accordance with the Employment Agreement, on January 3, 2013, the Company
granted the new CEO a nonqualified stock option to purchase 525,927 shares of the Company’s common stock, made pursuant to
a Nonqualified Stock Option Agreement, an incentive stock option to purchase 74,073 shares of the Company’s common stock,
made pursuant to an Incentive Stock Option Agreement, and 400,000 shares of restricted stock, which are subject to forfeiture until
the vesting of such shares, made pursuant to a Restricted Stock Award Agreement (the “Restricted Stock Agreement”).
The options have an exercise price of $4.05, which was the fair market value of the Company’s common stock on the date of
grant. Both the options and the restricted stock were originally subject to a three-year vesting period subject to the CEO's continued
service with the Company, with one-thirty-sixth (1/36th) of such awards vesting each month. See Note 9b(13).



On April
24, 2013, the Company and the CEO amended each of (i) Employment Agreement and (ii) Restricted Stock Award Agreement in order to
change the vesting of the restricted stock awarded to the CEO thereunder from monthly vesting to annual vesting.



The CEO has
an option to deliver a number of shares with an aggregate fair market value that equals or exceeds (to avoid the issuance of fractional
shares) the required tax withholding payment resulted from the vesting of the restricted stock or from the exercise of the options.
As of December 31, 2013, 9,506 shares were withheld by the Company to satisfy tax withholding obligations. The payment, amounting
to $27,685, was deducted from equity.



On or before
December 31 of each calendar year, the CEO will be eligible to receive an additional grant of equity awards equal, in the aggregate,
to up to 0.5% of the Company’s actual outstanding shares of common stock on the date of grant, provided that the actual amount
of the grant will be based on his achievement of certain performance objectives as established by the board, in its reasonable
discretion, for each such calendar year.



If, during the term of the
Employment Agreement, the CEO's employment is terminated upon certain conditions as stipulated in the agreement, the CEO will be
entitled to receive certain benefits as stipulated in the agreement.



On April
25, 2013, the CEO was granted options to purchase shares of the Company's common stock as well as restricted shares. See Note 9b.



On January
29, 2014, the Company’s board of directors approved an annual bonus for 2013 to the CEO in the amount of $275,000 and granted
the CEO options to purchase 399,675 shares of the Company’s common stock as well as 182,725 restricted shares, See Note 14.



| | d. | A director of the Company was granted 125,000 options to purchase shares of the Company’s
common stock in the six month period ended December 31, 2013. See Note 9b.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-26







| | f | Balances with related parties:
| | - | ------------------------------



|                       |  | December 31,     |     |  | June 30, |  
|---------------------- |  | ---------------- | --- |  | -------- | -
|                       |  | 2013             |     |  | 2013     |  
|                       |  | ($ in thousands) |    
|Current liabilities:   |  |                  |     |  |          |  
|Trade payable          |  |                  |     |  |          | $
|Other accounts payable |  | $                | 355 |  |          | $



| | g. | Transactions with related parties:
| | -- | ----------------------------------



|                              |  | 6 month period ended December 31, |       |  | Year ended June 30, |  
|----------------------------- |  | --------------------------------- | ----- |  | ------------------- | -
|                              |  | 2013                              |       |  | 2013                |  
|                              |  | ($ in thousands)                  |      
|Expenses:                     |  |                                   |       |  |                     |  
|Share-based compensation      |  | $                                 | 1,293 |  |                     | $
|Salaries and related expenses |  |                                   | 557   |  |                     |  
|Consulting fees               |  |                                   | 82    |  |                     |  
|Rent income                   |  |                                   |       |  |                     |  



NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES



| | a. | Lease commitments:
| | -- | ------------------



| | 1) | On December 13, 2011, the Company entered into a lease agreement for a facility in Israel, which
expires in December 2014. The Company has the option, under the agreement, to extend the agreement for two additional two year
periods, for a total of four years.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 13, 2012, the Company
entered into a lease agreement for another facility in Israel, which expires in March 2014. The Company has the option, under the
agreement, to extend the agreement for two additional two year periods, for a total of four years. On February 27, 2013, the Company
gave a 90 days' notice period as stipulated in the agreement which was extended until June 30, 2013, to cancel its lease agreement
for the Company’s existing production facilities.



In January
2013, the Company entered into a lease agreement for its facilities in the U.S which expires in January 2014.



In December
2013, the Company entered into a lease agreement for its new facilities in the U.S which expires in February 2018. The Company
has the right to terminate the lease agreement at the end of the third lease year upon 9 months prior written notice, as stipulated
in the agreement.



Rent expense
included in the consolidated statements of operations totaled approximately $180,000 for the six month period ended December 31,
2013 and approximately $383,000 and $220,000 for the years ended June 30, 2013 and 2012, respectively.



As of December
31, 2013, the aggregate future minimum lease obligations for office rent under non-cancelable operating lease agreements were as
follows:



F-27







|                        |  | ($ in thousands) |    
|----------------------- |  | ---------------- | ---
|Year Ended December 31: |  |                  |    
|2014                    |  | $                | 385
|2015                    |  |                  | 103
|2016                    |  |                  | 106
|2017                    |  |                  | 91 
|                        |  | $                | 685



| | 2) | The Company leases its motor vehicles under operating lease agreements. As of December 31, 2013,
the aggregate non-cancelable future minimum lease obligations for motor vehicles were approximately $43,000.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | License Agreement:
| | -- | ------------------



In March 2010, the Company entered
into a license agreement to use a stent design (“MGuard PrimeTM”). Pursuant to the agreement, the licensor was entitled
to receive royalty payments of 7% of net sales outside the United States and, for sales within the United States, royalty payments
as follows: 7% of net sales for the first $10,000,000 of net sales and 10% of net sales for net sales exceeding $10,000,000.



On October 20, 2012, the Company,
InspireMD Ltd. and the licensor entered into an amendment (the "First Amendment") to License Agreement, which amended
the license agreement described above. Pursuant to the First Amendment, amongst other things, the licensor agreed to reduce the
royalty owed with respect to sales of MGuard Prime to 2.9% of all net sales both inside and outside the U.S. in exchange for (i)
InspireMD Ltd. waiving $85,000 in regulatory fees for the CE Mark that were owed by the licensor to InspireMD Ltd., (ii) InspireMD
Ltd. making full payment of royalties in the amount of $205,587 due to the licensor as of September 30, 2012 and (iii) 215,000
shares of the Company’s common stock, that were valued at the closing price of the common stock on October 19, 2012 at $8.20
per share. The total amount paid to the licensor was valued at $1,848,000, inclusive of the shares issued as well as the $85,000
waiver, and was allocated as follows: approximately $930,000 was allocated to royalties’ buyout and approximately $918,000
was allocated to “research and development” expenses based on the MGuard Prime registration status in the various territories.
The royalties’ buyout amortization is calculated using the economic pattern of the Company’s estimated future revenues
over the estimated useful life of the royalties’ buyout. The amortization is recorded in “Cost of Revenues” in
the consolidated statements of operations.



On August
22, 2013, the Company, InspireMD Ltd. and the Licensor entered into an amendment to the License Agreement (the “Second Amendment”),
pursuant to which the Company and the Licensor agreed to amend the royalty fee from 2.9% of all net sales during the term of the
agreement to (i) 2% of the first $10.56 million of net sales from July 1, 2013 through June 30, 2015, provided that the Company
makes an advance royalty payment of $192,000 on the date of the amendment, (ii) 2.5% of net sales in excess of $10.56 million from
July 1, 2013 through June 30, 2015, payable within 45 days of June 30, 2015, and (iii) 2.9% of all net sales beginning on July
1, 2015. The above referenced advance royalty payment has been included in long term prepaid expenses for the six month period
ended December 31, 2013.



F-28







| |  | Royalties accrued for these sales are included in “Accounts payable and accruals –Other”
as of June 30, 2013 and 2012, respectively. Royalties expenses for the six month period ended December 31, 2013 amounted to approximately
$38,000, and for the years ended June 30, 2013 and 2012 amounted to approximately $132,000 and $201,000, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Liens and pledges
| | -- | -----------------



| | 1) | The Company’s obligations under the Loan and Security Agreement (as defined in Note 6) were
secured by the Israeli Security Agreements (as defined in Note 6) and the Deposit Account Control Agreements (as defined in Note
6) on all of the assets and properties of the Company and InspireMD Ltd., other than the intellectual property of the Company and
InspireMD Ltd.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | As of December 31, 2013, the Company had
fixed liens amounting to $93,000 to Bank Mizrahi in connection with the Company’s credit cards.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------



| | d. | Litigation:
| | -- | -----------



In July 2012,
a purported assignee of options in InspireMD Ltd. submitted a statement of claim against the Company, InspireMD Ltd., and the Company’s
former CEO and President for a declaratory and enforcement order that it is entitled to options to purchase 83,637 shares of the
Company’s common stock at an exercise price of $0.76 per share. After considering the views of its legal counsel as well
as other factors, the Company’s management believes that a loss to the Company is neither probable nor in an amount or range
of loss that is estimable.



In December 2012, a former service
provider of InspireMD GmbH filed a claim with the Labor Court in Buenos Aires, Argentina in the amount of $193,378 plus interest
(6% in dollars or 18.5% in pesos), social benefits, legal expenses and fees (25% of the award) against InspireMD Ltd. and InspireMD
GmbH. The Company's management, after considering the views of its legal counsel as well as other factors, recorded a provision
of $250,000 in the financial statements for the quarter ended December 31, 2012. The related expense has been recorded to "General
and administrative" within the consolidated statements of operations. The Company's management estimates that the ultimate
resolution of this matter could result in a loss of up to $80,000 in excess of the amount accrued.



NOTE 9 –
EQUITY



| | a. | Share capital
| | -- | -------------



As of December
31, 2013, the Company has authorized 130,000,000 shares of capital stock, par value $0.0001 per share, of which 125,000,000 are
shares of common stock and 5,000,000 are shares of “blank check” preferred stock.



F-29







On October
31, 2011, the stockholders approved the authorization of the board of directors, in its discretion, to amend the Amended and Restated
Certificate of Incorporation of the Company to effect a reverse stock split of the Company’s common stock at a ratio of one-for-two
to one-for-four, such ratio to be determined by the board of directors, which approval allowed the board of directors to effect
the reverse stock split any time prior to the Company’s annual meeting of stockholders in 2012.



| |  | On December 19, 2012, the Company filed with the Secretary of State of the State of Delaware a
Certificate of Amendment of the Company’s Amended and Restated Certificate of Incorporation to effect a one-for-four reverse
stock split of its common stock (the “Reverse Stock Split”), which decreased the number of common shares issued and
outstanding from approximately 72.1 million shares to approximately 18.0 million shares.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On January
8, 2013, due to the failure of the Company’s common stock to be listed on a national securities exchange on or before December
31, 2012, the Company issued 178,029 shares of common stock to the purchasers, or their assignees, under the securities purchase
agreement that the Company entered into on March 31, 2011 (the "2011 SPA"). Pursuant to the 2011 SPA, in the event that
the Company’s common stock was not listed on a national securities exchange on or before December 31, 2012, the Company was
required to issue the purchasers under the 2011 SPA additional shares of common stock equal to 10% of the number of shares of common
stock originally acquired by each such purchaser under the 2011 SPA.



| |  | On April 16, 2013, the Company consummated an underwritten public offering, pursuant to which it
sold a total of 12,500,000 shares of common stock (the “Offering”). The price to the public in the Offering was $2.00
per share, and the aggregate net proceeds of the Offering to the Company were approximately $22.6 million, after the underwriters’
commissions and offering expenses. On April 11, 2013, following the pricing of the Offering, the Company’s common stock began
trading on the NYSE MKT.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Following
the Offering, the Exchange Agreement and subsequent grants of securities, the Company issued the purchasers in its March 31, 2011
financing, or their assigns, an aggregate of 792,884 shares of common stock during the 2013 calendar year, pursuant to the terms
of 2011 SPA that provided these investors with certain anti-dilution protections. The related expense has been recorded to “Financial
expenses (income), net” within the consolidated statements of operations.



| | b. | Share-Based Compensation
| | -- | ------------------------



| | 1. | On March 28, 2011, the board of directors and stockholders of the Company adopted and approved
the InspireMD, Inc. 2011 UMBRELLA Option Plan (the “Umbrella Plan”). Under the Umbrella Plan, the Company reserved
2,367,025 shares of common stock as awards to employees, consultants, and service providers. At a special meeting of stockholders
of the Company held on October 31, 2011, the stockholders approved an amendment to the Umbrella Plan to add an additional 1,382,975
shares of common stock for a total of 3,750,000 shares.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-30







The Umbrella
Plan currently consists of three components, the primary plan document that governs all awards granted under the Umbrella Plan,
and two appendices: (i) Appendix A, designated for the purpose of grants of stock options and restricted stock to Israeli employees,
consultants, officers and other service providers and other non-U.S. employees, consultants, and service providers, and (ii) Appendix
B, which is the 2011 US Equity Incentive Plan, designated for the purpose of grants of stock options and restricted stock awards
to U.S. employees, consultants, and service providers who are subject to the U.S. income tax.



The Umbrella
Plan is administered by the compensation committee of the board of directors. Unless terminated earlier by the board of directors,
the Umbrella Plan will expire on March 27, 2021.



U.S. federal
income tax consequences relating to the transactions described under the Umbrella Plan are set forth in Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and treasury regulations in 2004 to regulate all types of deferred compensation.
If the requirements of Section 409A of the Code are not satisfied, deferred compensation and earnings thereon will be subject to
tax as it vests, plus an interest charge at the underpayment rate plus 1% and a 20% penalty tax. Certain stock options and certain
types of restricted stock are subject to Section 409A of the Code.



Pursuant
to the current Section 102 of the Israeli Tax Ordinance, which came into effect on January 1, 2003, options may be granted through
a trustee (i.e., Approved 102 Options) or not through a trustee (i.e., Unapproved 102 Options).



On December
21, 2012, the Company amended its Umbrella Plan to increase the total number of shares of common stock issuable under such plan
by 1,250,000 shares and to permit the awarding of incentive stock options pursuant to the U.S. portion of the plan.



| | 2. | On December 16, 2013, the board of directors and stockholders of the Company adopted and approved
the InspireMD, Inc. 2013 Long-Term Incentive Plan (the “2013 Plan”). Under the 2013 Plan, the Company reserved 5,000,000
shares of common stock for awards to employees, officers, directors, consultants, and service providers.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The 2013
Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock,
restricted stock units, performance awards, dividend equivalent rights, and other awards, which may be granted singly, in combination,
or in tandem. The 2013 Plan is administered by the Company’s compensation committee.



| | 3. | On July 11, 2011, the board of directors of the Company appointed Mr. Sol J. Barer as a new director
(“Director A”), with a term expiring at the Company’s 2012 annual meeting of stockholders. In connection with
his appointment, Director A was granted an option to purchase 250,000 shares of the Company’s common stock at an exercise
price of $6.00 per share (the “$6.00 Option”). The $6.00 Option was exercisable immediately until September 30, 2011.
In calculating the fair value of the $6.00 Option, the Company used the following assumptions: dividend yield of 0% and expected
term of 0.11 years; expected volatility of 53%; and risk-free interest rate of 0.17%.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-31







In addition,
in connection with his appointment, Director A was granted an option to purchase 125,000 shares of common stock at an exercise
price of $10.00 per share, the closing price of the common stock on the date of grant (the “$10.00 Option”), subject
to the terms and conditions of the 2011 US Equity Incentive Plan under the Umbrella Plan. The $10.00 Option vests and becomes exercisable
in three equal annual installments beginning on the one-year anniversary of the date of grant, provided that in the event that
Director A is either (i) not reelected as a director at the Company’s 2012 annual meeting of stockholders, or (ii) not nominated
for reelection as a director at the Company’s 2012 annual meeting of stockholders, the option vests and becomes exercisable
on the date Director A fails to be reelected or nominated. The $10.00 Option has a term of 10 years from the date of grant. In
calculating the fair value of the $10.00 Option, the Company used the following assumptions: dividend yield of 0% and expected
term of 5.5-6 years; expected volatility of 62%-63%; and risk-free interest rate of 1.67%-1.85%.



The fair
value of the options granted to Director A, using the Black-Scholes option pricing model, was approximately $1,700,000.



On September
28, 2011, Director A exercised the $6.00 Option to purchase 250,000 shares of common stock, resulting in gross proceeds to the
Company of $1,500,000.



On November
16, 2011, the Company’s board of directors approved the appointment of Director A as the chairman of the board of directors.
In connection with his appointment as chairman of the board of directors, the Company issued Director A 725,000 shares of common
stock and an option to purchase 725,000 shares of common stock at an exercise price of $7.80 per share, the closing price of the
common stock on the date of grant. The fair value of the granted shares is approximately $5.7 million and was recorded as an expense
in the consolidated financial statements for the year ended June 30, 2012. In calculating the fair value of these awards, the Company
used the following assumptions: dividend yield of 0% and expected term of 5.5 years; expected volatility of 61.6%; and risk-free
interest rate of 1.07%. The awards have terms of 10 years from the date of grant, and the vesting terms are as follows: tranche
A vests and become exercisable in twenty four equal monthly installments, tranches B and C vest and become exercisable upon meeting
certain performance conditions. The fair value of the awards, using the Black-Scholes option-pricing model was approximately $3.1
million.



On June 18,
2012, the Company’s board of directors approved the extension of the date by which the conditions to the vesting of tranches
B and C must occur. As of June 30, 2012, the performance condition of tranche B was deemed probable and the performance condition
of tranche C was deemed not probable. As a result, as of June 30, 2012, the Company continued to record expense related to tranche
B, in accordance with the fair value that was calculated at the grant date. Tranche C was treated as a new grant, and the Company
calculated the fair value of the new grant on the date of the extension using the following assumptions: dividend yield of 0% and
expected term of 5 years; expected volatility of 66%; and risk-free interest rate of 0.69%. The fair value using the Black-Scholes
option-pricing model was approximately $192,000.



F-32







On April
11, 2013, the conditions of tranche B were met.



The conditions
of tranche C were met in May 2013.



| | 4. | On August 5, 2011 and effective August 8, 2011, the Board appointed another two new directors (“Director
B” and “Director C”). Director B was appointed for a term expiring at the Company’s 2012 annual meeting
of stockholders and Director C was appointed for a term expiring at the Company’s 2013 annual meeting of stockholders. In
connection with their appointment, the directors were each granted an option to purchase shares of common stock at an exercise
price of $7.80 per share, the closing price of the common stock on the date of grant (the “$7.80 Options”). The grant
to Director B was for 25,000 shares and is subject to the terms and conditions of the 2011 US Equity Incentive Plan.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The grant
to Director C was for 6,250 shares and is subject to the 2006 Employee Stock Option Plan, a sub-plan of the Company’s 2011
Umbrella Option Plan. The $7.80 Options vest and become exercisable in three equal annual installments beginning on the one-year
anniversary of the date of grant. In the case of Director B’s option, in the event that Director B is either (i) not reelected
as a director at the Company’s 2012 annual meeting of stockholders, or (ii) not nominated for reelection as a director at
the Company’s 2012 annual meeting of stockholders, the option vests and becomes exercisable on the date of Director B’s
failure to be reelected or nominated. In the case of Director C’s option, in the event that Director C is required to resign
from the board due to medical reasons, the option vests and becomes exercisable on the date of Director C’s resignation for
medical reasons. The $7.80 Options have terms of 10 years from the date of grant.



In calculating
the fair value of the $7.80 Options, the Company used the following assumptions: dividend yield of 0% and expected term of 3-4
years; expected volatility of 67%-70%; and risk-free interest rate of 0.45%-0.78%.



The fair
value of the options granted to the above-mentioned new directors, using the Black-Scholes option-pricing model, was approximately
$118,000.



| | 5. | On August 5, 2011, options to purchase 81,161 shares of common stock were granted to former directors
at a cash exercise price of $4.92 per share replacing options to purchase 81,161 shares of common stock held by former directors
that expired during the second quarter of 2011. The options had terms of five years. In calculating the fair value of the options,
the Company used the following assumptions: dividend yield of 0% and expected term of 3.5 years; expected volatility of 69%; and
risk-free interest rate of 0.62%.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fair
value of the options granted to the former directors, using the Black-Scholes option-pricing model, was approximately $424,000.



F-33







| | 6. | During 2011, the Company entered into investor relations consulting agreements with investor relations
companies to provide investor relations services. Pursuant to the consulting agreements, in addition to monthly fees in a range
of $3,000 to $16,500, the Company issued to the investor relations companies:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a one-year warrant to purchase 20,290
shares of common stock of the Company at an exercise price of $4.92 per share, valued at approximately $21,000;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 12,500 restricted shares of the Company’s
common stock, valued at approximately $62,000, and a five-year warrant to purchase 12,500 shares of common stock of the Company
at an exercise price of $6.00 per share, valued at approximately $30,000; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 6,250 shares of the Company’s common
stock, valued at $68,750.
| | - | --------------------------------------------------------------



The Company
recorded share-based compensation expenses of $181,750 related to these issuances.



| | 7. | On January 30, 2012, the Company appointed a new director (“Director D”) to its board
of directors. In connection with his appointment, the Company issued Director D an option to purchase 25,000 shares of its common
stock, which will vest one-third annually in 2013, 2014 and 2015 on the anniversary of the date of grant, provided that if he is
(i) not reelected as a director at our 2014 annual meeting of stockholders, or (ii) not nominated for reelection as a director
at our 2014 annual meeting of stockholders, the option vests and becomes exercisable on the date of such failure to be reelected
or nominated.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In calculating
the fair value of these options, the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5
years; expected volatility of 58%-60%; and risk-free interest rate of 1.01%-1.26%. The options have terms of 10 years from the date
of grant, and the fair value of the options, using the Black-Scholes option-pricing model, was approximately $106,000.



| | 8. | On June 18, 2012 the Company’s board of directors issued Directors A, B, C and D options
to purchase 12,500 shares of common stock at an exercise price of $3.16 per share, the closing price of the common stock on the
date of grant. In calculating the fair value of these options, the Company used the following assumptions: dividend yield of 0%
and expected term of 5.5-6.5 years; expected volatility of 65%-66%; and risk-free interest rate of 0.78%-0.97%. The options have
terms of 10 years from the date of grant, and become exercisable in three equal annual installments. The fair value of the options,
using the Black-Scholes option-pricing model, was approximately $23,000 each.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | On August 1, 2012, the Company issued a consultant options with certain market conditions to purchase
50,000 shares of common stock at an exercise price of $4.72 per share, the closing price of the common stock on the date of grant.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2013, the
first and second tranches were fully vested. The third and fourth tranches expired on July 31, 2013.



F-34







| | 10. | On August 27, 2012, the Company issued and extended options to purchase shares of common stock
to a consultant who was an immediate family member of the Company’s CEO at the time. See Note 7b.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11. | On September 16, 2012, the Company appointed a new director (“Director E”) to its board
of directors. In connection with his appointment, on September 21, 2012, the Company issued Director E an option to purchase 25,000
shares of its common stock at an exercise price of $9 per share, the closing price of the common stock on the date of grant.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In calculating
the fair value of this option, the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years;
expected volatility of 68.4%-69.3%; and risk-free interest rate of 0.8%-1.03%. The option has a term of 10 years from the date of
grant and becomes exercisable in three equal annual installments. The fair value of the option, using the Black-Scholes option-pricing
model, was approximately $137,000.



| | 12. | On October 20, 2012, the Company issued 215,000 shares of common stock to pursuant to an agreement
with a licensor. See Note 8b.
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | 13. | On January 3, 2013, in connection with the appointment of the Company's current CEO, the Company
granted the new CEO a nonqualified stock option to purchase 525,927 shares of the Company's common stock, made pursuant to a Nonqualified
Stock Option Agreement, an incentive stock option to purchase 74,073 shares of the Company’s common stock, made pursuant
to an Incentive Stock Option Agreement, and 400,000 shares of restricted stock, which are subject to forfeiture until the vesting
of such shares, made pursuant to a Restricted Stock Award Agreement. See Note 7.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In calculating the fair value
of the above options the Company used the following assumptions: dividend yield of 0% and expected term of 5.04-6.5 years; expected
volatility of 68.5%-70.3%; and risk-free interest rate of 0.72%-1.07%.



The fair value of the above
525,927 and 74,073 options, using the Black-Scholes option-pricing model, was approximately $1,470,000.



The fair value of the above
400,000 restricted shares was approximately $1,620,000.



On April 24, 2013, the vesting
of the restricted stock awarded to the CEO was amended. See Note 7.



On April 25, 2013, the Company
granted to the CEO (i) options to purchase 297,447 shares of common stock, with an exercise price of $2.05 per share (the “April
Option Grant”) and (ii) 179,866 restricted shares of common stock (the “April RS Grant”). The April Option Grant
vests in three equal annual installments. The April RS Grant is subject to forfeiture until vested and vests in three equal annual
installments. The fair value of the April RS Grant was approximately $369,000. In calculating the fair value of the above options
the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years; expected volatility of 66.9%-68.2%;
and risk-free interest rate of 0.82%-1.04%. The fair value of the above options, using the Black-Scholes option-pricing model,
was approximately $368,000.



F-35







As of December 31, 2013, 9,506
restricted shares were withheld by the Company from the CEO upon certain vesting dates to satisfy tax withholding obligations.
The payment of the withheld tax, amounting to $27,685 was deducted from equity. See Note 7.



| | 14. | On February 7, 2013, the Company appointed a new director (“Director F”) to its board
of directors. In connection with his appointment, the Company issued Director F an option to purchase 124,415 shares of its common
stock at an exercise price of $3.40 per share, the closing price of the common stock on the date of grant
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In calculating
the fair value of this option, the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years;
expected volatility of 66.8%-68.9%; and risk-free interest rate of 0.96%-1.21%. The option has terms of 10 years from the date
of grant and becomes exercisable in three equal annual installments. The fair value of the options, using the Black-Scholes option-pricing
model, was approximately $257,000.



| | 15. | On April 16, 2013, the Company appointed a new Vice President of Corporate Development. In accordance
with the appointment, on April 22, 2013, the Company granted the new Vice President of Corporate Development an option to purchase
150,000 shares of the Company’s common stock. The option has an exercise price of $1.97 per share, which was the fair market
value of the Company’s common stock on the date of grant. The options are subject to a three-year vesting period with one-third
of such awards vesting each year.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In calculating the fair value
of the above options the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years; expected
volatility of 66.9%-68.2%; and risk-free interest rate of 0.8%-1.02%.



The fair value of the above
options, using the Black-Scholes option-pricing model, was approximately $178,000.



| | 16. | On May 9, 2013, the Company granted options to purchase an aggregate of 400,000 shares of the Company’s
common stock to certain of the Company’s independent directors. The options have an exercise price of $2.75 per share, which
was the fair market value of the Company’s common stock on the date of grant. The options are subject to a three-year vesting
period with one-third of such awards vesting each year. In calculating the fair value of the above options the Company used the
following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years; expected volatility of 68.1%-69.2%; and risk-free
interest rate of 0.86%-1.09%.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fair value of the above
options, using the Black-Scholes option-pricing model, was approximately $672,000.



F-36







| | 17. | During the six month period ended December 31, 2013, the Company granted stock options to employees
and directors to purchase a total of 430,000 shares of the Company’s common stock. The options have exercise prices ranging
from $2.12-$2.75 per share, which were the fair market value of the Company’s common stock on the date of each respective
grant. The options are subject to a three-year vesting period with one-third of such awards vesting each year.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In calculating the fair value
of the above options the Company used the following assumptions: dividend yield of 0% and expected term of 5.5-6.5 years; expected
volatility of 67.7%-68.7%; and risk-free interest rate of 1.55%-2.23%.



The fair
value of the above options, using the Black-Scholes option-pricing model, was approximately $633,000.



| | 18. | As of December 31, 2013, the Company had reserved 5,251,555 shares of common stock for issuance
under the plans as described above.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



F-37







| | 19. | The following table summarizes information about warrants and share options to employees:
| | --- | -----------------------------------------------------------------------------------------



|                                         |  | 6
    month period ended           |           |  | Year
    ended June 30,             |  
|---------------------------------------- |  | ---------------------------------- | --------- |  | ----------------------------------- | -
|                                         |  | December
    31, 2013              |           |  | 2013                                |  
|                                         |  | Number
    of warrants and options |           |  | Weighted
    average exercise price |  
|Outstanding -  beginning
    of period   |  |                                    | 3,407,054 |  |                                     | $
|Granted*                                 |  |                                    | 430,000   |  |                                     |  
|Forfeited                                |  |                                    | 77,863    |  |                                     |  
|Exercised                                |  |                                    | 71,016    |  |                                     |  
|Outstanding
    -end of period           |  |                                    | 3,688,175 |  |                                     | $
|Exercisable
    at the end of the period |  |                                    | 1,526,024 |  |                                     | $



| | * | Including 372,500 options with performance conditions in the year ended June 30, 2012.
| | - | --------------------------------------------------------------------------------------



The following
table summarizes information about warrants and share options to non-employees:



|                                         |  | 6
    month period ended           |           |  | Year
    ended June 30,             |  
|---------------------------------------- |  | ---------------------------------- | --------- |  | ----------------------------------- | -
|                                         |  | December
    31, 2013              |           |  | 2013                                |  
|                                         |  | Number
    of warrants and options |           |  | Weighted
    average exercise price |  
|Outstanding -
    beginning of period    |  |                                    | 1,634,702 |  |                                     | $
|Granted*                                 |  |                                    |           |  |                                     |  
|Forfeited                                |  |                                    | 85,474    |  |                                     |  
|Exercised                                |  |                                    | 6,087     |  |                                     |  
|Outstanding
    - end of period          |  |                                    | 1,543,141 |  |                                     | $
|Exercisable
    at the end of the period |  |                                    | 1,500,713 |  |                                     | $



| | * | Including 50,000 and 19,479 options with performance conditions in the years ended June 30, 2013
and 2012, respectively. See Note 2m.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



F-38







The following
table provides additional information about all warrants and options outstanding and exercisable:



|               |  | Outstanding as of December 31, 2013 |          
|-------------- |  | ----------------------------------- | ---------
|Exercise price |  | Warrants and options outstanding    |          
|0-0.002        |  |                                     | 290,608  
|0.732          |  |                                     | 37,862   
|0.752          |  |                                     | 83,636   
|1.97           |  |                                     | 150,000  
|2.05           |  |                                     | 297,446  
|2.12           |  |                                     | 125,000  
|2.23           |  |                                     | 155,000  
|2.75           |  |                                     | 500,000  
|2.92           |  |                                     | 118,750  
|2.95           |  |                                     | 25,000   
|2.98           |  |                                     | 21,500   
|3.16           |  |                                     | 85,417   
|3.20           |  |                                     | 75,000   
|3.40           |  |                                     | 179,165  
|4.05           |  |                                     | 600,000  
|4.72           |  |                                     | 22,500   
|4.92           |  |                                     | 63,661   
|4.928          |  |                                     | 375,882  
|5.80           |  |                                     | 60,871   
|6.00           |  |                                     | 717,241  
|6.90           |  |                                     | 3,652    
|7.00           |  |                                     | 20,290   
|7.20           |  |                                     | 188,169  
|7.72           |  |                                     | 53,750   
|7.80           |  |                                     | 814,667  
|8.00           |  |                                     | 10,000   
|8.40           |  |                                     | 2,500    
|9.00           |  |                                     | 25,000   
|9.60           |  |                                     | 2,500    
|10.00          |  |                                     | 125,000  
|10.40          |  |                                     | 1,250    
|               |  |                                     | 5,231,317



F-39







The weighted
average of the remaining contractual life of total vested and exercisable warrants and options as of December 31, 2013 was 5.10
years.



The aggregate
intrinsic value of the total exercisable warrants and options as of December 31, 2013 was approximately $923,000.



The total intrinsic
value of options exercised was approximately $177,000 for the six month period ended December 31, 2013 and approximately $4.6 million
and $800,000 for the years ended June 30, 2013 and 2012, respectively.



The weighted
average fair value of warrants and options granted was approximately $1.47 for the six month period ended December 31, 2013 and
approximately $1.98 and $4.24 for the years ended June 30, 2013 and 2012, respectively. The weighted average fair value of warrants
and options granted was estimated using the Black-Scholes option-pricing model.



| | 20. | The following table sets forth the assumptions that were
used in determining the fair value of options granted to employees for the six month period ended December 31, 2013, as well as
the years ended June 30, 2013 and 2012:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  | 6 month period ended |               |  | Year ended June 30, | 
|------------------------ |  | -------------------- | ------------- |  | ------------------- | 
|                         |  | December 31, 2013    |               |  | 2013                | 
|Expected life            |  |                      | 5.5-6.5 years |  |                     | 
|Risk-free interest rates |  |                      | 1.55%-2.23%   |  |                     | 
|Volatility               |  |                      | 68%-69%       |  |                     | 
|Dividend yield           |  |                      | 0%            |  |                     | 





The following
table sets forth the assumptions that were used in determining the fair value of warrants and options granted to non-employees
for the years ended June 30, 2013 and 2012. No such options were granted during the six month period ended December 31, 2013:



|                         |  | Year ended June 30, |            
|------------------------ |  | ------------------- | -----------
|                         |  | 2013                |            
|Expected life            |  |                     | 2-10 years 
|Risk-free interest rates |  |                     | 0.28%-1.79%
|Volatility               |  |                     | 60%-73%    
|Dividend yield           |  |                     | 0%         





The Company does
not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Accordingly, as
to ordinary course options granted, the expected term was determined using the simplified method, which takes into consideration
the option’s contractual life and the vesting periods (for non-employees, the expected term is equal to the option’s
contractual life).



F-40







The Company estimates
its forfeiture rate based on its employment termination history, and will continue to evaluate the adequacy of the forfeiture rate
based on analysis of employee turnover behavior and other factors (for non-employees the forfeiture rate is nil). The annual risk-free
rates are based on the yield rates of zero coupon non-index linked U.S. Federal Reserve treasury bonds as both the exercise price
and the share price are in dollar terms.  The Company’s expected volatility is derived from a blended volatility, based
on its historical data and that of a peer group of public companies.



| | 21. | As of December 31, 2013, the total unrecognized compensation cost on employee and non-employee
stock options, related to unvested stock-based compensation, amounted to approximately $2.4 million. This cost is expected to be
recognized over a weighted-average period of approximately 1.65 years. This expected cost does not include the impact of any future
stock-based compensation awards.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following
table summarizes the allocation of total share-based compensation expense in the consolidated statements of operations:



|                           |  | 6 month period ended |       |  | Year ended June 30, |  
|-------------------------- |  | -------------------- | ----- |  | ------------------- | -
|                           |  | December 31, 2013    |       |  | 2013                |  
|                           |  | ($ in thousands)     |      
|                           |  |                      |       |  |                     |  
|Deduction from revenue     |  | $                    | -     |  |                     | $
|Cost of revenues           |  |                      | 4     |  |                     |  
|Research and development   |  |                      | 41    |  |                     |  
|Sales and marketing        |  |                      | 87    |  |                     |  
|General and administrative |  |                      | 1,417 |  |                     |  
|                           |  | $                    | 1,549 |  |                     | $



| | c. | On April 5, 2012, the Company issued the 2012 Convertible Debenture and 2012 Warrants to purchase
an aggregate of 835,866 shares of its common stock at an exercise price of $7.20 per share in a private placement transaction.
See Note 6.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | On October 23, 2013, in connection with the Loan and Security Agreement, the Company issued the
2013 Warrant to purchase 168,351 shares of Common Stock at an exercise price of $2.97 per share. See Note 6.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Rights Agreement
| | -- | ----------------



On October
22, 2013, the Board adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend distribution to the
Company’s stockholders of record at the close of business on November 15, 2013, of one preferred stock purchase right (a
“Right”) for each outstanding share of common stock that will entitle the registered holder to purchase from the Company
one one-thousandth (1/1,000) of a share of Series A Preferred Stock at a purchase price of $21.00 per one one-thousandth (1/1,000)
of a share, subject to adjustment.



Initially,
the Rights will not be exercisable and will trade with the Company's shares of common stock.



F-41







Under the
Rights Plan, the Rights will generally become exercisable only if a person or group acquires beneficial ownership of 15% or more
of the Company's common stock in a transaction not approved by the Company’s board. In that situation, each holder of a Right
(other than the acquiring person, whose Rights will become void and will not be exercisable) will be entitled to purchase, at the
then-current exercise price, additional shares of common stock having a value of twice the exercise price of the Right. In addition,
if the Company is acquired in a merger or other business combination after an unapproved party acquires more than 15% of the Company’s
common stock, each holder of a Right would then be entitled to purchase at the then-current exercise price, shares of the acquiring
company's stock, having a value of twice the exercise price of the Right.



The Company’s
board may redeem the Rights for a nominal amount at any time before an event that causes the Rights to become exercisable. Under
the terms of the Rights Plan, it will expire on October 22, 2014.



| | f. | At-the-Market Agreement
| | -- | -----------------------



On October
23, 2013, The Company entered into an at-the-market issuance sales agreement, or the Sales Agreement, with MLV pursuant to which
The Company may issue and sell shares of The Company common stock having an aggregate offering price of up to $40 million directly
on The NYSE MKT or sales made to or through a market maker other than on an exchange. With the Company prior written consent, sales
may also be made in negotiated transactions and/or any other method permitted by law. MLV will receive a 3% commission from the
gross proceeds of any sales. Subject to the terms and conditions of the Sales Agreement, MLV will use its commercially reasonable
efforts to sell the shares of the Company common stock from time to time, based upon the Company instructions (including any price,
time or size limits or other parameters or conditions that the Company may impose). The Company is not obligated to make any sales
of common stock under the Sales Agreement and no assurance can be given that the Company will sell any shares under the Sales Agreement,
or, if the Company does, as to the price or amount of shares that the Company will sell, or the dates on which any such sales will
take place. The Sales Agreement may be terminated by either party at any time upon 10 days’ notice to the other party, or
by MLV at any time in certain circumstances, including the occurrence of a material adverse effect to the Company. In addition,
the Sales Agreement will automatically terminate upon the sale of all common stock subject to the Sales Agreement.



NOTE 10 - TAXES ON INCOME



| | a. | Tax laws applicable to the Company and its subsidiaries
| | -- | -------------------------------------------------------



Taxation
in the United States



InspireMD, Inc.
is taxed under U.S. tax laws.



F-42







Taxation
in Israel



InspireMD Ltd.
is taxed under the Israeli Income Tax Ordinance.



On December
6, 2011, the "Tax Burden Distribution Law" Legislation Amendment (2011) was published in the Official Gazette. Under
this law, the previously approved gradual decrease in the corporate tax rate was cancelled. The Corporate tax rate was increased
from 24% in 2011, to 25% beginning in 2012.



On August 5, 2013, the Law
for Change of National Priorities (Legislative Amendments for Achieving the Budgetary Goals for 2013-2014), 2013 (hereinafter,
the "Law") was published in Reshumot (the Israeli government official gazette), and enacts, among other things, the following
amendments:



| | 1. | Raising the corporate tax rate beginning in 2014 and thereafter to 26.5% (instead of 25%).
| | -- | ------------------------------------------------------------------------------------------



| | 2. | Increasing the tax rate on the income of preferred enterprises from the 2014 tax year and thereafter,
as stated in the Encouragement of Capital Investment Law, 1959 (hereinafter - the Encouragement Law) of a qualifying company in
Development Zone A to 9% (instead of 7% in 2014 and 6% in 2015 and thereafter) and companies located in zones other than Zone A
to 16% (instead of 12.5% in 2014 and 12% in 2015 and thereafter). In addition, the tax rate on dividends distributed on January
1, 2014 and thereafter originating from preferred income under the Encouragement Law will be raised to 20% (instead of 15%).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | When a company distributes revaluation gains to its shareholders, the asset for which revaluation
gains are recognized in the financial statements of the company is deemed as an asset that was sold on distribution day (notional
sale) and therefore such revaluation gains are liable to tax. Revaluation gains are defined by the Law as retained earnings not
subject to corporate tax, of the kind indicated by the Minister of Finance with approval of the Finance Committee of the Knesset,
at over NIS 1 million to be calculated accumulatively from the date of acquiring the asset.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Taxation
in Germany



InspireMD GmbH
is taxed according to the tax laws in Germany. Accordingly, the applicable tax rates are corporate tax rate of 15.825% and trade
tax rate of 17.15%.



| | b. | Tax benefits under the
Law for the Encouragement of Capital Investments, 1959 (the “Law”):
| | -- | ------------------------------------------------------------------------------------------



| | 1. | InspireMD Ltd. has been
granted a “Beneficiary Enterprises” status under the Investment Law including Amendment No. 60 thereof, which became
effective in April 2005.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



The tax benefits derived from
any such Beneficiary Enterprise relate only to taxable profits attributable to the specific program of investment to which the
status was granted.



F-43







The main benefit, to which
InspireMD Ltd. is entitled, conditional upon the fulfilling of certain conditions stipulated by the above law, is a two-year exemption
and five years of a reduced tax rate of 25% from tax on income derived from their beneficiary activities in facilities in Israel.
The tax benefit period is twelve years from the years of implementation. The Company elected the year 2007, as the year of election,
and 2011 as an additional year of election, with the twelve year period of benefits beginning in 2011.



In the event of a distribution
of tax-exempt income attributable to "Beneficiary Enterprises" as a cash dividend, the Company will be required to pay
tax at a rate of 25% on the amount distributed. In addition, dividends originating from income attributable to the "Beneficiary
Enterprises" will be subject to a 15% withholding tax.



Should InspireMD Ltd. derive
income from sources other than the “Beneficiary Enterprises” during the period of benefits, such income shall be taxable
at the regular corporate tax rate.



| | 2. | Conditions for entitlement
to the benefits
| | -- | ------------------------------------------



The entitlement
to the above benefits is conditional upon InspireMD Ltd. fulfilling the conditions stipulated by the law, regulations published
thereunder and the instruments of approval for the specific investments in approved assets. In the event of failure to comply with
these conditions, the benefits may be cancelled and InspireMD Ltd. may be required to refund the amount of the benefits, in whole
or in part, with the addition of interest.



The Israeli
Law for Encouragement of Capital Investments, 1959 was amended as part of the Economic Policy Law for the years 2011-2012, which
was passed in the Knesset (the Israeli parliament) on December 29, 2010. The amendment became effective as of January 1, 2011.



The amendment
set alternative benefit tracks to the ones then in place, as follows: (i) an investment grants track designed for enterprises located
in national development zone A and (ii) two new tax benefits tracks (for preferred enterprises and for special preferred enterprises),
which provide for application of a unified tax rate to all preferred income of the company, as defined in the amendment.



The Company
opted not to apply for Preferred Enterprise status.



| | c. | Carry forward tax losses
| | -- | ------------------------



As of December
31, 2013, InspireMD Ltd. had a net carry forward tax loss of approximately $35 million. Under Israeli tax laws, the carry forward
tax losses can be utilized indefinitely. As of December 31, 2013, the Company had a net carry forward tax loss of approximately
$20 million. Under U.S. tax laws, the Company’s tax losses can be utilized two years back and twenty years forward. As such
the Company's carry forward tax losses will begin to expire on December 31, 2031.



F-44







| | d. | Tax assessments
| | -- | ---------------



The Company
and its subsidiaries have not been assessed for tax purposes since incorporation.



| | e. | Loss before income taxes
| | -- | ------------------------



The components of loss before income
taxes are as follows:



|                                       |  | 6 month period ended |        |   | Year ended June 30, |  
|-------------------------------------- |  | -------------------- | ------ | - | ------------------- | -
|                                       |  | December 31, 2013    |        |   | 2013                |  
|                                       |  | ($ in thousands)     |       
|Profit (loss)  before taxes on income: |  |                      |        |   |                     |  
|InspireMD, Inc.                        |  | $                    | (2,632 | ) |                     | $
|InspireMD Ltd.                         |  |                      | (6,698 | ) |                     |  
|InspireMD GmbH                         |  |                      | 4      |   |                     |  
|                                       |  | $                    | (9,326 | ) |                     | $



Current taxes on income



Tax expenses in the amount of
approximately $10,000 for the six month period ended December 31, 2013 and approximately $8,000 and $14,000 for the years ended
June 30, 2013 and 2012, respectively, are related to non-U.S. operations.



The following
is a reconciliation of the theoretical tax expense, assuming all income was taxed at the regular tax rates applicable to the Company
in the U.S. and the actual tax expense:



|                                                                                                                                               |  | 6 month period ended |        |   | Year ended June 30, |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | - | ------------------- | -
|                                                                                                                                               |  | December 31, 2013    |        |   | 2013                |  
|                                                                                                                                               |  | ($ in thousands)     |       
|                                                                                                                                               |  |                      |        |   |                     |  
|Loss before taxes on income, as reported in the statements of operations                                                                       |  | $                    | 9,326  |   |                     | $
|Theoretical tax benefit                                                                                                                        |  |                      | (3,171 | ) |                     |  
|Increase in tax benefit resulting from permanent  differences                                                                                  |  |                      | 164    |   |                     |  
|Increase (decrease) in taxes on income resulting from the computation of deferred taxes at a rate which is different from the theoretical rate |  |                      | (171   | ) |                     |  
|Increase (decrease) in uncertain tax positions - net                                                                                           |  |                      | -      |   |                     |  
|Decrease in theoretical tax benefit resulting from subsidiaries different tax rate                                                             |  |                      | (14    | ) |                     |  
|Change in corporate tax rates                                                                                                                  |  |                      | (121   | ) |                     |  
|Change in valuation allowance                                                                                                                  |  |                      | 3,323  |   |                     |  
|                                                                                                                                               |  | $                    | 10     |   |                     | $



F-45







As of December
31, 2013, as well as June 30, 2013 and 2012, the Company determined that it was more likely than not that the benefit of the operating
losses would not be realized and consequently, management concluded that full valuation allowances should be established regarding
the Company’s deferred tax assets.



The changes
in the valuation allowance for the six month period ended December 31, 2013 and the years ended June 30, 2013 and 2012 were as
follows:



|                                     |  | 6 month period ended |        |  | Year ended June 30, |  
|------------------------------------ |  | -------------------- | ------ |  | ------------------- | -
|                                     |  | December 31, 2013    |        |  | 2013                |  
|                                     |  | ($ in thousands)     |       
|Balance at the beginning of the year |  | $                    | 16,246 |  |                     | $
|Changes during the year              |  |                      | 3,323  |  |                     |  
|Balance at the end of the year       |  | $                    | 19,569 |  |                     | $



| | f. | Accounting for Uncertain Tax position
| | -- | -------------------------------------



The following
is a reconciliation of the total amounts of the Company’s unrecognized tax benefits during the six month period ended December
31, 2013, as well as the years ended June 30, 2013 and 2012:



|                                                                                             |  | 6 month period ended |   |  | Year ended June 30, |  
|-------------------------------------------------------------------------------------------- |  | -------------------- | - |  | ------------------- | -
|                                                                                             |  | December 31, 2013    |   |  | 2013                |  
|                                                                                             |  | ($ in thousands)     |  
|Balance at beginning of period                                                               |  | $                    | - |  |                     | $
|Decrease in unrecognized tax benefits as a result of tax positions taken during a prior year |  |                      |   |  |                     |  
|Balance at end of period                                                                     |  | $                    | - |  |                     | $



All of the above
amounts of unrecognized tax benefits would affect the effective tax rate if recognized.



A summary of
open tax years by major jurisdiction is presented below:



|Jurisdiction |  | Years    
|------------ |  | ---------
|U.S.         |  | 2008-2013
|Israel       |  | 2010-2013
|Germany      |  | 2008-2013



F-46







| |  | The Company and its subsidiaries changed its fiscal year for tax fillings in Israel to end December
31, 2013.
| |  | -------------------------------------------------------------------------------------------------------------



| | g. | Deferred income tax:
| | -- | --------------------



|                                          |  | 6 month period ended |         |   | Year ended June 30, |  
|----------------------------------------- |  | -------------------- | ------- | - | ------------------- | -
|                                          |  | December 31, 2013    |         |   | 2013                |  
|                                          |  | ($ in thousands)     |        
|Short-term:                               |  |                      |         |   |                     |  
|Allowance for doubtful accounts           |  | $                    | 107     |   |                     | $
|Provision for bonus                       |  |                      |         |   |                     |  
|Provision for vacation and recreation pay |  |                      | 85      |   |                     |  
|                                          |  |                      | 192     |   |                     |  
|Long-term:                                |  |                      |         |   |                     |  
|R&D expenses                              |  |                      | 1,085   |   |                     |  
|Beneficial conversion feature             |  |                      |         |   |                     |  
|Non cash issuance costs                   |  |                      |         |   |                     |  
|Share-based compensation                  |  |                      | 2,137   |   |                     |  
|Carry forward tax losses                  |  |                      | 16,111  |   |                     |  
|Accrued severance pay, net                |  |                      | 44      |   |                     |  
|                                          |  |                      | 19,377  |   |                     |  
|Less-valuation allowance                  |  |                      | (19,569 | ) |                     |  
|                                          |  | $                    | -       |   |                     | $



NOTE 11 - SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION



Balance sheets:



| | a. | Accounts receivable:
| | -- | --------------------



|                                 |  | 6 month period ended |       |   | Year Ended June 30, |  
|-------------------------------- |  | -------------------- | ----- | - | ------------------- | -
|                                 |  | December 31, 2013    |       |   | 2013                |  
|                                 |  | ($ in thousands)     |      
|1)   Trade:                      |  |                      |       |   |                     |  
|Open accounts                    |  | $                    | 2,260 |   |                     | $
|Allowance for doubtful accounts  |  |                      | (405  | ) |                     |  
|                                 |  | $                    | 1,855 |   |                     | $
|2)   Other:                      |  |                      |       |   |                     |  
|Due from government institutions |  | $                    | 221   |   |                     | $
|Advance payments to suppliers    |  |                      | 152   |   |                     |  
|Miscellaneous                    |  |                      | 14    |   |                     |  
|                                 |  | $                    | 387   |   |                     | $



F-47







The changes
in “Allowance for doubtful accounts” during the six month period ended December 31, 2013, as well as the years ended
June 30, 2013 and 2012 are as follows:



|                               |  | 6 month period ended |     |  | Year ended June 30, |  
|------------------------------ |  | -------------------- | --- |  | ------------------- | -
|                               |  | December 31, 2013    |     |  | 2013                |  
|                               |  | ($ in thousands)     |    
|Balance at beginning of period |  | $                    | 329 |  |                     | $
|Additions during the period    |  |                      | 58  |  |                     |  
|Deductions during the period   |  |                      |     |  |                     |  
|Exchange rate differences      |  |                      | 18  |  |                     |  
|Balance at end of period       |  | $                    | 405 |  |                     | $



| | b. | Inventories:
| | -- | ------------



|                           |  | 6 month period ended |       |  | Year ended June 30, |  
|-------------------------- |  | -------------------- | ----- |  | ------------------- | -
|                           |  | December 31, 2013    |       |  | 2013                |  
|                           |  | ($ in thousands)     |      
|Finished goods             |  | $                    | 1,097 |  |                     | $
|Work in process            |  |                      | 341   |  |                     |  
|Raw materials and supplies |  |                      | 155   |  |                     |  
|                           |  | $                    | 1,593 |  |                     | $



As of December
31, 2013, as well as June 30, 2013 and 2012 the Company recorded provisions for slow moving inventory in the amounts of $418,000,
$379,000 and $443,000, respectively.



| | c. | Inventory on consignment
| | -- | ------------------------



The changes in inventory on consignment
during the six month period ended December 31, 2013, as well as the years ended June 30, 2013 and 2012 are as follows:



|                                               |  | 6 month period ended, |   |  | Year ended June 30, |  
|---------------------------------------------- |  | --------------------- | - |  | ------------------- | -
|                                               |  | December 31, 2013     |   |  | 2013                |  
|                                               |  | ($ in thousands)      |  
|Balance at beginning of period                 |  | $                     | - |  |                     | $
|Costs of revenues deferred during the period   |  |                       |   |  |                     |  
|Costs of revenues recognized during the period |  |                       |   |  |                     |  
|Balance at end of period                       |  | $                     | - |  |                     | $



As of June 30,
2012, inventory on consignment included products of sales for which returns were reliably estimated in the amount of approximately
$63,000. As of December 31, 2013 and June 30, 2013, there was no inventory on consignment.



F-48







| | d. | Accounts payable and accruals-other:
| | -- | ------------------------------------



|                                    |  | 6 month period ended |       |  | Year ended June 30, |  
|----------------------------------- |  | -------------------- | ----- |  | ------------------- | -
|                                    |  | December 31, 2013    |       |  | 2013                |  
|                                    |  | ($ in thousands)     |      
|Employees and employee institutions |  | $                    | 1,133 |  |                     | $
|Accrued vacation and recreation pay |  |                      | 325   |  |                     |  
|Accrued clinical trials expenses    |  |                      | 622   |  |                     |  
|Provision for sales commissions     |  |                      | 139   |  |                     |  
|Accrued expenses                    |  |                      | 886   |  |                     |  
|Due to government institutions      |  |                      | 7     |  |                     |  
|Provision for returns               |  |                      |       |  |                     |  
|Taxes payable                       |  |                      | 29    |  |                     |  
|                                    |  | $                    | 3,141 |  |                     | $



Statements of Operation:



| | f. | Financial expenses, net:
| | -- | ------------------------



|                                                                                |  | 6 month period ended |     |   | Year ended June 30, |  
|------------------------------------------------------------------------------- |  | -------------------- | --- | - | ------------------- | -
|                                                                                |  | December 31, 2013    |     |   | 2013                |  
|                                                                                |  | ($ in thousands)     |    
|Bank commissions                                                                |  | $                    | 27  |   |                     | $
|Interest income                                                                 |  |                      | (2  | ) |                     |  
|Exchange rate differences                                                       |  |                      | 1   |   |                     |  
|Induced conversion of convertible debt                                          |  |                      |     |   |                     |  
|Issuance of warrants                                                            |  |                      |     |   |                     |  
|Interest expense (including debt issuance costs)                                |  |                      | 273 |   |                     |  
|Change in fair value of warrants, embedded derivatives and anti-dilution rights |  |                      | 200 |   |                     |  
|                                                                                |  | $                    | 499 |   |                     | $



NOTE 12 - ENTITY
WIDE DISCLOSURES



The Company
operates in one operating segment.



F-49







Disaggregated
financial data is provided below as follows:



(1) Revenues
by geographic area and

(2) Revenues
from principal customers.



Revenues are
attributed to geographic areas based on the location of the customers. The following is a summary of revenues by geographic areas:



|       |  | 6 month period ended |       |  | Year ended June 30, |  
|------ |  | -------------------- | ----- |  | ------------------- | -
|       |  | December 31, 2013    |       |  | 2013                |  
|       |  | ($ in thousands)     |      
|Russia |  | $                    | 759   |  |                     | $
|Spain  |  |                      | 367   |  |                     |  
|Other  |  |                      | 1,979 |  |                     |  
|       |  | $                    | 3,105 |  |                     | $



By principal
customers:



|           |  | 6 month period ended, |    |   | Year ended June 30, | 
|---------- |  | --------------------- | -- | - | ------------------- | 
|           |  | December 31, 2013     |    |   | 2013                | 
|Customer A |  |                       | 24 | % |                     | 
|Customer B |  |                       | 12 | % |                     | 



| |  | All tangible long lived assets are located in Israel.
| |  | -----------------------------------------------------



NOTE 13 –
TRANSITION PERIOD COMPARATIVE DATA



|                                                                                                                                                              |  | 6 month period ended December 31, |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----------
|                                                                                                                                                              |  | 2013                              |           
|                                                                                                                                                              |  | (audited)                         |           
|                                                                                                                                                              |  | ($ in thousands)                  |           
|Operating Data:                                                                                                                                               |  |                                   |           
|Revenues                                                                                                                                                      |  | $                                 | 3,105     
|Cost of Revenues                                                                                                                                              |  |                                   | 1,442     
|Gross Profit                                                                                                                                                  |  |                                   | 1,663     
|Operating Expenses:                                                                                                                                           |  |                                   |           
|Royalties buyout expenses                                                                                                                                     |  |                                   |           
|Other research and development expenses                                                                                                                       |  |                                   | 3,315     
|Selling and marketing                                                                                                                                         |  |                                   | 2,647     
|General and administrative (including $1,417 and $1,213 of share-based compensation for the six month periods ended December 31, 2013 and 2012, respectively) |  |                                   | 4,528     
|Total operating expenses                                                                                                                                      |  |                                   | 10,490    
|Loss from operations                                                                                                                                          |  |                                   | (8,827    
|Interest expense                                                                                                                                              |  |                                   | 273       
|Other financial expenses, net                                                                                                                                 |  |                                   | 226       
|Loss before tax expenses                                                                                                                                      |  |                                   | (9,326    
|Tax expenses                                                                                                                                                  |  |                                   | 10        
|Net loss                                                                                                                                                      |  |                                   | (9,336    
|Net loss per share - basic and diluted                                                                                                                        |  | $                                 | (0.27     
|Weighted Average number of ordinary shares used in computing net loss per share - basic and diluted                                                           |  |                                   | 33,963,901
|Cash Flow Data:                                                                                                                                               |  |                                   |           
|Net cash used by operating activities                                                                                                                         |  |                                   | (6,799    
|Net cash used by investing activities                                                                                                                         |  |                                   | (252      
|Net cash provided by financing activities                                                                                                                     |  |                                   | 9,763     
|Effect of exchange rate changes on cash and cash equivalents                                                                                                  |  |                                   | 3         
|Net increase (decrease) in cash and cash equivalents                                                                                                          |  |                                   | 2,715     



F-50







NOTE 14 - SUBSEQUENT
EVENTS:



In January
and February 2014, the Company granted options to purchase 1,246,932 shares of the Company’s commons stock as well as 425,240
restricted shares to certain employees and directors.



F-51