UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



FORM 10-K/A



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



For the fiscal year ended:



OR



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



For the transition period from January 1,
2012 to June 30, 2012



COMMISSION FILE NUMBER: 000-54335



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)
|                                                                       |                                        
|4 Menorat Hamaor St.
        Tel Aviv, Israel                          | 67448                                  
|(Address of principal executive offices)                               | (Zip Code)                             



Registrant’s telephone number, including
area code:972-3-691-7691



Securities registered pursuant to Section
12(b) of the Act:  None



Securities registered
pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value










Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £  No
R



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 £  No
R



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. Yes R No £



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). Yes R No £



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



Indicate by check mark whether the registrant
is a shell company (as defined by Rule 12b-2 of the Act). Yes £  No
R



The aggregate market value of the voting
and non-voting stock held by non-affiliates of the registrant as of June 30, 2012, based on the price at which the common equity
was last sold on the OTC Bulletin Board on such date, was approximately $42,036,000. 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 September 1, 2012
|------------------------------- |  | --------------------------------
|Common Stock, $0.0001 par value |  | 17,070,477                      



Documents incorporated by reference:



None



















Explanatory Note Regarding Amendment
No. 1



This Amendment No. 1 to the
Annual Report on Form 10-KT (“Amendment No. 1”) of InspireMD, Inc. (the “Company”) for the transition
period ended June 30, 2012, is being filed for the purpose of including the results of operations for the twelve month
period ended June 30, 2012, included in  “Part II—Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and audited financial statements for the twelve month period ended
June 30, 2012, filed as Exhibit 99.1 to this Amendment No. 1.



In accordance with Rule 12b-15 under the
Securities and Exchange Act of 1934, the complete text of the items amended by this Amendment No. 1 are set forth herein. This report
speaks as of the original filing date of the Annual Report and has not been updated to reflect events occurring subsequent to the
original reporting date. Accordingly, in conjunction with reading this Amendment No. 1, you should also read all other filings
that we have made with the Securities and Exchange Commission since the date of the original filing. All share numbers in this Amendment No. 1 have been changed to reflect the one-for-four reverse stock
split that was effected by the Company on December 21, 2012.






















TABLE OF CONTENTS



|         |                                                                                                               | Page
|-------- | ------------------------------------------------------------------------------------------------------------- | ----
|         | PART I                                                                                                        |     
|Item 1.  | Business.                                                                                                     | 3   
|Item 1A. | Risk Factors.                                                                                                 | 25  
|Item 1B. | Unresolved Staff Comments.                                                                                    | 40  
|Item 2.  | Properties.                                                                                                   | 41  
|Item 3.  | Legal Proceedings.                                                                                            | 41  
|Item 4.  | Mine Safety Disclosure.                                                                                       | 41  
|         |                                                                                                               |     
|         | PART II                                                                                                       |     
|Item 5.  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 41  
|Item 6.  | Selected Financial Data.                                                                                      | 42  
|Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations.                        | 42  
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.                                                   | 58  
|Item 8.  | Financial Statements and Supplementary Data.                                                                  | 59  
|Item 9.  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                         | 59  
|Item 9A. | Controls and Procedures.                                                                                      | 59  
|Item 9B. | Other Information.                                                                                            | 60  
|         |                                                                                                               |     
|         | PART III                                                                                                      |     
|Item 10. | Directors, Executive Officers and Corporate Governance.                                                       | 60  
|Item 11. | Executive Compensation.                                                                                       | 66  
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.               | 86  
|Item 13. | Certain Relationships and Related Transactions, and Director Independence.                                    | 89  
|Item 14. | Principal Accounting Fees and Services.                                                                       | 89  
|         |                                                                                                               |     
|         | PART IV                                                                                                       |     
|Item 15. | Exhibits and Financial Statement Schedules.                                                                   | 90  



2







PART I



In this Transition Report on Form 10-K/T,
unless the context requires otherwise, all references to “we,” “our” and “us” 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, and references to “we,”
“our” and “us” for periods subsequent to the closing of the share exchange transactions refer to InspireMD,
Inc., a publicly traded Delaware corporation, and its direct and indirect subsidiaries, including InspireMD Ltd.



Item 1.  Business.



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. 12,666,665 shares of common stock
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.

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 7,500,000 shares of our common stock 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 some of the officers and
directors of InspireMD Ltd.



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. This Transition Report on Form 10-K/T
reports our financial results for the six month period from January 1, 2012 through June 30, 2012, 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 June 30 of each year beginning with the twelve month period ended June 30, 2013.

3







Overview



We are a medical device company focusing
on the development and commercialization of our proprietary stent platform technology, MGuardTM.  MGuardTM
provides embolic protection in stenting procedures by placing a micron mesh sleeve over a stent (see photograph below of an MGuardTM
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 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 MGuardTM is a simple
and seamless solution for these patients.  For the six months ended June 30, 2012, our total revenue was approximately
$2.1 million and our net loss was approximately $7.1 million.



MGuardTM Sleeve – Microscopic
View







We intend to study our MGuardTM technology
for use in a broad range of coronary related situations in which complex lesions are required 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 MGuardTM 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 MGuardTM 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 MGuardTM products incorporated
a stainless steel stent. We replaced this stainless steel platform with a more advanced cobalt-chromium based platform, which
we refer to as MGuard PrimeTM. 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.



4







MGuard PrimeTM 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 MGuardTM’s clinical trial results to market MGuard PrimeTM. However, we
face a number of challenges to the further growth of MGuardTM. 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 is  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 MGuardTM stent 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 MGuardTM stent 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 MGuardTM 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 Transition Report on Form
10-K/T, references to MGuardTM are to both our initial product, MGuardTM, and MGuard PrimeTM, as
applicable.



Our principal executive offices are located
at 4 Menorat Hamaor St., Tel Aviv, Israel 67448.  Our telephone number is 972-3-691-7691.  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 13. Entity Wide Disclosures.”



Our Industry



According to Fact Sheet No. 310/June 2011
of the World Health Organization, approximately 7.3 million people worldwide died of coronary heart disease in 2008. 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 January 3, 2011 2011
MEDTECH OUTLOOK produced by the Bank of Montreal Investment Banking Group, known as BMO Capital Markets, after registering a
compounded annual growth rate from 2002 to 2009 of approximately 13%, revenues from the global coronary stent market is
predicted to remain relatively constant, 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 January 3,
2011 2011 MEDTECH OUTLOOK produced by the BMO (Bank of Montreal) Investment Banking Group, the percutaneous coronary intervention
procedures involving stents are increasingly being used to treat coronary artery diseases with an 88.3% penetration rate in 2009.



Our Products



The MGuardTM 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.



MGuardTM 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | it 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
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



MGuardTM
– Coronary Applications



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



6







MGuardTM Coronary and MGuard
PrimeTM with a bio-stable mesh.Our first MGuardTM product, the MGuardTM Coronary
with a bio-stable mesh, is comprised of our mesh sleeve wrapped around a bare-metal stent.  It received CE Mark approval
in October 2007 and, in January 2008, we started shipping this product to customers and distributors in Europe.  MGuard
PrimeTM with a bio-stable mesh is comprised of our mesh sleeve wrapped around a cobalt-chromium stent.  In comparison
to a conventional bare-metal stent, we believe the MGuardTM Coronary and MGuard PrimeTM with a bio-stable mesh
provide protection from embolic showers. Results of clinical trials on the MGuardTM Coronary stent, including the MAGICAL,
PISCIONE and MGuard international registry (iMOS) clinical trials described below (see “Business – Product Development
and Critical Milestones - 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, as explained below (see “Business
– Product Development and Critical Milestones - Comparison of Clinical Trial Results to Date with Results Achieved Using
Bare Metal or Drug-Eluting Stents in the STEMI population” below).  The results of these clinical trials for the
MGuardTM Coronary stent suggest higher levels of myocardial blush grade 3 (occurrence in 73% of patients in the MAGICAL
study and 90% of patients in the PISCIONE study, for the MGuardTM Coronary stent) and lower rates of 30 day and 1 year
major adverse cardiac event rates, (2.4% and 5.9%, respectively, for the MGuardTM Coronary stent), as compared to the
levels and rates of other bare-metal and drug-eluting stents, as reported by Svilaas, et. al. (“Thrombus Aspiration during
Primary Percutaneous Coronary Intervention,” New England Journal of Medicine, Volume 358, 2008).  As reported
in the study by Svilaas, et. al., myocardial blush grade 3 occurred in 32.2% of patients with a bare-metal stent and 45.7% 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 a recent HORIZONS-AMI trial demonstrated that 1
year major adverse cardiac event rates were 10.9% for patients with drug eluting stents.  Myocardial blush grade refers
to a 0-3 grade scale given to the adequacy of perfusion and blood flow through an area served by a coronary artery; the longer
the blush persists, the poorer the blood flow and the lower the myocardial blush grade.  Ndrepepa, et. al. (“5-Year
Prognostic Value of No-Reflow Phenomenon After Percutaneous Coronary Intervention in Patients With Acute Myocardial Infarction,”
Journal of the American College of Cardiology, Volume 55, Issue 21, 2010) reported that high myocardial blush grades correlate
with higher survival rates among affected patients.  Sustained performance by the MGuardTM Coronary stent
with respect to contributing to higher levels of myocardial blush grade 3 and lower rates of 30 day and 1 year major adverse cardiac
event rates would differentiate the MGuardTM Coronary stent from other bare-metal and drug-eluting stents that do not
offer such benefits.



MGuardTM Coronary with
a drug eluting bio-absorbable mesh.  Based upon the clinical profile of MGuardTM Coronary, we anticipate
that the MGuardTM Coronary with a drug-eluting bio-absorbable mesh will offer both the comparable myocardial blush grade
3 levels and 30-day and 1-year major adverse cardiac event rates as the MGuardTM 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.  The bio-absorbability of MGuardTM 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 MGuardTM 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.  MGuardTM
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.  In addition, we believe
bio-absorbable drug-eluting mesh may enable the use of more effective drug therapies that presently cannot be effectively coated
on a metal-based stent due to their poor diffusion capabilities.  Because the drug-eluting bio-absorbable mesh will be
bio-absorbable, we anticipate that the mesh will completely dissolve after four months, which we expect will result in fewer of
the chronic long term side effects that are associated with the presence of the drug.



MGuardTM – 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 believe that our MGuardTM 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. We intend that the embolic protection will result from the mesh sleeve, as it traps emboli at their source.  In
addition, we believe that MGuardTM 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.  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.



7







MGuardTM – 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.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.



The Peripheral Artery Disease market consists
of three segments: Aortic Aneurysm, Renal, Iliac and Bilary and Femoral-Popliteal procedures.  Aortic Aneurysm is a condition
in which the aorta, the artery that leads away from the heart, develops a bulge and is likely to burst.  This condition
often occurs below the kidneys, in the abdomen.  Renal, Iliac and Bilary procedures refer to stenting in the kidney,
iliac arteries (which supply blood to the legs) and liver, respectively.  Femoral-Popliteal procedures involve stenting
in vessels in the legs.



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 MGuardTM 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, “Q” stands for our fiscal
quarter.  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 a timetable to seek U.S. Food and Drug Administration approval for our MGuardTM
Coronary plus 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 U.S. Food and Drug Administration trial 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          |  | Start 
    Development |  | CE Mark          |  | European 
    Union Sales |  | FDA 
    Approval |  | U.S. Sales      
|------------------------------------------------------ |  | ------------------- |  | ---------------------- |  | ---------------- |  | ------------------------- |  | ----------------- |  | ----------------
|MGuardTM Coronary Plus Bio-Stable Mesh                  |  | Bypass/ Coronary    |  | 2005                   |  | Oct. 2007        |  | Q1-2008                   |  | Q4-2015           |  | 2016            
|                                                       |  |                     |  |                        |  |                  |  |                           |  |                   |  |                 
|MGuardTM Peripheral Plus Bio-Stable Mesh                |  | Peripheral Arteries |  | Q1-2011                |  | Q4-2012          |  | To be determined          |  | To be determined  |  | To be determined
|                                                       |  |                     |  |                        |  |                  |  |                           |  |                   |  |                 
|MGuardTM Carotid Plus Bio-Stable Mesh                   |  | Carotid Arteries    |  | Q1-2011                |  | Q4-2012          |  | To be determined          |  | To be determined  |  | To be determined
|                                                       |  |                     |  |                        |  |                  |  |                           |  |                   |  |                 
|MGuardTM 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 MGuardTM Carotid
Plus Bio-Stable Mesh, we have determined that the expected commencement of sales in the European Union can not be accurately
predicted since we have delayed the development of this product until additional funding for its
development is secured.



8









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



Pre-Clinical Studies



We performed laboratory and animal testing
prior to submitting an application for CE Mark approval for our MGuardTM Coronary with bio-stable mesh.  We
also performed all CE Mark required mechanical testing of the stent.  We conducted pre-clinical animal trials at Harvard
and MIT Biomedical Engineering Center BSET lab in July 2006 and August 2007.  In these animal trials, on average, the
performance of the MGuardTM 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
|------------------------------------------------------------------- | --------------------------------------------- | ---------------------------------------- | -------------------- | -----------------
|MGuardTM Coronary                                                    | Bare-Metal Stent Plus Bio-Stable
        Mesh | CE Mark (European Union + Rest of World) | Q4-2006              | Q3-2007          
|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                                           | Q2-2011                                  | Q4-2015             
|MGuardTM Peripheral/Carotid                                          | Self
    Expending System Plus Mesh           | CE Mark (European Union + Rest of World) | N/A                  | N/A              
|MGuardTM Carotid                                                     | Self
    Expending System Plus Mesh           | FDA (U.S.)                               | To
    be determined



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



With respect to the preclinical studies
for MGuard Peripheral/Carotid, the start of study of the Self Expending System Plus Mesh trial has been delayed from our previously
announced target due to a delay in our receipt of anticipated funding.



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











|Product                                                                                                       | Stent
        Platform                        | Clinical
        Trial Sites                                                                                                                                                             | Follow-up Requirement                                                                                                 | Objective                                                                  | Study
    Status
|------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------
|No. of Patients                                                                                               | Start Enrollment                              | End
        Enrollment                                                                                                                                                                   | End of Study                                                                                                         
|MGuardTM
    Coronary                                                                                          | Bare-Metal Stent Plus Bio-Stable
        Mesh | Germany
    – two sites                                                                                                                                                                  | 12 months                                                                                                             | Study to
        evaluate safety and
        performance of MGuardTM system | 41              
|Brazil – one site                                                                                             | 12 months                                     | 30                                                                                                                                                                                       | Q4-2007                                                                                                               | Q1-2008                                                                    | Q2-2009         
|Poland – four sites                                                                                           | 6 months                                      | 60                                                                                                                                                                                       | Q2-2008                                                                                                               | Q3-2008                                                                    | Q2-2009         
|International MGuardTM Observational Study
    - worldwide - 50 sites                                          | 12 months                                     | 1,000                                                                                                                                                                                    | Q1-2008                                                                                                               | Q4-2013                                                                    | Q4-2013         
|Israeli MGuardTM Observational Study -
    Israel - 8 sites                                                    | 6 months                                      | 100                                                                                                                                                                                      | Q2-2008                                                                                                               | Q3-2011                                                                    | Q3-2012         
|Master randomized control trial -
        9 countries, 50 centers in South America, Europe
        and Israel | 12 months                                     | 433                                                                                                                                                                                      | Q2-2011                                                                                                               | Q2-2012                                                                    | Q2-2013         
|Brazil – 25 sites                                                                                             | 12 months                                     | 500                                                                                                                                                                                      | Q3-2010                                                                                                               | To be determined                                                           | To be determined
|FDA Study - 40 sites, U.S. and out of U.S.                                                                    | 12 months                                     | Pilot
                                                                               study to
        evaluate safety and
        performance of
        MGuardTM system for FDA approval | 975                                                                                                                   | Q4-2012                                                                    | Q2-2014         
|Drug-Eluting
    Stent (Bare-Metal Stent + Drug Eluting Mesh)                                                 | South America
        and Europe – 10 sites   | 8-12 months                                                                                                                                                                              | Pilot study to
        evaluate safety and
        performance of
        MGuardTM system for FDA and CE Mark approval | 500                                                                        | To be determined
|U.S. – 50 sites                                                                                               | 12 months                                     | 2,000                                                                                                                                                                                    | To be determined                                                                                                      | To be determined                                                           | To be determined
|Rest of World as a
        registry study                                                                     | 8-12 months                                   | Evaluation of safety
        and efficacy  for specific indications                                                                                                                      | 400                                                                                                                   | To be determined                                                           | To be determined





10







|                    |                              |                                       |                       |                                                                                                               | Study
    Status
|------------------- | ---------------------------- | ------------------------------------- | --------------------- | ------------------------------------------------------------------------------------------------------------- | ----------------
|Product             | Stent
        Platform       | Clinical
        Trial Sites          | Follow-up Requirement | Objective                                                                                                     | No. of Patients 
|MGuardTM  Peripheral | Self Expanding System + Mesh | South America and Europe – four sites | 12 months             | Pilot study to
        evaluate safety and
        performance of MGuardTM system for
        CE Mark approval | 50              
|MGuardTM Carotid     | Self Expanding System + Mesh | Rest of World as a registry study     | 9 months              | Evaluation of safety and
    efficacy for specific indications post-marketing                                 | 150             





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 MGuardTM Coronary clinical
trials for the drug-eluting stent have been delayed from our previously announced target due to a delay in our receipt of anticipated
funding.



With respect to the MGuardTM
Peripheral clinical trial for the self expanding system + mesh, the start date has been delayed from our previously announced start
date due to a delay in our receipt of anticipated funding.



With respect to the MGuardTM
Carotid clinical trial for the self expanding system + 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 MGuardTM
Coronary Bare-Metal Stent Plus Bio-Stable Mesh



As shown in the table above, we have completed
five clinical trials with respect to our MGuardTM 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 MGuardTM 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
(2.5% of participants) had major 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 MGuardTM’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 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). There were no major cardiac events
at the time of the follow-up 30 days after the deployment of the stents.



11







The study 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 MGuardTM 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 restoration
of electrocardiogram normality was achieved in 61% of patients. The total major adverse cardiac events rate during the six-month
period following the deployment of the stents was 0% and after a three-year period was 10.5%.



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



Our ongoing observation study in
Europe is an open registry launched in the first fiscal quarter of 2009.  This registry is expected to enroll up to
1,000 patients and is aimed at evaluating the performance of MGuardTM Coronary with bio-stable mesh in a “real
world” population. To date, the primary countries to join are Austria, Czech Republic and Hungary. The primary endpoint
that this registry will evaluate is the occurrence of major adverse cardiac events at six months following deployment of the
stent, and the clinical follow-up will continue for a period of up to one year per patient. As of September 1, 2012, 550
patients of the prospective 1,000 have been enrolled in 28 sites.



Our ongoing observational study in
Israel is an open registry launched in the fourth fiscal quarter of 2009.  This registry is expected to enroll up
to 100 patients.  The purpose of this study is to support local Israeli regulatory approval. The primary endpoint
that this registry will evaluate is the occurrence of major adverse cardiac events at 30 days following deployment of the
stent, and the clinical follow-up will be conducted at six months following deployment of the stent. As September 1, 2012, 86
patients of the prospective 100 have been enrolled.



In the third fiscal 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 September 1, 2012, 24
patients of the prospective 500 have been enrolled.





In the second quarter of 2011, we began the MGuard for Acute
ST Elevation Reperfusion Trial (MASTER Trial), a prospective, randomized study in Europe, South America and Israel to compare the
MGuardTM stent with commercially-approved bare-metal and drug-eluting stents in achieving better myocardial reperfusion (the
restoration of blood flow) in primary angioplasty for the treatment of acute STEMI. The MASTER Trial enrolled 433 subjects, 50%
of whom were treated with an MGuardTM stent and 50% of whom were treated with a commercially-approved bare-metal or drug-eluting
stent. The study was designed to evaluate the MGuardTM embolic protection stent compared to commercially-approved bare metal
or drug-eluting stents in heart attack patients undergoing primary percutaneous coronary intervention. On August 17, 2012, we were
advised that initial indications showed a positive result for the MASTER Trial. We expect detailed results of the study will be
released in October 2012.





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



We conducted a meta-analysis of data from
four clinical trials in which MGuardTM 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



12







| | · | 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Horizons-AMI (Harmonizing Outcomes with RevascularIZatiON and Stents in Acute MI), which is the largest randomized trial which compared DES to BMS in MI patients, as reported in “Paclitaxel-Eluting Stents Versus Bare-Metal Stents in Acute Myocardial Infarction” in New England Journal of Medicine, 2009;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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The meta analysis of MGuardTM
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 MGuardTM (88.5% and 91.7%, respectively), while the rates of myocardial blush
grade score 3 (37.3% for the historical control and 81.6% for MGuardTM) and ST segment resolution>70% (53.6% for
the historical control and 79.1% for MGuardTM) are statistically significantly better with the MGuardTM.
MGuardTM also appears consistently superior at the 30 days major adverse cardiac event (8.4% for the historical control
and 2.4% for MGuardTM) and 1 year major adverse cardiac event (13.3% for the historical control and 5.9% for MGuardTM)
endpoints. The data appears in the following tables.



13







|                                            | NAME
    OF STUDY |         
|------------------------------------------- | ----------------- | --------
|                                            | MAGICAL           | PISCIONE
|Number of Patients                          | 60                | 100     
|Thrombolysis in myocardial infarction 0-1,% | 0                 | 0       
|Thrombolysis in myocardial infarction 3,%   | 90                | 85      
|Myocardial blush grade 0-1,%                | 3.3               | 0       
|Myocardial blush grade 3,%                  | 73                | 90      
|ST segment resolution>70%,%                 | 61                | 90      
|ST segment resolution>50%,%                 | 88                | —       
|30 day major adverse cardiac event,%        | 0                 | 2.2     
|6 month major adverse cardiac events,%      | 0                 | 4.5     
|1 year major adverse cardiac events,%       | —                 | 5.6     
|1 year target vessel revascularization      | —                 | 2.3     
|Acute Binary Resteonosis 6M,%               | —                 | —       



|                                                      | THREE YEAR FOLLOW UP STUDIES
        NAME OF STUDY |             
|----------------------------------------------------- | -------------------------------------------------- | ------------
|                                                      | MAGICAL                                            | PISCIONE    
|Number of Patients                                    | 57 out of 60                                       | 89          
|Cardiac death at 3Y                                   | 7%                                                 | 2.2%        
|Non Cardiac death at 3Y                               | 1.8%                                               | 6.8%        
|Re-MI at 3Y                                           | 0%                                                 | 7.9%        
|TLR at 3Y                                             | 1.8%                                               | Not Reported
|TVR at 3Y Include TLR                                 | 3.6%                                               | 4.5%        
|Stroke                                                | 1.8%                                               | Not Reported
|Stent thrombosis Definite / Probable                  | 0%                                                 | 2.2%        
|MACE  (Cardiac death, RE-MI, TLR)                     | 8.8%                                               | 10.1%       
|MACCE  (All death, target vessel MI,
    TVR, Stroke) | 10.5%                                              | Not Reported



|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                      | 49      | 5124
    (total)          | 414
    (total) |                              
|Thrombolysis in
    myocardial infarction 0-1,% | —                     | —                 | —                 | —                       | —       | 3.9     | 2.4    | 1.1     | 0                       | —                       | —       | 2.1                       | 0.6             |                              
|Thrombolysis in
    myocardial infarction 3,%   | 96.9                  | 87.6              | 89.8              | 86                      | 82.5    | 76.9    | 82     | —       | —                       | —                       | —       | 88.5                      | 91.7            |                              
|Myocardial blush
    grade 0-1,%                | 48.7                  | —                 | —                 | 17.1                    | 26.3    | 31.6    | 27.6   | 40.2    | 11.4                    | 32                      | 55.1    | 35.2                      | 1.2             | *                            
|Myocardial blush
    grade 3,%                  | 17.4                  | —                 | —                 | 45.7                    | 32.2    | 25.4    | 35.8   | —       | —                       | —                       | —       | 37.3                      | 81.6            | **                           
|ST segment resolution>70%,%                     | 62                    | —                 | —                 | 56.6                    | 44.2    | —       | —      | 39.1    | 63.6                    | 58                      | 36.7    | 53.6                      | 79.1            |                              
|ST segment resolution>50%,%                     | —                     | —                 | —                 | —                       | —       | 71.9    | 85     | —       | —                       | —                       | —       | 78.2                      | 87.6            |                              
|30 day major adverse
    cardiac event,%        | 4.4                   | —                 | —                 | 6.8                     | 9.4     | —       | —      | —       | —                       | 10                      | 10.2    | 8.4                       | 2.4             | **                           
|6 month major adverse
    cardiac events,%      | 10.2                  | —                 | —                 | —                       | —       | —       | —      | —       | —                       | —                       | —       | 10.2                      | 4.6             |                              
|1 year major adverse
    cardiac events,%       | —                     | 13.1              | 10.9              | 16.6                    | 20.3    | —       | —      | —       | —                       | —                       | —       | 13.3                      | 5.9             | *                            
|Acute Binary Resteonosis
    6 month,%          | 20.8                  | —                 | —                 | —                       | —       | —       | —      | —       | —                       | —                       | —       | 20.8                      | 19.0            |                              
|1 year target vessel
    revascularization      | —                     | 7.4               | 4.6               | 12.9                    | 11.2    | —       | —      | —       | —                       | —                       | —       | —                         | —               |                              
|Acute Binary Resteonosis
    1 year,%           | —                     | 21                | 8.3               | —                       | —       | —       | —      | —       | —                       | —                       | —       | 11.5                      | —               |                              



14







Future Clinical Trials for MGuardTM Coronary



We anticipate that additional studies will
be conducted to meet registration requirements in key countries, particularly the U.S.  We have currently budgeted $13
million for the U.S. Food and Drug Administration trial.  We expect that post-marketing trials will be conducted to further
evaluate the safety and efficacy of the MGuardTM Coronary with bio-stable mesh in specific indications.  These trials
will be designed to facilitate market acceptance and expand the use of the product.





We also plan to conduct a large clinical
study for U.S. Food and Drug Administration approval in the U.S. We expect that this study will be a prospective, multicenter,
randomized clinical trial. Its primary objective will be to compare the safety and the effectiveness of the MGuardTM stent
in the treatment of de novo stenotic lesions in coronary arteries in patients undergoing primary revascularization (a surgical
procedure for the provision of a new, additional, or augmented blood supply to the heart) due to acute myocardial infarction with
the MultiLink Vision stent system from Abbott Vascular. We expect total enrollment of approximately 957 subjects, at up to 60 sites
throughout the U.S. and Europe. The combined primary endpoint of this study is intended to demonstrate the MGuardTM stent’s
superiority in the occurrence of myocardial reperfusion, which measures that blood supply to the heart muscle, and its non-inferiority
in the occurrence of target vessel failure (a composite endpoint of cardiac death, reoccurrence of a heart attack and the need
for a future invasive procedure to correct narrowing of thecoronary artery), as compared to other stents. This study is
expected to start in the fourth quarter of 2012, and the enrollment phase is expected to last 18 months. We expect that subjects
will be followed for 12 months with assessments at 30 days, six months and 12 months, with angiographic subgroup analysis occurring
after the 12th month. This plan is tentative, and is subject to change to conform with U.S. Food and Drug Administration
regulations and requirements.





In other countries outside of the U.S.,
we believe that we generally will be able to rely upon the CE Mark approval of the product, as well as the results of the U.S.
Food and Drug Administration trial and MASTER Trial in order to obtain local approvals.



Planned Trials for future MGuardTM Peripheral
and Carotid Products



As shown in the table at the beginning of
this section, we also plan to conduct clinical trials for our additional products in development in order to obtain approval for
their use.  We anticipate that local distributors in the countries in which such trials will take place will support many
of these studies.



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 MGuardTM Coronary with bio-stable mesh.  We have begun commercialization of MGuardTM Coronary with a bio-stable mesh in Europe, Asia and Latin America through our distributor network and we are aggressively pursuing additional registrations and contracts inother countries such as Russia, Canada, South Korea, Belgium, the Netherlands 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 MGuardTM technology to clinics and interventional cardiologists around the world, and to have fostered brand name recognition and widespread adoption of MGuardTM 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







| | · | Successfully develop the next generation of MGuardTM stents.While we market our MGuardTMCoronary with bio-stable mesh, we intend to develop the MGuardTM Coronary with a drug-eluting mesh.  We are also working on our MGuardTM stents for peripheral and carotid, for which we expect to have CE Mark approval by the fourth quarter of 2012.  In addition, we released our cobalt-chromium version of MGuardTM, MGuard PrimeTM, in 2010, which we anticipate will replace MGuardTM over the next few years.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Continue to leverage MGuardTM 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 secured intellectual property using our unique 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 a 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 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 MGuardTM portfolio of products.We intend to work closely with leading cardiologists to evaluate and ensure the efficacy and safety of our products.  We intend that 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 MGuardTM Coronary stent.  We believe these individuals, once convinced of the MGuardTM 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.  Dr. Gregg W. Stone, director of Cardiovascular Research and Education at the Center for Interventional Vascular Therapy of New York Presbyterian Hospital/Columbia University Medical Center and the co-director of Medical Research and Education at The Cardiovascular Research Foundation is the study chairman for the MASTER Trial.  Dr. Donald Cutlip, Executive Director of Clinical Investigation at the Harvard Clinical Research Institute, will provide scientific leadership of the U.S. Food and Drug Administration trials.  On October 4, 2011, InspireMD Ltd., our wholly-owned subsidiary, entered into a clinical trial services agreement with Harvard Clinical Research Institute, Inc., pursuant to which Harvard Clinical Research Institute, Inc. will conduct a study entitled “MGuard Stent System Clinical Trial in Patients with Acute Myocardial Infarction” on our behalf. We will pay Harvard Clinical Research Institute, Inc. an estimated fee of approximately $13 million for conducting the study, subject to adjustment dependent upon changes in the scope and nature of the study, as well as other costs to be determined by the parties.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Continue to protect and expand our portfolio of patents.Our patents and their protection
    are critical to our success.  We have filed nine separate patents for our MGuardTM technology in
    Canada, China, Europe, Israel, India, South Africa and the U.S.  We believe these patents cover all of our existing
    products, and can be useful for future technology.  We intend to continue patenting new technology as it is developed,
    and to actively pursue any infringement upon our patents.  On October 25, 2011, one of our patent applications,
    U.S. patent application 11/582,354, was issued as U.S. Patent 8,043,323.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As noted above, we previously filed patents
for our MGuardTM technology in China, as part of our intended growth strategy.  However, upon further consideration
of the cost and resources required to achieve 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 MGuardTM technology in China in the future.



16







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 currently 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 January 3, 2011 2011 MEDTECH
OUTLOOK produced by the BMO (Bank of Montreal) Investment Banking Group, the worldwide stent market is dominated by four major
players, with a combined total market share of approximately 96%. Within the bare metal stent market and drug-eluting stent market,
the top four companies have approximately 92% and 98% of the market share, respectively. These four companies are Abbott Laboratories,
Boston Scientific Corporation, Johnson & Johnson 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 MGuardTM 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.



In addition to the challenges from our
competitors, we face challenges related specifically to our products.   None of our products is 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 MGuardTM stent 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
MGuardTM stent based on one or more of these patents.



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 percutaneous coronary intervention (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. A recent 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 (TLR) rate for drug-eluting stent patients was only 4.6%, as compared to 7.4% for patients with bare-metal stents.
However, based on data from over 350 patients across three clinical trials, the TLR rate for MGuardTM was 2.8%. (This
data is comprised of: (i) a TLR 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 TLR rate of 2.3% for a sub-group of 203 STEMI patients from the International MGuardTM
Observational Study; and (iii) a TLR 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).



17







Another challenge facing the MGuardTM
products is that placing the stent at the entrance to large side branches, known as jailing large side branches, is not recommended
with the MGuardTM Coronary stent, because there is 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 June
30, 2012 and the twelve months ended December 31, 2011, 2010 and 2009, we spent approximately $2.6 million, $2.5 million, $1.3
million and $1.3 million, respectively, on research and development.



Sales and Marketing



Sales and Marketing



In October 2007, MGuardTM 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 currently selling our MGuardTM Coronary with a bio-stable mesh in more than 30 countries.



Until U.S. Food and Drug
Administration approval of our MGuardTM Coronary with a bio-stable mesh, which we are targeting for 2015, 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, Greece,
Austria, Hungary, Poland, Slovenia, Czech Republic and Slovakia.



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 increases, we may engage in direct sales in certain geographic markets.



Product Positioning



The MGuardTM 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 MGuardTMCoronary in 2011 was minimal, with total sales in the twelve months ended December 31, 2011 of approximately $6 million
representing less than 1% of the total sales of the acute myocardial infarction solutions market and the market penetration for
the six months ended June 30, 2012 was also minimal, with total sales in the six months ended June 30, 2012 of approximately $2.1
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, MGuardTM, as a superior and cost effective solution to these currently unmet needs of interventional
cardiologists.  We believe our MGuardTM technology is clinically superior to bare-metal stents because it
provides embolic protection during and post-procedure.  We believe our MGuardTM technology is clinically superior
to drug-eluting stents, due to its lower stent thrombosis rate and protection from embolic showers during and post-procedure.



18







In addition to the advantages of the MGuardTM
technology that we believe to exist, the MGuardTM technology maintains the deliverability, crossing profile, and dilatation
pressure of a conventional stent, and interventional cardiologists do not have to undergo extensive 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 MGuardTM
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 MGuardTM 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., once the MGuardTM
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 MGuardTM 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.



Intellectual Property



Patents



We have filed nine patent applications
in the United States (including one that is still in the Patent Cooperation Treaty international phase) covering aspects of MGuardTM
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 patents 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 patents generally cover two parts of our products: the mesh sleeve, with and without
a drug, 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 Africa patent application 2007/10751, was issued as South
Africa patent 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”, China patent application ZL200780046659.9, was issued as China patent ZL200780046659.9. None
of the other patents has been granted to date.  We believe these patents, once issued, will cover all of ourexisting
products and be useful for future technology.  We also believe that the patents we have filed, in particular those covering
the use of a knitted micron-level mesh sleeve over a stent for various indications, would create a significant barrier for another
company seeking to use similar technology.



To date, we are not aware of other companies
that have patent rights 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 as well as general delivery mechanism patents like rapid exchange. 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 would be un-founded, such litigation would divert attention
and resources away from the development of MGuardTM stents.  Other manufacturers 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, an uncertain and costly process.



19







Trademarks



We use the InspireMD and MGuard trademarks.
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.



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.



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 an 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 in the following countries: Italy, Germany, Austria, Czech Republic, Slovakia, France,
Slovenia, Greece, Cyprus, Portugal, Spain, Poland, Hungary, Estonia, Lithuania, Ukraine, United Kingdom, Holland, Russia, Latvia,
Brazil, Chile, Costa Rica, Mexico, Argentina, Colombia, India, Sri Lanka, South Africa, Pakistan, Israel, Uruguay, Venezuela,
Ireland, Belarus and Egypt. 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. 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 for MGuard PrimeTM. 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 intend that the results of the MASTER Trial will satisfy any additional governmental regulatory requirements
in each of the countries where we currently distribute 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.



20







MGuard PrimeTM received CE
Mark approval in the European Union in October 2010 and marketing approval in Israel in September 2011. We are currently
seeking marketing approval for MGuard PrimeTM in Brazil, Malaysia, Mexico, Russia, Serbia, Singapore, Argentina, India,
Sri Lanka, Pakistan, South Korea, Ukraine, Belarus 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 each of the countries in which we are seeking marketing
approval for MGuard PrimeTM accepts the CE Mark as its primary requirement for marketing approval and does not require
any additional tests, each country does require some additional regulatory requirements for marketing approval. More
specifically, for the approval process in Malaysia, we need to submit an application for regulatory approval, which we
anticipate will be granted in three months. For the approval process in Mexico, we need to submit an application for
regulatory approval, which we anticipate will be granted in twelve months. For the approval process in Serbia, we need to
submit an application for regulatory approval, which we anticipate will be granted in four months. For the approval process
in Singapore, we need to submit an application for regulatory approval, which we anticipate will be granted in ten months.
For the approval process in Argentina, we need to submit an application for regulatory approval, which we anticipate will be
granted in approximately twelve months. For the approval process in India, we need to submit an application for regulatory
approval, which we anticipate will be granted in November or December 2012. For the approval process in Sri Lanka, we need to
submit an application for regulatory approval, which we anticipate will be granted in six to twelve months. For the approval
process in Pakistan, we need to submit an application for regulatory approval, which we anticipate will be granted in six to
twelve months. For the approval process in South Korea, we need to submit an application for regulatory approval, which we
anticipate will be granted in two years. For the approval process in Ukraine, we need to submit an application for regulatory
approval, which we anticipate will be granted in six months. For the approval process in Belarus, we need to submit an
application for regulatory approval, which we anticipate will be granted in six months. For the approval process in Canada,
we need to submit an application for regulatory approval, which we anticipate will be granted in twelve months. In Israel,
where we received marketing approval in September 2011, we will be 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 such as us 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 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 twelve months
after our submission for approval.





For the approval process in Brazil,
we must comply with Brazilian Good Manufacturing Practice, or GMP, quality system requirements.  ANVISA, Brazil’s
regulatory agency, must conduct an inspection of MGuard PrimeTM 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.  Once
we receive the necessary GMP certificate, we can apply for regulatory approval.  We anticipate that the approval process
in Brazil will take between one and two years.



Please refer to the table below setting
forth the approvals and sales for MGuardTM and MGuard PrimeTM on a country-by-country basis.







|Approvals and Sales of MGuardTM and MGuard PrimeTM on a Country-by-Country Basis
|------------------------------------------------------------------------------



|Countries             | MGuardTM
        Approval | MGuardTM
        Sales | MGuard PrimeTM
        Approval | MGuard
    PrimeTM Sales |              | Countries | MGuardTM
        Approval | MGuardTM
        Sales | MGuard 
        PrimeTM
        Approval | MGuard
    PrimeTM Sales
|--------------------- | ------------------------ | --------------------- | ------------------------------ | ----------------------- | ------------ | --------- | ------------------------ | --------------------- | --------------------------------------- | -----------------------
|Argentina             | Y                        | Y                     | N                              | N                       | Italy        | Y         | Y                        | Y                     | Y                                      
|Austria               | Y                        | Y                     | Y                              | Y                       | Latvia       | Y         | Y                        | Y                     | Y                                      
|Brazil                | Y                        | Y                     | N                              | N                       | Lithuania    | Y         | Y                        | Y                     | N                                      
|Chile                 | N(1)                     | Y                     | N                              | N                       | Malaysia     | N         | N                        | N                     | N                                      
|Colombia              | Y                        | Y                     | N                              | N                       | Mexico       | Y         | Y                        | N                     | N                                      
|Costa Rica            | Y                        | Y                     | N                              | N                       | Pakistan     | Y         | Y                        | N                     | N                                      
|Cyprus                | Y                        | Y                     | Y                              | N                       | Poland       | Y         | Y                        | Y                     | Y                                      
|Czech Rep             | Y                        | Y                     | Y                              | N                       | Portugal     | Y         | Y                        | Y                     | N                                      
|UK                    | Y                        | N                     | Y                              | N                       | Russia       | Y         | Y                        | Y                     | Y                                      
|Estonia               | Y                        | Y                     | Y                              | Y                       | Serbia       | N         | N                        | N                     | N                                      
|France                | Y                        | Y                     | Y                              | Y                       | Singapore    | N         | Y(2)                     | N                     | N                                      
|Germany               | Y                        | Y                     | Y                              | Y                       | Slovakia     | Y         | Y                        | Y                     | N                                      
|Greece                | Y                        | Y                     | Y                              | Y                       | Slovenia     | Y         | Y                        | Y                     | Y                                      
|Holland (Netherlands) | Y                        | Y                     | Y                              | Y                       | South Africa | Y         | Y                        | N                     | N                                      
|Hungary               | Y                        | Y                     | Y                              | Y                       | Spain        | Y         | Y                        | Y                     | Y                                      
|India                 | Y                        | Y                     | N                              | N                       | Sri Lanka    | Y         | Y                        | N                     | N                                      
|Israel                | Y                        | Y                     | Y                              | Y                       | Ukraine      | Y         | Y                        | N                     | N                                      



21














1 We terminated our relationship with
our previous distributor in Chile and we will be required to obtain regulatory approval upon our selection of a new distributor
in Chile.



2At 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 MGuardTM Coronary plus 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 requires the U.S. Food and Drug Administration
to 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 June 30, 2012, 75% of our revenue was generated in Europe, 8% of
our revenue was generated in Central America, 6% of our revenue was generated in South America, 6% of our revenue was generated
in Asia with the remaining 5% 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., a distributor in the Russian Federation that accounted for 22% of our revenues, Euromed
Deutschland GmbH, a distributor in Germany that accounted for 14% of our revenues, and Kardia Srl, a distributor in Italy that
accounted for 9% of our revenues. Our agreement with Bosti Trading Ltd. grants Bosti Trading Ltd. the right to be the exclusive
distributor of MGuardTM products in the Russian Federation 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, at a price per stent of 560 Euros, for total minimum
order values of 1,960,000 Euros, 3,360,000 Euros and 2,240,000 Euros, respectively. Our agreement with Euromed Deutschland GmbH
grants Euromed Deutschland GmbH the right to be the exclusive distributor of MGuardTM products in Germany until
May 2013. Our agreement with Kardia Srl grants Kardia Srl the right to be the exclusive distributor of MGuardTM
products in Italy until August 2013.



22







Our major customers in the twelve months
ended December 31, 2011 were Kirloskar Technologies (P) Ltd., a distributor in India that accounted for 18% of our revenues, Tzamal
Jacobsohn Ltd., a distributor in Israel that accounted for 12% of our revenues, and Izasa Distribuciones Tecnicas SA, a distributor
in Spain that accounted for 9% of our revenues.  Our agreement with Kirloskar Technologies (P) Ltd. grants Kirloskar
Technologies (P) Ltd. the right to be the exclusive distributor of MGuardTM products in India until May 2013, subject
to achievement of certain order minimums.  Under our agreement with Kirloskar Technologies (P) Ltd., Kirloskar Technologies
(P) Ltd. was required to purchase 15,000 stents from us in 2011 and is required to purchase 20,000 stents from us in 2012, at a
price per stent of $600, for total minimum order values of $9,000,000 in 2011 and $12,000,000 in 2012, respectively.  Kirloskar
Technologies (P) Ltd. will also be eligible to receive free stents representing 15% or 20% of the total value of stents purchased,
depending upon the annual volume of the purchases of our stents.  Although Kirloskar Technologies (P) Ltd. did not achieve
its order minimum for 2011, we did not terminate either our agreement with Kirloskar Technologies (P) Ltd. or Kirloskar Technologies
(P) Ltd.’s right to be the exclusive distributor of MGuardTM products in India.  Our agreement with
Tzamal Jacobsohn Ltd. grants Tzamal Jacobsohn Ltd. the right to be the exclusive distributor MGuardTM products in Israel
until December 2012, subject to achievement of certain order minimums.  Under our agreement with Tzamal Jacobsohn Ltd.,
Tzamal Jacobsohn Ltd. must achieve at least 85% of the following order minimums: 1,400 stents during the twelve months ending March
31, 2012 and 1,600 stents during the twelve months ending March 31, 2013, at a price per stent, per an oral agreement, of 400 Euros,
for total minimum order values of 560,000 Euros and 640,000 Euros, respectively.  Tzamal Jacobsohn Ltd. will be granted
options to purchase 2,029 shares of our common stock for each $100,000 in sales upon achievement of the order minimums. Tzamal
Jacobsohn Ltd. did not meet its order minimum for the twelve months ended March 31, 2012 and, accordingly, no options were granted
to Tzamal Jacobsohn Ltd. under this agreement.  Our agreement with Izasa Distribuciones Tecnicas SA grants Izasa Distribuciones
Tecnicas SA the right to be the exclusive distributor of MGuardTM products in Spain until May 2012, subject to achievement
of certain order minimums.  Under our agreement with Izasa Distribuciones Tecnicas SA, Izasa Distribuciones Tecnicas
SA was required to purchase 4,000 stents from us in 2011, at a price per stent of 700 Euros, for a total minimum order value of
2,800,000 Euros in 2011.  Izasa Distribuciones Tecnicas SA did not achieve its order minimum for 2011 and was not eligible
to receive free stents pursuant to its agreement; however, we did not terminate either our agreement with Izasa Distribuciones
Tecnicas SA or Izasa Distribuciones Tecnicas SA’s right to be the exclusive distributor of MGuardTM products in
Spain.  In addition, pursuant to an amendment to our agreement with Izasa Distribuciones Tecnicas SA, Izasa Distribuciones
Tecnicas SA, through its subsidiaries, was required to purchase 500 MGuard PrimeTM stents from us at a price per stent of
700 Euros in February 2011.  Izasa Distribuciones Tecnicas SA met its purchase requirement in February 2011 and received
a bonus of 100 free stents.  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).  In addition,
other current significant customers are in Germany, Argentina, and Brazil.



Our major customer in 2010 was Hand-Prod
Sp. Z o.o, a Polish distributor, that accounted for 29% of our revenues.  We have an agreement with Hand-Prod Sp. Z o.o
that grants Hand-Prod Sp. Z o.o the right to be the exclusive distributor of MGuardTM products in Poland until December
2012, subject to achievement of certain order minimums.  Under our agreement with Hand-Prod Sp. Z o.o, Hand-Prod Sp.
Z o.o was required to purchase 1,500 stents from us in 2011 and must purchase 2,500 stents from us in 2012, at a price per stent
of 400 Euro, for total minimum order values of 600,000 Euro in 2011 and 1,000,000 Euro in 2012, respectively.  Hand-Prod
Sp. Z o.o did not achieve its order minimum for 2011 and therefore did not receive any free stents in 2011, but will be eligible
to receive 500 free stents in 2012 if it achieves the minimum order values for that year.  Although Hand-Prod Sp. Z o.o
did not achieve its order minimum for 2011, we did not terminate either our agreement with Hand-Prod Sp. Z o.o or Hand-Prod Sp.
Z o.o’s right to be the exclusive distributor of MGuardTM products in Poland.  In addition, in 2011,
we granted Hand-Prod Sp. Z o.o an option to purchase 12,174 shares of our common stock as consideration for its assistance in promoting
our business in Poland. In May 2012, Hand-Prod Sp. Z o.o sent us a termination notice, effective December 2012, that notified us
that it would not be renewing its exclusive distribution agreement due to an organizational restructuring.



23







Manufacturing and Suppliers



We manufacture our stainless steel MGuardTM
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 MGuardTM 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 MGuardTM 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.



Our MGuard PrimeTM 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 PrimeTM 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 PrimeTM stents.  We will pay 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 million of sales and a rate of 10%
for all sales exceeding $10 million.  We will also share with Svelte Medical Systems Inc. in the cost of obtaining the
CE Mark approval, with our costs not to exceed $85,000, and the U.S. Food and Drug Administration approval, with our costs not
to exceed $200,000.  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 PrimeTM cobalt-chromium stent.



Our MGuard PrimeTM 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 PrimeTM is priced on a per-stent basis, subject to
the quantity of stents ordered.  The complete assembly process for MGuard PrimeTM, 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 PrimeTM has been assembled, it is sent for sterilization in Germany and then back to Israel for final packaging.



MGuardTM 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 MGuardTM Coronary with bio stable mesh with medical product distributors based in Italy,
Germany, Austria, Czech Republic, Slovakia, France, Slovenia, Greece, Cyprus, Portugal, Spain, Poland, Hungary, Estonia, Lithuania,
Ukraine, United Kingdom, Holland, Russia, Latvia, Brazil, Chile, Costa Rica, Mexico, Argentina, Colombia, India, Sri Lanka, South
Africa, Pakistan, Belarus, Croatia, Ireland and Israel.  We are currently in discussions with multiple distribution companies
in Europe, Asia, and Latin America.



24







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 for a term
of approximately three years and automatically renew for an additional three years unless modified by either party.



Employees



As of September 1, 2012, we had 65 full-time
employees.  Our employees are not party to any collective bargaining agreements.  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.  In such case, the trading price and market
value of our common stock could decline and you may lose part or all of your investment in our common stock.  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





The report of our independent auditors contains an
explanatory paragraph as to our ability to continue as a going concern, which could prevent us from obtaining new financing on
reasonable terms or at all.



Because we have had recurring losses
and negative cash flows from operating activities and have significant future commitments, the report of Kesselman & Kesselman,
our independent auditors, with respect to our financial statements at June 30, 2012, December 31, 2011 and 2010, and for the six
month period ended June 30, 2012 and for the years ended December 31, 2011, 2010 and 2009, contains an explanatory paragraph as
to our potential inability to continue as a going concern. This opinion indicates that our auditors believe that substantial doubt
exists regarding our ability to remain in business. Such an opinion may adversely affect our ability to obtain new financing on
reasonable terms or at all.



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. Furthermore, we have significant future commitments
with respect to our convertible debentures. Since we expect to continue incurring negative cash flows from operations and in light
of the potential cash requirement in connection with our convertible debentures, there can be no assurance that we will ever generate
substantial revenues or sustain profitability.







We expect to derive our revenue from sales of our MGuardTMstent 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 MGuardTM 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 could 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.  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 patents
may not provide us with commercially meaningful protection for our products or 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 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.



25











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, 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 and defending such rights in foreign jurisdictions.  If
we encounter such difficulties or are otherwise precluded from effectively protecting our intellectual property rights in 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 or enforceability of our patents.  If a court decides that such patents are not valid, not enforceable
or of a limited scope, we may not have the right to stop others from using our inventions.  Also, even if our patents
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 provide us with freedom to operate unimpeded by
the patent rights of others.



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 MGuardTM
stent at our facilities 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 MGuardTM 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 MGuardTM stent
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.



26







We currently have limited resources,
facilities and experience to commercially manufacture our product candidates.  In order to produce our
MGuardTM 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 produce our MGuardTM stent
in sufficient quantities to meet the requirements for the launch of the product or to meet future demand, if at
all.  If we develop and obtain regulatory approval for our MGuardTM stent and are unable to manufacture a
sufficient supply of our MGuardTM 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 facilities or its equipment, prolonged power outage or contamination at our facility would significantly impair
our ability to produce MGuardTM stents.



Finally, the production of our MGuardTM
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.



The U.S. Food and Drug Administration may not approve
our investigational device exemption application for a pivotal trial of our MGuard Coronary with bio-stable mesh, which would
prevent us from conducting our clinical trials in the United States, and even if the U.S. Food and Drug Administration does grant
such approval, our clinical trials may be more costly and burdensome than we currently anticipate, which would limit or delay
our ability to complete clinical trials and ultimately market our MGuard Coronary with bio-stable mesh in the United States.



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 to conduct a pivotal trial. On August 29, 2012, the U.S. Food
and Drug Administration issued us a letter disapproving our investigational device exemption application due to insufficient data
to support the initiation of a human clinical study. More specifically, the U.S. Food and Drug Administration cited numerous deficiencies
in our application which may require, amongst other things, new and/or repeated testing in order to resolve. There can be no assurance
that we will be able to resolve these deficiencies and secure approval of our investigational device exemption application from
the U.S. Food and Drug Administration. If the U.S. Food and Drug Administration does not approve our investigational device exemption
application, we would be unable to conduct a pivotal trial of our MGuard Coronary with bio-stable mesh, thereby preventing us from
marketing MGuard Coronary with bio-stable mesh in the United States. Not being able to market MGuard Coronary with bio-stable mesh
in the United States would have an adverse effect on our business. Moreover, even if the U.S. Food and Drug Administration approves
an investigational device exemption application to conduct a pivotal trial, the clinical study we conduct may have unanticipated
complications and delays, may be more costly than we currently anticipate, and/or may fail to achieve the primary or secondary
endpoints. The U.S. Food and Drug Administration may approve our investigational device exemption application with conditions relating
to the scope or design of our clinical trials for which we have not planned. These conditions may require us to collect additional
data, enroll more patients, spend more time and expend more resources than we currently anticipate, and these conditions may make
a clinical trial in the United States more costly and time consuming than we currently plan. Any unanticipated costs and length
of U.S. clinical trials, along with our failure to achieve primary or secondary endpoints would delay, if not prevent, our ability
to market our MGuard Coronary with bio-stable mesh in the United States, which would harm our business.



Clinical trials necessary to support a pre-market approval
application 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 MGuardTM stent 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.  Clinical trials supporting a pre-market approval
applications for the Cypher stent developed by Johnson & Johnson and the Taxus Express2 stent developed by Boston Scientific
Corporation, which were approved by the U.S. Food and Drug Administration and are currently marketed, involved patient populations
of approximately 1,000 and 1,300, respectively, and a 12-month follow up period.  In some trials, a greater number of
patients and a longer follow up period may be required. The U.S. Food and Drug Administration may require us to submit data on
a greater number of patients or for a longer follow-up period than those for pre-market approval applications for the Cypher stent
and the Taxus Express2 stent.  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.



27







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



We believe that physicians will not widely
adopt the MGuardTM stent unless they determine, based on experience, long-term clinical data and published peer reviewed journal
articles, that the use of our MGuardTM 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 Johnson & Johnson, 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 MGuardTM 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 MGuardTM 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 MGuardTM
stent will vary.  Clinical trials conducted with the MGuardTM 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 MGuardTM 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
MGuardTM 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 9 employees.  As a result, we may experience a long
regulatory process 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.



28











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.



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 MGuardTM 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 constitutes 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.



29







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.



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 intend to 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 service 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 Cordis Corporation, a subsidiary of Johnson & Johnson, Boston Scientific
Corporation, Guidant, Medtronic, Inc., Abbott Vascular Devices, Terumo 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.



30







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



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 MGuardTM stent based
on one or more of these patents.  It is also possible that a lawsuit asserting patent infringement and related claims
may have already been filed against us of which we are not aware.  A number of these 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, or a patent infringement claim against us, increases.



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, Johnson & Johnson 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, 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 MGuardTM 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 our ongoing clinical trial in Europe.  Insurance
coverage is becoming increasingly expensive and we may not be able to maintain current coverages, 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.



31







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 MGuardTM
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.



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, and 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 our research and manufacturing facilities 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; and
| | - | -----------------------------------------------------------



32







| | · | 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.



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., 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 Health Care and Educational 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 does levy a 2.3% excise tax on all U.S. medical device sales beginning in 2013. If we commence sales of our MGuardTM
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 starting 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 and results of operations.



33







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.



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 our management 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 5 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 not likely that we will be subject to fines or other penalties on an individual or company level.



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 current stockholders’
ownership interests.



We will need to raise additional capital
in the future, which may not be available on reasonable terms or at all.  At September 1, 2012, we had cash on hand of
approximately $8.6 million and expect that such funds, together with our income, will be insufficient to fully realize all of our
business objectives.  For instance, we will need to raise additional funds to accomplish the following:





| | · | 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;
| | - | ------------------------------------





34









| | · | 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 current 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.



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 principal executive offices and 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, 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.



Many of our executive officers and 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 Defence 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 officers
or 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 all
of our employees, all 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 United States
to enforce any judgments obtained against us or any of our directors or officers.



All of our assets are located outside the
United States and we do not currently maintain a permanent place of business within the United States. In addition, three of our
directors and all of our officers are nationals and/or residents of countries other than the United States, and all or a substantial
portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to
enforce within the United States any judgments obtained against us or any of our non-U.S. directors or officers, including judgments
predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Additionally,
it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. 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. Inspire 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. 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 in 2011 was 24% of their taxable income and was increased to 25% in 2012. 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.





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 and to obtain a report by our independent auditors addressing these assessments. 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 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.





35







Because we became public by means of a “reverse
merger,” we may not be able to attract the attention of major brokerage firms.



There may be risks associated with us becoming
public through a “reverse merger” with a shell company. Although the shell company did not have recent or past operations
or assets and we performed a due diligence review of the shell company, there can be no assurance that we will not be exposed to
undisclosed liabilities resulting from the prior operations of the shell company. Securities analysts of major brokerage firms
and securities institutions may also not provide coverage of us because there were no broker-dealers who sold our stock in a public
offering that would be incentivized to follow or recommend the purchase of our common stock. The absence of such research coverage
could limit investor interest in our common stock, resulting in decreased liquidity.  No assurance can be given that
established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or other financings
on our behalf.



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;
| | - | -----------------------------------------------



| | · | 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.







We may be subject to penny stock rules which will make
the shares of our common stock more difficult to sell.



We may be subject to the Securities and
Exchange Commission’s “penny stock” rules.  Penny stocks generally are equity securities with a per
share price of less than $5.00.  The penny stock rules require broker-dealers to deliver a standardized risk disclosure
document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level
of risks in the penny stock market.  The broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing
the market value of each penny stock held in the customer’s account.  The bid and offer quotations, and the broker-dealer
and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction
and must be given to the customer in writing before or with the customer’s confirmation.



36







In addition, the penny stock rules require
that prior to a transaction the broker-dealer must make a special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser’s written agreement to the transaction.  The penny stock rules are
burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock.  To
the extent our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find
it more difficult to sell their securities.



There is, at present, only a limited market for our common
stock and we cannot ensure investors that an active market for our common stock will ever develop or be sustained.



Our shares of common stock are thinly
traded.  Due to the illiquidity, the market price may not accurately reflect our relative value.  There can
be no assurance that there will be an active market for our shares of common stock either now or in the future.  Because
our common stock is so thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price and
investors may not be able to liquidate their investment in us at all or at a price that reflects the value of the business. In
addition, our common stock currently trades on the OTC Bulletin Board, which generally lacks the liquidity, research coverage and
institutional investor following of a national securities exchange like the NYSE MKT, the New York Stock Exchange or the Nasdaq
Stock Market. While we intend to list our common stock on a national securities exchange once we satisfy the initial listing standards
for such an exchange, we currently do not, and may not ever, satisfy such initial listing standards.



Our board of directors can authorize the issuance of preferred
stock, which could diminish the rights of holders of our common stock, and make a change of control of us more difficult even if
it might benefit our stockholders.



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.



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. There are 4,646,129 shares of our common stock issuable upon
the conversion of our outstanding convertible debentures and the exercise of our outstanding warrants, all of which are
currently registered for resale. In addition, there are  14,819,736 shares of our common stock currently saleable under Rule
144. 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.



In addition, if our stockholders sell
substantial amounts of our common stock in the public market, upon the expiration of any statutory holding period under Rule 144,
upon the expiration of lock-up periods applicable to outstanding shares, or upon the exercise of outstanding options or warrants,
it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price
of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, could also 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. 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.



37







Risks Related to our Convertible Debentures



Our obligations to the holders of our convertible debentures
are secured by all of our assets, so if we default on those obligations, the convertible debenture holders could foreclose on our
assets.



The holders of our convertible debentures
have a security interest in all of our assets and those of our subsidiaries. As a result, if we default under our obligations to
the convertible debenture holders, the convertible debenture holders could foreclose on their security interests and liquidate
some or all of these assets, which would harm our business, financial condition and results of operations.



Our convertible debentures and the associated securities
purchase agreement contain covenants that could limit our financing options and liquidity position, which would limit our ability
to grow our business.



The terms of our convertible debentures
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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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 limit our ability to withstand competitive pressures.
| | - | ---------------------------------------------------------------------------------------------------------



Additionally, covenants in our convertible
debentures and the associated securities purchase agreement impose operating and financial restrictions on us. These restrictions
prohibit or limit our ability, and the ability of our subsidiaries, to, among other things:



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



| | · | redeem, repurchase or otherwise acquire more than a de minimis number of shares of our 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 our charter documents in a way that would materially and adversely affect any holder of our convertible debentures.
| | - | -------------------------------------------------------------------------------------------------------------------------





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 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.



38













The conversion of our convertible debentures and the exercise
of the warrants issued to the purchasers of our convertible debentures would have a dilutive impact on our existing stockholders.



As of the date of this Transition Report
on Form 10-K/T, there were 1,748,312 shares of common stock underlying our convertible debentures and 913,944 shares of common
stock underlying warrants that were issued to purchasers and placement agents in connection with the issuance of the convertible
debentures, for a total of 2,662,256 shares of common stock. If and when issued, these additional 2,662,256 shares of common
stock will equal approximately 15.6% of our then outstanding shares of common stock, and would immediately dilute our current
stockholders in terms of ownership percentage and voting power. The terms of the convertible debentures and related warrants contain
provisions that restrict the amount of shares a holder can receive upon conversion or exercise to 4.99% of the then outstanding
number of shares of our common stock. However, these restrictions do not prevent the holders from selling some of their holdings
and then receiving additional shares. In this way, the holders could sell more than these limits while never holding more than
the limits. As a result, even with the restrictions, the holders of these convertible debentures and warrants could ultimately
convert and exercise, and then sell, the full amount issuable upon conversion and exercise of the convertible debentures and warrants,
respectively, in which case our current stockholders would suffer the full amount of dilution.



The holders of our convertible debentures might be able
to exert substantial influence over us in the event that Sol J. Barer, Ph.D. ceases to remain our chairman.



Under the terms of the securities purchase
agreement pursuant to which our convertible debentures were sold, if Sol J. Barer, Ph.D. ceases to serve as our chairman due to
Dr. Barer’s resignation following a material adverse change to the condition of Dr. Barer or any member of Dr. Barer’s
immediate family or the vote or written consent of independent stockholders, we would be required to appoint two persons to our
board of directors designated by Genesis Capital Advisors LLC, the investment advisor to our lead investors in the convertible
debenture offering, and support the election of such persons until the convertible debentures are either repaid or converted in
full. In addition, in the event that Dr. Barer ceases to serve as our chairman for any other reason while the convertible debentures
are outstanding, it would be an event of default under the convertible debentures, which could result in the acceleration of our
convertible debentures at the election of the holders of 60% of the outstanding principal of the convertible debentures, an amount
that Genesis Capital Advisors LLC presently controls. As a result, Genesis Capital Advisors LLC, or its assigns, have the potential
to exert substantial influence over our management and governance in the event Dr. Barer ceases to serve as our chairman and they
may exert such influence in a manner that is not consistent with the best interests of our common stockholders.





We may default upon our obligations under our convertible
debentures.



The holders of our convertible debentures
may require us to redeem our convertible debentures after October 5, 2013 or upon the occurrence of an event of a default under
our convertible debentures for 112% of the then outstanding principal amount, plus all accrued interest. In the event that we are
required to redeem some or all of our convertible debentures, we may not have sufficient resources to do so and we may have to
seek additional debt or equity financing to cover the costs of redeeming our convertible debentures. Any additional debt or equity
financing that we may need may not be available on terms favorable to us, or at all. Because our obligations under our convertible
debentures are secured by a security interest in substantially all of our assets and properties, if we cannot repay our obligations
under our convertible debentures, the holders of our convertible debentures may have claims against, and ultimately may foreclose
upon and take possession of, substantially all of our assets and properties. In such an event, the holders of our convertible debentures
would have control of our company.





Risks Related to Our Intended Reverse Stock Split



There can be no assurance that we will be able to meet
all of the requirements for listing our common stock on any national securities exchange or to meet the continued listing standards
of any national securities exchange after a reverse stock split.



Each national securities exchange has numerous
initial listing requirements applicable to the listing of our common stock and its continued listing thereafter. We cannot assure you that our common
stock will be accepted for listing on a national securities exchange following the reverse stock split or that we will maintain
compliance with all of the requirements for our common stock to remain listed. Moreover, there can be no assurance that the market
price of our common stock after the reverse stock split will adjust to reflect the decrease in common stock outstanding or that
the market price following a reverse stock split will either exceed or remain in excess of the current market price.



If the reverse stock split is implemented, the resulting
per-share price may not attract institutional investors, investment funds or brokers and may not satisfy the investing guidelines
of these investors or brokers, and consequently, the trading liquidity of common stock may not improve.



While we believe that a higher share price
may help generate investor and broker interest in our common stock, the reverse stock split may not result in a share price that
will attract institutional investors or investment funds or satisfy the investing guidelines of institutional investors, investment
funds or brokers. A decline in the market price of our common stock after the reverse stock split may result in a greater percentage
decline than would occur in the absence of the reverse stock split. If the reverse stock split is implemented and the market price
of our common stock declines, the percentage decline may be greater than would occur in the absence of the reverse stock split.
The market price of our common stock is also based on our performance and other factors, which are unrelated to the number of shares
of common stock outstanding.



39







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:



| | · | adverse economic conditions and/or intense competition;
| | - | -------------------------------------------------------



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



| | · | entry of new competitors and products;
| | - | --------------------------------------



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



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



| | · | inadequate capital;
| | - | -------------------



| | · | technological obsolescence of our products;
| | - | -------------------------------------------



| | · | technical problems with our research and products;
| | - | --------------------------------------------------



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



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



| | · | loss or retirement of key executives and research scientists and other specific risks; and
| | - | ------------------------------------------------------------------------------------------



| | · | the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives.
| | - | ---------------------------------------------------------------------------------------------------



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.



Item 1B.  Unresolved Staff Comments.



Not applicable.





40







Item 2.  Properties.





Our headquarters are located in Tel
Aviv, Israel, where we currently have a 1,000 square meter office facility and a 420 square meter manufacturing facility that employs
26 manufacturing personnel and has the capacity to manufacture and assemble 5,000 stents per month, should we
hire more employees. 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, except for the matters described below.





On November 2, 2010, Eric Ben Mayor,
a former senior employee of InspireMD Ltd., filed suit in Regional Labor Court in Tel Aviv, claiming illegal termination of employment
and various amounts in connection with his termination, including allegations that he is owed salary, payments to pension fund,
vacation pay, sick days, severance pay, commission for revenues and other types of funds. In total, Mr. Ben Mayor sought $428,000,
additional compensation for holding back wages, and options to purchase 507,256 shares of our common stock at an exercise price
of $0.004 per share. InspireMD Ltd. filed a notice in Regional Labor Court indicating that the parties rejected a court proposal
for mediation and a second preliminary hearing was held on November 3, 2011. In June 2012, InspireMD Ltd. reached a settlement
agreement with Mr. Ben Mayor, pursuant to which InspireMD Ltd. paid Mr. Ben Mayor $88,000 in exchange for Mr. Ben Mayor signing
a mutual petition requesting the dismissal of his suit. The mutual petition dismissing Mr. Ben Mayor’s suit against InspiredMD
Ltd. was granted by the Regional Labor Court on July 6, 2012.





Other than as set forth above, 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 Disclosure.



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
OTC Bulletin Board since April 11, 2011 under the symbol NSPR.OB.  Prior to that date, there was no active market for
our common stock.  The following table sets forth the high and low bid prices for our common stock for the periods indicated,
as reported by the OTC Bulletin Board.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.



|Fiscal Year 2011 |  | High |       |  | Low |  
|---------------- |  | ---- | ----- |  | --- | -
|Second Quarter   |  | $    | 11.56 |  |     | $
|Third Quarter    |  | $    | 10.96 |  |     | $
|Fourth Quarter   |  | $    | 10.36 |  |     | $
|                 |  |      |       |  |     |  
|Fiscal Year 2012 |  | High |       |  | Low |  
|First Quarter    |  | $    | 8.60  |  |     | $
|Second Quarter   |  | $    | 7.40  |  |     | $



The last reported sales price of our
common stock on the OTC Bulletin Board on September 10, 2012, was $9.6 per share. As of September 10, 2012, there were approximately
188 holders of record of our common stock.



41







Dividend Policy



In the past, we have not declared or paid
cash dividends on our common stock, and we do not intend to pay any cash dividends on our common stock.  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.



The following selected consolidated financial
data should be read in conjunction with “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Part II—Financial Statements and Supplementary Data.”  The balance
sheet data at June 30, 2012 and December 31, 2011, 2010 and 2009 and the statement of operations data for the six months ended
June 30, 2012 and each of the three years ended December 31, 2011, 2010 and 2009 have been derived from the audited Consolidated
Financial Statements for such years, included in and “Part II—Financial Statements and Supplementary Data.”  The
balance sheet data at December 31, 2008 and 2007, and the statement of operations data for each of the two years ended December
31, 2008 and 2007 have been derived from our books and records.



Statement of Operations Data



|                                            |  | Six Months  Ended June |            |   | Year Ended December 31, | 
|------------------------------------------- |  | ---------------------- | ---------- | - | ----------------------- | 
|                                            |  | 30, 2012               |            |   | 2011                    | 
|Revenues                                    |  |                        | 2,071      |   |                         | 
|Cost of Revenues                            |  |                        | 1,377      |   |                         | 
|Gross Profit (Loss)                         |  |                        | 694        |   |                         | 
|Gross Margin                                |  |                        | 34         | % |                         | 
|Total Operating Expenses                    |  |                        | 7,852      |   |                         | 
|Net Loss                                    |  |                        | (7,081     | ) |                         | 
|Basic and Diluted loss per common share     |  |                        | (0.40      | ) |                         | 
|Basic and Diluted common shares outstanding |  |                        | 17,044,220 |   |                         | 



Balance Sheet Data



|                                               |  | June 30, |        |  | December 31, | 
|---------------------------------------------- |  | -------- | ------ |  | ------------ | 
|                                               |  | 2012     |        |  | 2011         | 
|Cash, Cash equivalents and short term deposits |  |          | 10,284 |  |              | 
|Restricted Cash                                |  |          | 37     |  |              | 
|Working Capital                                |  |          | 10,759 |  |              | 
|Total Assets                                   |  |          | 16,014 |  |              | 
|Long-Term Obligations                          |  |          | 7,078  |  |              | 
|Shareholder’s Equity                           |  |          | 5,386  |  |              | 



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.



42







Overview



We are a medical device company focusing
on the development and commercialization of our proprietary stent platform technology, MGuardTM. MGuardTM 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).



On March 31, 2011, we completed a series
of share exchange transactions pursuant to which we acquired all of the capital stock of InspireMD Ltd., a company formed under
the laws of the State of Israel, in exchange for an aggregate of 12,666,665 shares of our common stock. As a result of these share
exchange transactions, InspireMD Ltd. became our wholly-owned subsidiary, we discontinued our former business and succeeded to
the business of InspireMD Ltd. as our sole line of business.



The share exchange transactions were accounted
for as a recapitalization. InspireMD Ltd. is the acquirer for accounting purposes and we are the acquired company. Accordingly,
the historical financial statements presented and the discussion of financial condition and results of operations herein are those
of InspireMD Ltd., retroactively restated for, and giving effect to, the number of shares received in the share exchange transactions,
and do not include the historical financial results of our former business. The accumulated earnings of InspireMD Ltd. were also
carried forward after the share exchange transactions and earnings per share have been retroactively restated to give effect to
the recapitalization for all periods presented. Operations reported for periods prior to the share exchange transactions are those
of InspireMD Ltd.



On October 31, 2011, our stockholders authorized
our board of directors to amend our amended and restated certificate of incorporation to effect a reverse stock split of our common
stock at a ratio of one-for-two to one-for-four, at any time prior to our 2012 annual stockholders’ meeting, the exact ratio
of the reverse stock split to be determined by the board. All share numbers in this Amendment No. 1 have been changed to reflect the one-for-four reverse stock
split that was effected by the Company on December 21, 2012.



43







Critical Accounting Policies



Use of estimates





The preparation of financial
statements in conformity with generally accepted accounting principles in the U.S. 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, provisions for returns, legal contingencies,
estimation of the fair value of share-based compensation and estimation of the fair value of warrants.





Functional currency



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



Fair value measurement



Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.



In determining fair value, we use various
valuation approaches, including market, income and/or cost approaches. Hierarchy for inputs is used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed
based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about
the assumptions market participants would use in pricing the asset or liability developed based on the best information available
in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs.



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, cash equivalents and restricted cash, which are deposited in major
financial 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 our customers. We also have a credit insurance policy for some of our 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 our management reasonably
believes will be collected. To mitigate risks, we deposit cash and cash equivalents with high credit quality financial institutions.
Provisions for doubtful debts are netted against “Accounts receivable-trade.”







44







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 establish a reserve against the inventories’ carrying value. Our determination that a valuation reserve
might be required, in addition to the quantification of such reserve, requires us to utilize significant judgment. Although we
make every effort to ensure the accuracy of forecasts of future product demand, any significant unanticipated decreases in demand
could have a material impact on the carrying value of our inventories and reported operating results. With respect to inventory on consignment, see “Revenue recognition” below.



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 sales returns and related costs are
included in “Accounts payable and accruals - Other” under “Current liabilities” and “Inventory on
consignment,” respectively.





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 June 30, 2012, there are no deferred
revenues related to sales for which the rate of return cannot be reliably estimated.



Our revenue arrangements may contain delivery
of free products upon the achievement of sales targets. Each period, we estimate the amount of free products to which these 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.



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, which is 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 expense
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 rewards are vested in full. The expense is recognized over the vesting period using the accelerated
multiple option approach. The expense relates to options granted to third party service providers with respect to successful investor
introductions that are recorded at their fair value in equity, as issuance costs.



In addition, certain of our share-based
awards are performance based, i.e., the vesting of these awards depends upon achieving certain goals. We estimate the expected
pre-vesting award probability, i.e., the expected likelihood that the performance conditions will be achieved, and only recognize
expense for those shares expected to vest.



45







Uncertain tax and value added tax positions



We follow a two-step approach to recognizing
and measuring uncertain tax and value added tax positions. The first step is to evaluate the tax and value added 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. The second step is to measure the tax and value added tax benefit as the largest amount that is more than
50% and 75%, respectively, likely of being 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. Our policy is to include interest and
penalties related to unrecognized tax benefits within financial expenses.



Results of Operations



Six month period ended June 30, 2012 compared to the
six month period ended June 30, 2011



Revenue.  For the six
month period ended June 30, 2012, total revenue decreased approximately $0.6 million, or 24.0%, to approximately $2.1 million
from approximately $2.7 million during the same period in 2011. The $0.6 million decrease was attributable to a decrease in
sales volume, as described more fully below. The following is an explanation of the approximately $0.6 million decrease in
revenue broken down by its main two components, a decrease in gross revenues of approximately $0.5 million and a net decrease
in deferred revenues recognized of approximately $0.1 million.



For the six month period ended June
30, 2012, total gross revenue decreased by approximately $0.5 million, or 19.6%, to approximately $2.0 million from approximately
$2.5 million during the same period in 2011.  This decrease in total gross revenue is predominantly sales volume based,
with decreased sales volume accounting for approximately $340,000, or approximately 13.0%, and price decreases to our repeat distributors
accounting for the remaining approximately $150,000, or approximately 6.0%.  With respect to individual markets, this
decrease in gross revenue was mainly attributable to the fact that we did not have any sales to our distributor in India during
the six month period ended June 30 2012, compared to sales of approximately $1.2 million to this distributor during the same period
in 2011, a decrease of approximately $0.2 million of gross revenue from our distributor in Spain, a decrease of approximately
$0.1 million of gross revenue from our distributor in Argentina, a decrease of approximately $0.1 million of gross revenue from
our distributor in France and a decrease of approximately $0.1 million of gross revenue from our distributor in Israel. These
decreases were partially offset by an increase of approximately $0.5 million of gross revenues from our distributor in Russia,
an increase of approximately $0.2 million of gross revenue from our distributor in Italy, an increase of approximately $0.2 million
of gross revenue from our distributor in Germany, an increase of approximately $0.1 million of gross revenue from our distributor
in Poland, and an increase of approximately $0.1 million of gross revenue from our distributor in Mexico, and an increase of approximately
$0.1 million from our remaining distributors, all due to higher sales volumes to these distributors.



For the six month period ended June
30, 2012, net deferred revenue recognized decreased by approximately $0.1 million, or 66.8%, to approximately $0.1 million from
approximately $0.2 million during the same period in 2011. This decrease was almost entirely sales volume based, partially offset
by approximately $0.1 million in price increases to our repeat distributors. The deferred revenue recognized during the six month
period ended June 30, 2012 was comprised primarily of approximately $0.1 million of revenue that we deferred from a shipment to
India in the first six months of 2011. Our net deferred revenue for the six month period ended June 30, 2011 consisted of approximately
$0.1 million of deferred revenue from our distributor in India, offset by recognized revenue of approximately $0.1 million from
our distributors in Israel, approximately $0.1 million from our distributor in Brazil, and approximately $0.1 million from other
distributors.



Gross Profit.  For
the six month period ended June 30, 2012, gross profit (revenue less cost of revenues) decreased 41.5%, or approximately $0.5
million, to approximately $0.7 million from approximately $1.2 million during the same period in 2011. Gross margin decreased
from 43.5% in the six month period ended June 30, 2011 to 33.5% in the six month period ended June 30, 2012. In addition to our
decrease in sales, the primary reason for the decrease in gross profit was a write-off of approximately $0.4 million of slow moving
inventory, which accounted for approximately 89.7% of the decrease mentioned above. We were able to partially offset these decreases
with reduced production cost per stent driven by economies of scale. For the six month period ended June 30, 2012, our average
selling price per stent recognized in revenue was $584, and we recognized the sale of 3,548 stents, compared to an average price
of $541 per stent and 5,040 stents recognized in revenue for the same period in 2011.  Our cost of goods sold per stent
increased from an average of $305 per stent recognized in revenue for the six month period ended June 30, 2011 to an average of
$388 per stent for the same period in 2012.



46







Research and Development Expense.  For
the six month period ended June 30, 2012, research and development expense increased 138.5% or approximately $1.5 million, to approximately
$2.6 million, from approximately $1.1 million during the same period in 2011. The increase in cost resulted primarily from higher
clinical trial expenses of approximately $1.2 million, attributable mainly to the MGuard for Acute ST Elevation Reperfusion Trial
(MASTER Trial) (approximately $0.7 million), the U.S. Food and Drug Administration clinical trial (approximately $0.3 million)
and the MGuardTM Carotid clinical trial (approximately $0.2 million), an increase of approximately $0.1 million in salaries,
approximately $0.1 million in share-based compensation and approximately $0.1 million in miscellaneous expenses. Research and
development expense as a percentage of revenue increased to 125.9% for the six month period ended June 30, 2012 from 40.1% in the
same period in 2011.



Selling and Marketing
Expense.  For the six month period ended June 30, 2012, selling and marketing expense increased 19.2%, or
approximately $0.2 million, to approximately $1.2 million, from approximately $1.0 million during the same period in
2011.  The increase in selling and marketing expense resulted primarily from approximately $0.2 million of
additional salaries and approximately $0.1 million of additional share-based compensation principally for newly hired sales
personnel in connection with the expansion of our sales activities worldwide, and approximately $0.2 million in
advertising expenses. This increase was partially offset by a decrease of approximately $0.1 million of commissions
pertaining mainly to our first time shipment of approximately $1.2 million to our distributor in India during the six month
period ended June 30, 2011 (no such sale occurred in the same period of 2012), approximately $0.1 million in share-based
compensation to consultants and approximately $0.1 million in miscellaneous expenses. Selling and marketing expense as a
percentage of revenue increased to 60.2% for the six month period ended June 30, 2012 from 38.3% in the same period in
2011.



General and Administrative
Expense.  For the six month period ended June 30, 2012, general and administrative expense increased 67.3%, or
approximately $1.6 million, to approximately $4.0 million from $2.4 million during the same period in 2011. The increase
resulted primarily from an increase in share-based compensation of $1.2 million, predominately related to directors’
compensation, an increase of approximately $0.2 million in rent expense related to our move to a new location to support our
expanding sales activities, an increase of approximately $0.1 million in audit fees to accommodate and comply with the reporting requirements of the Securities and Exchange Commission, approximately $0.1 million in legal fees, related primarily
to compliance with the reporting requirements of the Securities and Exchange Commission, approximately $0.1 million of fees
paid to consultants that was also related primarily to compliance with the reporting requirements of the Securities and
Exchange Commission, and approximately $0.3 million in miscellaneous expenses. This increase was partially offset by a
decrease of approximately $0.4 million in litigation expenses. General and administrative expense as a percentage of revenue
increased to 193.1% for the six month period ended June 30, 2012 from 87.7% in the same period in 2011.



Financial (Income) Expense.  For
the six month period ended June 30, 2012, financial expense decreased 113.9%, or approximately $0.9 million, to approximately $0.1
million of financial income from $0.8 million of financial expense during the same period in 2011. The decrease in expense resulted
primarily from approximately $1.3 million of financial income from the revaluation of warrants pertaining to our convertible debentures,
partially offset by approximately $1.2 million of amortization expense pertaining to the same convertible debentures and their related
issuance costs in the six month period ended June 30, 2012, as compared to a one-time financial expense recording of approximately
$0.6 million in the first six month period of 2011 pertaining to the revaluation of an outstanding convertible loan at fair value
prior to redemption and approximately $0.2 million for the favorable impact of exchange rate differences for the six month period
ended June 30, 2011. Financial expense as a percentage of revenue was 28.9% for the six month period ended June 30, 2011, compared
to 5.3% of financial income for the same period in 2012.



Tax Expenses.  Tax
expense remained relatively flat at $32,000 for the six month period ended June 30, 2012, as compared to $20,000 during the same
period in 2011.



47







Net Loss.  Our net loss
increased by approximately $2.9 million, or 70.7%, to $7.1 million for the six month period ended June 30, 2012, from $4.2 million
during the same period in 2011. The increase in net loss resulted primarily from an increase in operating expenses of approximately
$3.3 million (see above for explanation) and a decrease of approximately $0.5 million in gross profit (see above for explanation).
This increase was partially offset by a decrease in financial expense (income) of approximately $0.9 million (see above for explanation).



Twelve months ended December 31, 2011 compared to twelve
months ended December 31, 2010



Revenue.  For the
twelve months ended December 31, 2011, total revenue increased approximately $1.1 million, or 21.3%, to approximately $6.0
million from approximately $4.9 million during the same period in 2010. The $1.1 million increase was attributable primarily
to an increase in sales volume, as described more fully below. The following is an explanation of the approximately $1.1
million increase in revenue broken down by its main two components, an increase in gross revenues of approximately $2.5
million offset by a net decrease in deferred revenues of approximately $1.4 million.



For the twelve months ended December
31, 2011, total gross revenue increased by approximately $2.5 million, or 77.6%, to approximately $5.7 million from
approximately $3.2 million during the same period in 2010.  This increase in total gross revenue was predominantly
sales volume based, with increased sales volume accounting for approximately $2.3 million, or approximately 72.5%, and price
increases accounting for the remaining approximately $0.2 million, or approximately 5.1%.  In general, we focused
on opening new markets, such as India, and also increasing sales in existing markets by presenting clinical data at
conferences and individual presentations to doctors about the merits of MGuardTM.  With respect to
individual markets, this increase in gross revenue is mainly attributable to the first time shipment of approximately $1.2
million to our distributor in India during the twelve months ended December 31, 2011, an increase of approximately $0.4
million of gross revenue from our new distributor in Russia, an increase of approximately $0.4 million of gross revenue from
our distributor in Israel, an increase of approximately $0.3 million of gross revenue from our distributor in Brazil, an
increase of approximately $0.2 million of gross revenue from our distributor in Spain, an increase of approximately $0.2
million of gross revenue from our distributor in Argentina, an increase of approximately $0.1 million of gross revenue
from our distributor in South Africa, an increase of approximately $0.1 million of gross revenue from our new distributor in Ukraine, an increase of approximately $0.1 million of gross revenue from our new distributor in the Netherlands and an
increase of approximately $0.1 million of gross revenue from our distributor in Mexico.  This increase was
partially offset by a decrease of approximately $0.2 million in gross revenue from our distributor in Germany, a decrease of
approximately $0.2 million in gross revenue from our distributor in Pakistan, a decrease of approximately $0.2 million from
our distributor in Poland, a decrease of approximately $0.1 million in gross revenue from our distributor in Italy, and a
decrease of approximately $0.1 million in gross revenue to our distributor in France, all due to lower sales volume to these
distributors. We also shipped and recognized gross revenue for approximately $0.2 million more from our remaining
distributors during the twelve months ended December 31, 2011, as compared to the same period in 2010.



For the twelve months ended December 31,
2011, net deferred revenue recognized decreased by approximately $1.4 million, or 83.8%, to approximately $0.3 million from approximately
$1.7 million during the same period in 2010. The key driver of this decrease was a decrease in the volume of revenue deferred to
2011 compared to the volume of revenue deferred to 2010, accounting for approximately $1.3 million or approximately 74.5%, with
the remaining approximately $0.1 million, or 9.3%, being driven by price decreases in the revenue deferred to 2011 compared to
the revenue deferred to 2010. Revenue recognition out of deferred income had less of an impact in 2011 as compared to 2010 due
to the fact that we deferred mainly shipments in 2008 and 2009 that were recognized in 2010. In 2010, only a small set of customers
had a large portion of their revenues deferred until 2011.



48









For the twelve months ended December
31, 2011, our net deferred revenue consisted of approximately $0.2 million attributable to our distributor in Israel,
approximately $0.1 million to our distributor in Brazil, and approximately $0.1 million to our distributor in Poland, offset
by approximately $0.1 million deferred for a shipment to our distributor in India. Our distributor in Israel had a
contractual right to return all purchases to us within 18 months of the purchase date. Due to our inability to accurately
estimate the amount of future returns, all sales to this distributor were deferred until this 18 month return period
elapsed.  On May 9, 2011, our distributor in Israel agreed to revoke its previous rights to return purchases,
resulting in all future sales being final. The deferred revenue of approximately $0.2 million recognized during the twelve
months period ended December 31, 2011 accounted for all previous purchases by the distributor that the distributor no longer
had a contractual right to return and were not yet recognized as revenues. Our distributor in Brazil has a contractual right
to return all purchases for up to six months from the delivery date. Due to our inability to accurately estimate the amount
of future returns by our distributor in Brazil, all sales made to it were also deferred until the six month return period
elapsed. The deferred revenue of approximately $0.1 million recognized during the twelve months period ended December 31,
2011 accounted for purchases made in December 2010 that were not returned by the Brazilian distributor and were not yet
recognized as revenues. In 2011, it was decided that due to lack of actual returns from the Brazilian distributor,
despite the clause in their contract, we will no longer defer revenue pertaining to current shipments. Our distributor in
India made its first purchase in 2011. Because of our inexperience with this distributor, management decided to defer a
portion of the shipment to 2012, when it could better determine if a portion of it would be returned.



For the twelve months ended December 31,
2010, net deferred revenue recognized of approximately $1.7 million was comprised mainly of shipments from 2008 and 2009 to our
distributor in Poland of approximately $1.3 million, to our distributor in Brazil of approximately $0.3 million, and to our distributor
in Sri Lanka of approximately $0.1 million. For the twelve months ended December 31, 2010, our distributor in Poland, subject to
our sole discretion, had the right to return our products.  Because we were unable to develop estimates for the level
of returns, the $1.3 million worth of shipments made to the distributor in Poland that we recorded as deferred revenues were only
recognized during the twelve months ended December 31, 2010 as revenues. As noted above, our distributor in Brazil has a contractual
right to return all purchases for up to six months from the delivery date. As also noted above, due to our inability to accurately
estimate the rate of return by this distributor, all sales made to it were also deferred until the six month return period elapsed.
The deferred revenue of approximately $0.3 million recognized during the twelve months period ended December 31, 2010 accounted
for purchases made in December 2009 that were not returned and were not yet recognized as revenues.



Gross Profit.  For the
twelve months ended December 31, 2011, gross profit increased 32.8%, or approximately $0.7 million, to approximately $3.0 million
from approximately $2.3 million during the same period in 2010.  Gross margin increased from 45.5% in the twelve months
ended December 31, 2010 to 49.9% in the twelve months ended December 31, 2011.  In addition to an increase in sales,
we were able to improve our gross profit because of reduced production cost per stent driven by reduction in price per unit from
our subcontractor and economies of scale. For the twelve months ended December 31, 2011, our average selling price per stent recognized
in revenue was $571, and we recognized the sale of 10,523 stents, compared to an average price of $606 per stent and 8,171 stents
recognized in revenue for the same period in 2010.  Our cost of goods sold per stent decreased from an average of $330
per stent recognized in revenue for the twelve months ended December 31, 2010 to an average of $286 per stent for the same period
in 2011.  The higher price per stent for the twelve months ended December 31, 2010 was effected by the price of stents
sold in 2008 and 2009 to one of our European distributors in Euros when the Euro was much stronger than the U.S. dollar, at an
average price of $997 when translated to U.S. dollars.



Research and Development
Expense.  For the twelve months ended December 31, 2011, research and development expense increased 84.9%, or
approximately $1.2 million, to approximately $2.5 million from approximately $1.3 million during the same period in 2010. The
increase in cost resulted primarily from higher clinical trial expenses of approximately $1.2 million, attributable mainly to
the U.S. Food and Drug Administration clinical trial (approximately $0.9 million) and the MGuard for Acute ST Elevation
Reperfusion Trial (MASTER Trial) (approximately $0.3 million), and an increase of approximately $0.3 million in salaries,
offset by an approximately $0.2 million reduction in miscellaneous expenses and an approximately $0.1 million reduction in
share-based compensation. Research and development expense as a percentage of revenue increased to 41.2% for the twelve
months ended December 31, 2011 from 27.0% in the same period of 2010.



Selling and
Marketing Expense.  For the twelve months ended December 31, 2011, selling and marketing expense increased
59.6%, or approximately $0.7 million, to approximately $2.0 million, from approximately $1.3 million during the same period
in 2010.  The increase in selling and marketing expense resulted primarily from approximately $0.3 million
of additional salaries and approximately $0.4 of share-based compensation principally for newly hired sales personnel in
connection with the expansion of our sales activities worldwide, and approximately $0.1 million of commissions pertaining
mainly to our first time shipment of approximately $1.2 million to our distributor in India. This increase was partially
offset by a decrease of approximately $0.1 million in advertising expenses. Selling and marketing expense as a percentage of
revenue increased to 32.9% in 2011 from 25.0% in 2010.



49









General and
Administrative Expense.  For the twelve months ended December 31, 2011, general and administrative
expense increased 323.6%, or approximately $9.4 million, to approximately $12.3 million from $2.9 million during the same
period in 2010. The increase resulted primarily from an increase in share-based compensation of $7.5 million, which
predominately pertains to directors’ compensation, an increase of approximately $0.5 million in salary expenses (due to
an increase in employee infrastructure to accommodate and comply with the reporting requirements of the Securities and
Exchange Commission), an increase in investor related activities of approximately $0.5 million (due to us having been a
publicly reporting company during the twelve months ended December 31, 2011, but not during the same period in 2010), an
increase of approximately $0.5 million in litigation expenses (primarily due to a provision for our potential loss related to
a threatened lawsuit from a finder claiming a future success fee and commissions for assistance in finding our distributor in
Brazil), approximately $0.3 million in legal fees (also related primarily to compliance with the reporting requirements of
the Securities and Exchange Commission), and approximately $0.2 million in audit fees to accommodate and comply with the
reporting requirements of the Securities and Exchange Commission. This increase was partially offset by a decrease
of approximately $0.1 million in miscellaneous expenses. General and administrative expense as a percentage of revenue
increased to 204.4% in 2011 from 58.6% in 2010.



Financial Expenses.  For
the twelve months ended December 31, 2011, financial expense increased 506.5%, or approximately $0.8 million, to approximately
$1.0 million from $0.2 million during the same period in 2010. The increase in expense resulted primarily from a one-time financial
expense recording of approximately $0.6 million in the first quarter of 2011 pertaining to the revaluation of an outstanding convertible
loan at fair value prior to redemption and approximately $0.2 million for the favorable impact of exchange rate differences for
the twelve months ended December 31, 2010 that did not occur during the twelve months ended December 31, 2011. Financial expense
as a percentage of revenue increased from 3.1% in 2010, to 15.6% in 2011.



Tax Expenses.  Tax
expense remained relatively flat at $2,000 for the twelve months ended December 31, 2011, as compared to $47,000 during the same
period in 2010.



Net Loss.  Our net loss
increased by approximately $11.3 million, or 328.8%, to $14.7 million for the twelve months ended December 31, 2011 from $3.4 million
during the same period in 2010. The increase in net loss resulted primarily from an increase in operating expenses of approximately
$11.2 million (see above for explanation) and an increase of approximately $0.8 million in financial expenses (see above for explanation).
This increase was partially offset by an increase in gross profit of approximately $0.7 million (see above for explanation).



Twelve months ended December 31, 2010 compared to twelve
months ended December 31, 2009



Revenues. For the twelve months ended
December 31, 2010, total revenue increased approximately $1.5 million, or 45.1%, to approximately $4.9 million from approximately
$3.4 million in 2009. The $1.5 million increase in revenue was primarily attributable to an increase in the amount of net deferred
revenues recognized during 2010.



For a description of the revenue deferred
to 2010, see “Twelve months ended December 31, 2011 compared to twelve months ended December 31, 2010” above.



For the twelve months ended December
31, 2009, net deferred revenue of approximately $0.1 million was comprised mainly of shipments made in 2009 but deferred and recognized
in 2010 to our distributor in Brazil in the amount of approximately $0.4 million, to our distributor in Poland in the amount of
$0.2 million and to our distributor in Israel in the amount of $0.2 million, offset by shipments made in 2008 but deferred and
recognized in revenue in 2009 from our distributor in Italy in the amount of $0.5 million, and from our distributor in Cyprus
in the amount of $0.2 million. Because 2008 was our first year of sales and we were unable to accurately estimate the amount of
future returns of our products, all revenues from shipments made in 2008 were deferred and recognized in 2009. The deferred revenue
for each distributor recognized during the twelve month period ended December 31, 2009 accounted for the purchases made in the
twelve month period ended December 31, 2008 that were not returned by either distributor and were not yet recognized as revenues.
See also “Twelve months ended December 31, 2011 compared to twelve months ended December 31, 2010” above for the reasons
why such revenue was deferred and/or recognized for certain of the distributors listed above.



50







Total gross revenue for the twelve
months ended December 31, 2010 remained relatively flat in comparison to the twelve months ended December 31, 2009,
increasing by approximately $46,000. This increase was predominantly sales volume based, with increased sales
volume accounting for approximately $263,000, offset by price decreases in the amount of $217,000. The increase in sales
volume was evenly distributed among our distributors. The decrease in prices were due to our penetration of newly opened
markets, namely Brazil, Slovakia and Cyprus in 2010, which required reduced prices as compared to 2009.



Gross Profit. For the twelve months
ended December 31, 2010, gross profit (revenue less cost of revenues) increased 101.2%, or approximately $1.1 million, to approximately
$2.2 million from approximately $1.1 million during the same period in 2010. Our gross margin percentage for the twelve months
ended December 31, 2010 increased to 45.5% of revenues, compared to 32.8% during the same period in 2009. In addition to an increase
in sales, we were able to improve our gross profit because of reduced production cost per stent driven by reduction in price per
unit from our subcontractor and economies of scale. For the twelve months ended December 31, 2010, our average selling price per
stent recognized in revenue was $606, and we recognized the sale of 8,171 stents, compared to an average price of $577 per stent
and 5,910 stents recognized in revenue for the same period in 2009. Our cost of goods sold per stent decreased from an average
of $380 per stent recognized in revenue for the twelve months ended December 31, 2009 to an average of $330 per stent for the same
period in 2010. The higher price per stent for the twelve months ended December 31, 2010 was affected by the price of stents sold
in 2008 and 2009 to one of our Europeans distributors in Euros when the Euro was much stronger than the U.S. dollar, at an average
price of $997 when translated to U.S. dollars.



Research and Development Expense.
For the twelve months ended December 31, 2010, research and development expense remained relatively flat at approximately $1.3
million as compared to the same period in 2009. Research and development expense as a percentage of revenue decreased to 27.0%
in 2010 from 39.0% in 2009.



Selling and Marketing Expense.
For the twelve months ended December 31, 2010, selling and marketing expense increased by approximately $0.2 million, or
18.8%, to approximately $1.2 million from approximately $1.0 million during the same period in 2009. The increase in cost
resulted primarily from an increase of approximately $0.2 million in advertising expenses. Selling and marketing expense as a
percentage of revenue decreased to 25.0% in 2010 from 30.5% in 2009.



General and Administrative Expense.
For the twelve months ended December 31, 2010, general and administrative expense increased approximately $1.4 million, or 97.5%,
to approximately $2.9 million from approximately $1.5 million during the same period in 2009. The increase resulted primarily from
an increase in share-based compensation of approximately $0.7 million (of which approximately $0.5 million related to employees
and $0.2 million related to directors), an increase of approximately $0.2 million in audit fees (as we prepared for the transition
from Israel GAAP to U.S. GAAP), an increase of $0.1 million in salary expenses, and an increase of approximately $0.4 million in
other expenses (due to our overall expansion). General and administrative expense as a percentage of revenue increased to 58.6%
in 2010 from 43.0% in 2009.



Financial Expenses (Income). For
the twelve months ended December 31, 2010, financial expense increased to approximately $0.2 million from income of $4,000 for
the same period in 2009. The increase in expense resulted primarily from a one time financial income recording of $0.3 million
in 2009 pertaining to the cancellation of the conversion feature of a convertible loan that was repaid in the same year. Financial
expense as a percentage of revenue increased to 3.1% in 2010, compared to financial income as a percent of revenue of 1.2% in 2009.



Tax Expenses. Tax expense remained
flat at $47,000 for the twelve months ended December 31, 2010 and 2009. Our expenses for income taxes reflect primarily the tax
liability due to potential tax exposure.



Net Loss. Our net loss increased
by approximately $0.7 million, or 25.6%, to approximately $3.4 million in 2010 from approximately $2.7 million during the same
period in 2009. The increase in net loss resulted primarily from an increase in operating expenses of approximately $1.6 million
(see above for explanation) and an increase of approximately $0.2 million in financial expenses (see above for explanation). This
increase was partially offset by an increase in gross profit of approximately $1.1 million (see above for explanation).



51









Liquidity and Capital Resources









Six month period ended June 30, 2012 compared to the six month period ended June 30, 2011





We have had recurring losses and negative
cash flows from operating activities and have significant future commitments. For the six months ended June 30, 2012, we had losses
of approximately $7.1 million and negative cash flows from operating activities of approximately $4.4 million. Our management believes
that its working capital as of June 30, 2012 of approximately $10.8 million should enable us to continue funding the negative cash
flows from operating activities until October 2013, when our convertible debentures are subject to a non-contingent redemption
option that could require us to make a payment of approximately $13.3 million, including accrued interest. Since we expect to continue
incurring negative cash flows from operations and in light of the potential cash requirement in connection with our convertible
debentures, there is substantial doubt about our ability to continue operating as a going concern.



We will need to raise further capital at
some future point in time, through the sale of additional equity securities or debt. Our future capital requirements and the adequacy
of our available funds will depend on many factors, including our ability to successfully commercialize our MGuardTM products,
our development of future products and competing technological and market developments. However, we may be unable
to raise sufficient additional capital when we require it or upon terms favorable to us. In addition, the terms of any securities
we issue in future financings 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. If we are unable to obtain adequate funds on reasonable terms, we will need to curtail operations significantly,
including possibly postponing or halting our U.S. Food and Drug Administration clinical trials or entering into financing agreements
with unattractive terms.





General. At June 30, 2012,
we had cash and cash equivalents of approximately $10.3 million, as compared to $8.0 million at June 30, 2011. The increase is
attributable primarily to the issuance of senior secured convertible debentures and warrants on April 5, 2012. We have historically
met our cash needs through a combination of issuance of new shares, borrowing activities and sales. Our cash requirements are
generally for product development, clinical trials, marketing and sales activities, finance and administrative cost, capital expenditures
and general working capital.





Cash used in our operating activities
was approximately $4.4 million for the six month period ended June 30, 2012, and approximately $1.8 million for the same period
in 2011. The principal reasons for the usage of cash in our operating activities for the six month period ended June 30, 2012
included a net loss of approximately $7.1 million and approximately $1.3 million in non-cash financial income related to the revaluation
of warrants pertaining to our convertible debentures, offset by approximately $1.9 million in non-cash share-based compensation,
approximately $1.0 million in non-cash financial expense related to our convertible debentures, a decrease in working capital
of approximately $0.9 million (driven primarily from a decrease in our accounts receivable of approximately $0.5 million due to
our decrease in sales and an increase of approximately $0.5 million in other payables due to accruals recorded pertaining to the
MGuard for Acute ST Elevation Reperfusion Trial (MASTER Trial) and the U.S. Food and Drug Administration clinical trial) and approximately
$0.2 million of all other adjustments.



Cash used by our investing activities was
approximately $0.2 million during the six month period ended June 30, 2012, compared to approximately $0.1 million during the
same period in 2011. The principal reason for the increase in cash used in investing activities during 2012 was the purchase of
approximately $0.2 million of new equipment.



Cash flow generated from financing
activities was approximately $9.8 million for the six month period ended June 30, 2012, and $9.4 million for the same period
in 2011. The principal source of cash flow from financing activities during 2012 was the proceeds from our convertible
debentures and warrants issued on April 5, 2012 of approximately $9.9 million, offset by the repayment of a long-term loan in
the amount of approximately $0.1 million. The principal source of cash flow from financing activities during the six month
period ended June 30, 2011 was the private placement conducted in conjunction with the share exchange transactions on March
31, 2011 and other private equity issuances prior to and after the reverse merger in the aggregate amount of approximately
$10.6 million, offset by the repayment of a convertible loan in the amount of approximately
$1.0 million and the partial repayment of a long-term loan in the amount of approximately $0.2 million.



As of June 30, 2012, our
current assets exceeded current liabilities by a multiple of 4.1. Current assets increased approximately $4.5 million during
the six month period ended June 30, 2012, mainly due to cash raised from the convertible debenture and warrant offering, and
current liabilities increased by approximately $0.1 million during the same period. As a result, our working capital surplus
increased by approximately $4.4 million to approximately $10.8 million during the six month period ended June 30,
2012.



Long-Term Loan. Prior
to June 30, 2012, we had a long-term loan in the amount of approximately $0.1 million bearing interest at the three month U.S.
Dollar LIBOR rate plus 4% per annum. The loan was payable in eight quarterly installments during a period of three years that
began in April 2010. According to the loan agreement, in case of an “exit transaction” (defined as certain merger
or sale transactions, or an initial public offering), we were required to pay to the bank an additional $0.25 million if the sum
received in the transaction was higher than $100 million. The loan was repaid in January 2012.



Sales of Stock/Issuance of Debt and
Securities. For the six month period ended June 30, 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 approximately $9.9 million. The convertible debentures were issued with a 6% original issuance
discount, bear interest at an annual rate of 8% and are 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 will 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 may 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 may 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.



52







Twelve months ended December 31, 2011 compared to twelve
months ended December 31, 2010



General. At December 31, 2011, we
had cash and cash equivalents of approximately $5.1 million, as compared to $0.6 million at December 31, 2010. The increase is
attributable primarily to the private placement conducted in conjunction with the share exchange transactions on March 31, 2011
and other private equity issuances prior to and after the share exchange transactions.



Cash used in our operating activities
was approximately $6.0 million for the twelve months ended December 31, 2011, and approximately $2.7 million for the same period
in 2010. The principal reasons for the usage of cash in our operating activities for the twelve months ended December 31, 2011
included a net loss of approximately $14.7 million and a decrease in working capital of approximately $2.0 million, offset by
approximately $9.6 million in non-cash share-based compensation, an approximately $0.9 million in non-cash financial expenses
related to the revaluation of a convertible loan and approximately $0.2 million of all other adjustments.



Cash provided by our investing activities
was approximately $13,000 during the twelve months ended December 31, 2011, compared to approximately $46,000 of cash used by
investing activities during the same period in 2010. The principal reason for the decrease in cash flow from investing activities
during 2011 was a decrease in restricted cash of approximately $160,000, offset by the purchase of approximately $140,000 of new
manufacturing equipment.



Cash flow generated from financing activities
was approximately $10.7 million for the twelve months ended December 31, 2011, and $3.0 million for the same period in 2010. The
principal reason for the increase in cash flow from financing activities during 2011 was the private placement conducted in conjunction
with the share exchange transactions on March 31, 2011 and other private equity issuances and exercise of options prior to and
after the share exchange transactions in the aggregate amount of approximately $12.1 million, offset by the repayment of a convertible loan in the amount of approximately $1.0 million and the partial repayment of a long-term loan in the
amount of approximately $0.4 million.



As of December 31, 2011, our current assets
exceeded current liabilities by a multiple of 2.8. Current assets increased approximately $5.9 million during 2011, mainly due
to cash raised from the private placements in 2011, while current liabilities decreased approximately $0.5 million during the
same period. As a result, our working capital surplus increased by approximately $6.4 million to approximately $6.3 million during
the twelve months ended December 31, 2011.



Long-Term Loan. As
of December 31, 2011, we had a long-term loan in the amount of approximately $0.1 million bearing interest at the three month
U.S. Dollar LIBOR rate plus 4% per annum. See “Six month period ended June 30, 2012 compared to six month period ended
June 30, 2011 — Long-Term Loan.”



Convertible Loans. Prior
to December 31, 2011, we had a convertible loan with an aggregate principal amount outstanding of approximately $1.58
million that bore 8% interest. Following the share exchange transactions on March 31, 2011, $580,000 plus accrued interest
converted into shares of our common stock. The remaining principle in the amount of $1.0 million, plus all accrued interest,
was repaid on May 15, 2011.



Sales of Stock. For the twelve months
ended December 31, 2011, we issued an aggregate of 3,078,786 shares of common stock and warrants to purchase 1,677,268 shares
of common stock for gross proceeds of approximately $13.7 million and corresponding net proceeds of approximately $12.1 million.



53







Twelve months ended December 31, 2010 compared to twelve
months ended December 31, 2009



General. At December 31, 2010, we
had cash and cash equivalents of approximately $0.6 million, as compared to $0.4 million at December 31, 2009.



Cash used in our operating activities was
approximately $2.7 million for the twelve months ended December 31, 2010, and approximately $1.5 million for the same period in
2009. The principal reasons for the increase in cash used in operations in 2010 included a net loss of approximately $3.4 million,
a decrease of approximately $1.6 million in deferred revenues offset by approximately $1.6 million of non cash share-based compensation
expense, an increase of approximately $0.4 million in other working capital and $0.3 million of other non cash adjustments.



Cash used in investing activities was approximately
$46,000 for the twelve months ended December 31 2010 and approximately $0.3 million for the same period in 2009. The principal
reasons for the decrease in cash flow from investing activities included approximately $81,000 for plant and equipment purchases
offset by a decrease of approximately $52,000 in restricted cash.



Cash flow generated from financing activities
was approximately $3.0 million for the twelve months ended December 31, 2010, and approximately $0.7 million for the same period
in 2009. The principal reasons for the increase in cash flow from financing activities during 2010 were the issuance of approximately
$1.8 million in new shares and the issuance of a convertible loan of approximately $1.5 million, offset by the repayment of a
long-term loan in the amount of approximately $0.3 million.



As of December 31, 2010, current assets
were approximately equal with our current liabilities. Current assets decreased approximately $0.2 million during the twelve months
ended December 31, 2010 while current liabilities decreased by approximately $1.5 million during the same period. As a result,
our working capital deficiency decreased by approximately $1.2 million to approximately $53,000 during the twelve months ended
December 31, 2010.





Newly Adopted Accounting Guidance





In May 2011, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 changes
certain fair value measurement principles and clarifies the application of existing fair value measurement guidance. These amendments
include, among others, (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value
of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information
about the unobservable inputs used within the Level 3 hierarchy.



Effective January 1, 2012, we adopted ASU
2011-04. The adoption of this accounting standards update did not have a material impact on our consolidated financial statements.



54







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.



Tabular Disclosure of Contractual Obligations



The following table summarizes our outstanding
contractual obligations as of June 30, 2012:



|                                |  | Payments due by period (amounts in thousands) |       
|------------------------------- |  | --------------------------------------------- | ------
|                                |  |                                               |       
|Contractual Obligations         |  | Total                                         |       
|                                |  |                                               |       
|Convertible loan (1)            |  | $                                             | 14,745
|Operating lease obligations (2) |  | $                                             | 913   
|Accounts Payable                |  | $                                             | 1,983 
|Total                           |  | $                                             | 17,641





| | (1) | Our convertible loan obligations as of June 30, 2012 consisted of senior secured convertible debentures issued to certain investors
on April 5, 2012 in the aggregate amount of $11.7 million. Our convertible debentures bear annual interest of 8% and are convertible
at any time into shares of common stock at an initial conversion price of $7.00 per share. The holders of our convertible debentures may require us to redeem our convertible debentures at any point
18 months after the date of issuance.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Our operating lease obligations consist of the lease for our offices and manufacturing facilities in Tel Aviv, Israel and the
leases for the majority of our company cars.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Supplemental Disclosures



Due to the change in our fiscal year from December 31 to June
30, we are providing on a voluntary basis supplemental Management’s Discussion and Analysis disclosures for the years ended
June 30, 2012 and June 30, 2011 (unaudited). The financial statement for these periods are attached as Exhibit 99.1 to this Transition
Report on Form 10-K/T.







Results of Operations



Twelve months ended June 30, 2012 compared to the twelve
months ended June 30, 2011



Revenue. For the twelve months ended
June 30, 2012, total revenue increased approximately $0.7 million, or 14.5%, to approximately $5.4 million from approximately $4.7
million during the same period in 2011. The $0.7 million increase was attributable to an increase in sales volume of approximately
$0.5 million, as described more fully below, and an increase in sales prices of approximately $0.2 million, as described more fully
below. The following is an explanation of the approximately $0.7 million increase in revenue broken down by its main two components,
an increase in gross revenues of approximately $0.9 million, partially offset by a net decrease in deferred revenues recognized
of approximately $0.2 million.



For the twelve months ended June 30, 2012,
total gross revenue increased by approximately $0.9 million, or 20.5%, to approximately $5.3 million from approximately $4.4 million
during the same period in 2011. This increase in total gross revenue is predominantly sales volume based, with increased sales
volume accounting for approximately $0.8 million, or approximately 18.0%, and price increases to our repeat distributors accounting
for the remaining approximately $0.1 million, or approximately 2.5%. With respect to individual markets, this increase in gross
revenue was mainly attributable to sales to new distributors in Russia (approximately $0.8 million of gross revenue), Poland (approximately
$0.3 million of gross revenue) and Ireland (approximately $0.1 million of gross revenue), as well as an increase of approximately
$0.3 million of gross revenues from our distributor in Brazil, an increase of approximately $0.2 million of gross revenues from
our distributor in Israel, an increase of approximately $0.2 million of gross revenues from our distributor in Mexico, an increase
of approximately $0.2 million of gross revenues from our distributor in South Africa, an increase of approximately $0.1 million
of gross revenues from our distributor in Belarus, an increase of approximately $0.1 million of gross revenues from our distributor
in Italy and an increase of approximately $0.1 million of gross revenues from our distributor in Lithuania. These increases were
partially offset by a decrease of approximately $1.2 million of gross revenues from our distributor in India (due to the fact that
we did not have any sales to this distributor during the twelve months ended June 30 2012, compared to sales of approximately $1.2
million to this distributor during the same period in 2011), a decrease of approximately $0.2 million of gross revenue from our
distributor in France and a decrease of approximately $0.1 million of gross revenue from our distributor in Germany.



For the twelve months ended June 30, 2012,
net deferred revenue recognized decreased by approximately $0.2 million, or 84.0%, to approximately $0.1 million from approximately
$0.3 million during the same period in 2011. This decrease was entirely sales volume based, partially offset by approximately $0.1
million in price increases to our repeat distributors. The revenue recognized during the twelve months ended June 30, 2012 was
comprised primarily of approximately $0.1 million of revenue that we deferred from a shipment to India in the twelve months ended
June 30, 2011. Our deferred revenue recognized during the twelve months ended June 30, 2011 consisted of approximately $0.1 million
of revenue recognized from our distributor in Israel, approximately $0.1 million of revenue recognized from our distributor in
Brazil, approximately $0.1 million of revenue recognized from our distributor in Poland and approximately $0.1 million of recognized
revenue from all others, partially offset by deferred revenue of approximately $0.1 million from our distributor in India.



Gross Profit. For the
twelve months ended June 30, 2012, gross profit (revenue less cost of revenues) increased 11.1%, or approximately $0.2
million, to approximately $2.5 million from approximately $2.3 million during the same period in 2011. Gross margin decreased
from 48.2% in the twelve months ended June 30, 2011 to 46.7% during the same period in 2012. The primary reason for
the decrease in gross margin was a write-off of approximately $0.4 million of slow moving inventory, which caused our
gross margin to decrease approximately 8.3%. We were able to partially offset this decrease with reduced production cost per
stent driven by economies of scale. For the twelve months ended June 30, 2012, our average selling price per stent recognized
in revenue was $586, and we recognized the sale of 9,131 stents, compared to an average price of $545 per stent and 8,573
stents recognized in revenue for the same period in 2011. Our cost of goods sold per stent increased from an average of $282 per stent recognized in revenue for the twelve months ended June 30,
2011 to an average of $312 per stent for the same period in 2012.







55









Research and Development Expense.
For the twelve months ended June 30, 2012, research and development expense increased 140.5% or approximately $2.3 million, to
approximately $4.0 million, from approximately $1.7 million during the same period in 2011. The increase in cost resulted primarily
from higher clinical trial expenses of approximately $1.7 million, attributable mainly to the MGuard for Acute ST Elevation Reperfusion
Trial (MASTER Trial) (approximately $0.9 million), the U.S. Food and Drug Administration clinical trial (approximately $0.7 million)
and the MGuardTM Carotid clinical trial (approximately $0.2 million), an increase of approximately $0.4 million in salaries
and an increase of approximately $0.2 million in share-based compensation. Research and development expense as a percentage of
revenue increased to 74.6% for the twelve months ended June 30, 2012 from 35.5% in the same period in 2011.



Selling and Marketing Expense. For
the twelve months ended June 30, 2012, selling and marketing expense increased 32.2%, or approximately $0.5 million, to approximately
$2.2 million, from approximately $1.7 million during the same period in 2011. The increase in selling and marketing expense resulted
primarily from approximately $0.5 million of additional salaries and approximately $0.2 million of additional share-based compensation
principally for newly hired sales personnel in connection with the expansion of our sales activities worldwide, and approximately
$0.2 million in advertising expenses. This increase was partially offset by a decrease of approximately $0.1 million of commissions
pertaining mainly to our first time shipment of approximately $1.2 million to our distributor in India during the twelve months
ended June 30, 2011 (no such sale occurred in the same period of 2012), approximately $0.1 million in share-based compensation
to consultants and approximately $0.2 million in miscellaneous expenses. Selling and marketing expense as a percentage of revenue
increased to 40.6% for the twelve months ended June 30, 2012 from 35.2% in the same period in 2011.



General and Administrative Expense.
For the twelve months ended June 30, 2012, general and administrative expense increased 232.4%, or approximately $9.7 million,
to approximately $13.9 million from $4.2 million during the same period in 2011. The increase resulted primarily from an increase
in share-based compensation of $8.8 million, predominately related to directors’ compensation, an increase of approximately
$0.3 million in legal fees, related primarily to compliance with the reporting requirements of the Securities and Exchange Commission,
an increase of approximately $0.2 million in rent expense related to our move to a new location to support our expanding sales
activities, an increase of approximately $0.2 million in audit fees to accommodate and comply with the reporting requirements of
the Securities and Exchange Commission, an increase of approximately $0.1 million of salary expense due to an increase in employee
infrastructure to accommodate and comply with Securities and Exchange Commission standards and reporting, an increase in travel
expense of approximately $0.1 million and an increase of approximately $0.4 million in miscellaneous expenses. This increase was
partially offset by a decrease of approximately $0.4 million in litigation expenses. General and administrative expense as a percentage
of revenue increased to 259.5% for the twelve months ended June 30, 2012 from 89.4% in the same period in 2011.



Financial (Income) Expense.
For the twelve months ended June 30, 2012, financial expense decreased 95.8%, or approximately $0.9 million, to
approximately $40,000 from $0.9 million during the same period in 2011. The decrease in expense resulted primarily from
approximately $1.3 million of financial income from the revaluation of warrants pertaining to our convertible debentures,
partially offset by approximately $1.2 million of amortization expense pertaining to the same convertible debentures and
their related issuance costs in the twelve months ended June 30, 2012, as compared to a one-time financial expense recording
of approximately $0.6 million in the twelve months  ended June 30, 2011 pertaining to the revaluation of an outstanding
convertible loan at fair value prior to redemption. Additionally, there was a decrease of approximately $0.1 million in other
interest expense and a net decrease of approximately $0.1 million in all other financial expenses in the twelve months ended
June 30, 2012 as compared to the same period in 2011. Financial expense as a percentage of revenue decreased to 0.7% for the
twelve months ended June 30, 2012, from 19.5% in the same period in 2011.



Tax Expenses. Tax expense remained
relatively flat at $14,000 for the twelve months ended June 30, 2012, as compared to $37,000 during the same period in 2011.





56









Net Loss. Our net loss increased
by approximately $11.4 million, or 184.9%, to $17.6 million for the twelve months ended June 30, 2012, from $6.2 million during
the same period in 2011. The increase in net loss resulted primarily from an increase in operating expenses of approximately $12.5
million (see above for explanation). This increase was partially offset by a decrease in financial expense (income) of approximately
$0.9 million (see above for explanation) and an increase of approximately $0.2 million in gross profit (see above for explanation).





Liquidity and Capital Resources



Twelve months ended June 30, 2012 compared to the twelve
months ended June 30, 2011



We have had recurring losses and negative
cash flows from operating activities and have significant future commitments. For the twelve months ended June 30, 2012, we had
losses of approximately $17.6 million and negative cash flows from operating activities of approximately $8.6 million. Our management
believes that its working capital as of June 30, 2012 of approximately $10.8 million should enable us to continue funding the negative
cash flows from operating activities until October 2013, when our convertible debentures are subject to a non-contingent redemption
option that could require us to make a payment of approximately $13.3 million, including accrued interest. Since we expect to continue
incurring negative cash flows from operations and in light of the potential cash requirement in connection with our convertible
debentures, there is substantial doubt about our ability to continue operating as a going concern.



We will need to raise further capital at
some future point in time, through the sale of additional equity securities or debt. Our future capital requirements and the adequacy
of our available funds will depend on many factors, including our ability to successfully commercialize our MGuardTM products,
our development of future products and competing technological and market developments. However, we may be unable to raise sufficient
additional capital when we require it or upon terms favorable to us. In addition, the terms of any securities we issue in future
financings 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.
If we are unable to obtain adequate funds on reasonable terms, we will need to curtail operations significantly, including possibly
postponing or halting our U.S. Food and Drug Administration clinical trials or entering into financing agreements with unattractive
terms.



General. At June 30, 2012, we had
cash and cash equivalents of approximately $10.3 million, as compared to $8.0 million at June 30, 2011. The increase is attributable
primarily to the issuance of senior secured convertible debentures and warrants on April 5, 2012. We have historically met our
cash needs through a combination of issuance of new shares, borrowing activities and sales. Our cash requirements are generally
for product development, clinical trials, marketing and sales activities, finance and administrative cost, capital expenditures
and general working capital.



Cash used in our operating activities was
approximately $8.6 million for the twelve months ended June 30, 2012, and approximately $3.3 million for the same period in 2011.
The principal reasons for the usage of cash in our operating activities for the twelve months ended June 30, 2012 included a net
loss of approximately $17.6 million, an increase in working capital of approximately $1.7 million (driven primarily from an increase
in our accounts receivable of approximately $1.2 million due to our increase in sales) and approximately $1.3 million in non-cash
financial income related to the revaluation of warrants pertaining to our convertible debentures, offset by approximately $10.6
million in non-cash share-based compensation, approximately $1.2 million in non-cash financial expense related to our convertible
debentures, and approximately $0.2 million of all other adjustments.



Cash used by our investing activities was
approximately $43,000 during the twelve months ended June 30, 2012, compared to approximately $0.2 million during the same period
in 2011. The principal reason for the decrease in cash flow from investing activities during 2012 was the purchase of approximately
$290,000 of new equipment and the funding of employee retirement funds of approximately $71,000, partially offset by a decrease
in restricted cash of approximately $306,000 and proceeds from the sale of equipment of approximately $12,000.





57













Cash flow generated from financing activities
was approximately $11.1 million for the twelve months ended June 30, 2012, and $11.2 million for the same period in 2011. The principal
source of cash flow from financing activities during 2012 was the proceeds from our convertible debentures and warrants issued
on April 5, 2012 of approximately $9.9 million and the exercise of options of approximately $1.5 million, offset by the repayment
of a long-term loan in the amount of approximately $0.3 million.



As of June 30, 2012, our current assets
exceeded current liabilities by a multiple of 4.0. Current assets increased approximately $3.5 million during the twelve months
ended June 30, 2012, mainly due to cash raised from the convertible debenture and warrant offering, and current liabilities increased
by approximately $0.4 million during the same period. As a result, our working capital surplus increased by approximately $3.9
million to approximately $10.8 million during the twelve months ended June 30, 2012.



Long-Term Loan. Prior to June
30, 2012, we had a long-term loan in the amount of approximately $0.1 million bearing interest at the three month U.S. Dollar
LIBOR rate plus 4% per annum. The loan was payable in eight quarterly installments during a period of three years that began
in April 2010. According to the loan agreement, in case of an “exit transaction” (defined as certain merger or
sale transactions, or an initial public offering), we were required to pay to the bank an additional $0.25 million
(which did not occur) if the sum received in the
transaction was higher than $100 million. The loan was repaid in January 2012.



Sales of Stock/Issuance of Debt and Securities.
For the twelve months ended June 30, 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 approximately
$9.9 million. The convertible debentures were issued with a 6% original issuance discount, bear interest at an annual rate of 8%
and are 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 will 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 may 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 may 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.







Item 7A.  Quantitative and Qualitative Disclosures
About Market Risk



We are exposed to market risk related to
fluctuations in interest rates and in foreign currency exchange rates.



Interest Rate Exposure



Our exposure to market risk relates primarily
to short-term investments, including funds classified as cash equivalents. As of June 30, 2012, all excess funds were invested
in time deposits and other highly liquid investments, therefore our interest rate exposure is not considered to be material.



58









Foreign Currency Exchange Rate Exposure



Our foreign currency exchange rate exposure
continues to evolve as we grow internationally. Our exposure to foreign currency transaction gains and losses is the result of
certain revenues and expenses being denominated in currencies other than the U.S. dollar, primarily the Euro and the New Israeli
Shekel. We do not currently engage in hedging or similar transactions to reduce these risks. Fluctuations in currency exchange
rates could impact our results of operations, financial position, and cash flows.



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 June 30, 2012,
                                                                                                              December 31, 2011
                                                                                                              and 2010
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Consolidated
                                                                                                              Statements of Operations
                                                                                                              for the Six Months
                                                                                                              Ended June 30, 2012
                                                                                                              and the Years Ended
                                                                                                              December 31, 2011,
                                                                                                              2010 and 2009
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Consolidated
                                                                                                              Statements of Changes
                                                                                                              in Equity (Capital
                                                                                                              Deficiency) for
                                                                                                              the Six Months Ended
                                                                                                              June 30, 2012 and
                                                                                                              the Years Ended
                                                                                                              December 31, 2011,
                                                                                                              2010 and 2009
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Consolidated
                                                                                                              Statements of Cash
                                                                                                              Flows for the Six
                                                                                                              Months Ended June
                                                                                                              30, 2012 and the
                                                                                                              Years Ended December
                                                                                                              31, 2011, 2010 and
                                                                                                              2009
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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 June 30, 2012, 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 June 30, 2012.



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.







59











Management, including our chief executive
officer and our chief financial officer, assessed the effectiveness of our internal control over financial reporting as of June
30, 2012. 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 June 30, 2012.



Kesselman & Kesselman, Certified Public
Accountants, the independent registered public accounting firm that audited our consolidated financial statements included in this
Transition Report on Form 10-K/T, has issued an attestation report on our internal control over financial reporting, which
is included herein.



Changes in Internal Control over Financial Reporting



There have been no changes in our internal
control over financial reporting during the transition period ended June 30, 2012 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.





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                                                                                       
|------------------- | --- | -----------------------------------------------------------------------------------------------
|Ofir Paz            | 46  | Chief Executive Officer and Director                                                           
|Craig Shore         | 51  | Chief Financial Officer, Secretary and Treasurer                                               
|Eli Bar             | 47  | Senior Vice President of Research and Development and Chief Technical Officer of InspireMD Ltd.
|Robert Ratini       | 50  | Vice President of Sales and Marketing of InspireMD Ltd.                                        
|Sol J. Barer, Ph.D. | 65  | Chairman of the Board of Directors                                                             
|Asher Holzer, Ph.D. | 62  | Director                                                                                       
|James Barry, Ph.D.  | 53  | Director                                                                                       
|Paul Stuka          | 57  | Director                                                                                       
|Eyal Weinstein      | 57  | 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.  Sol J. Barer, Ph.D. and Paul Stuka are our class 1 directors, with their terms of office
to expire at our 2012 annual meeting of stockholders.  Asher Holzer, Ph.D. and Eyal Weinstein are our class 2 directors,
with their terms of office to expire at our 2013 annual meeting of stockholders.  Ofir Paz 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, commencing with the 2012 annual meeting, 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.



60







Executive Officers and Directors



Ofir Paz has served as our
chief executive officer and a director since March 31, 2011. In addition, Mr. Paz has served as the chief executive officer and
a director of InspireMD Ltd. since May 2005. From April 2000 through July 2002, Mr. Paz headed the Microsoft TV Platform Group
in Israel. In this capacity, Mr. Paz managed the overall activities of Microsoft TV Access Channel Server, a server-based solution
for delivering interactive services and Microsoft Windows-based content to digital cable set-top boxes.  Mr. Paz joined
Microsoft in April 2000 when it acquired Peach Networks, which he founded and served as its chief executive officer. Mr. Paz was
responsible for designing Peach Networks’ original system architecture, taking it from product design to product viability,
and then managing and leading the company up to and after its acquisition, which was valued at approximately $100 million at the
time of such acquisition. Mr. Paz currently serves on the board of directors of A. S. Paz Investment and Management Ltd., S.P.
Market Windows Israel Ltd. and Peach Networks Ltd.  Mr. Paz received a B.Sc. in Electrical Engineering, graduating cum
laude, and a M.Sc. from Tel Aviv University. Mr. Paz’s qualifications to serve on the board include his prior experience
in successfully establishing and leading technology companies in Israel.  In addition, as chief executive officer, Mr.
Paz’s position on the board ensures a unity of vision between the broader goals our company and our day-to-day operations.



Craig Shore has served as
our chief financial officer, secretary and treasurer since March 31, 2011. 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.



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 patents 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.



Robert Ratini has
served as InspireMD Ltd.’s vice president of sales and marketing in a full-time capacity since June 1, 2012 and served in
a part-time capacity from March 27, 2012 until May 31, 2012. From April 2011 through March 26, 2012, Mr. Ratini served as a business
consultant and the vice president of business development for Easy Med Services, Inc. in Geneva, Switzerland, which focuses on
telemedicine software products, Stentys SA in Paris, France, which focuses on self-expanding coronary stents, and Parvulus SA
in Lonay, Switzerland, which concentrates on intra annular heart valve repair rings.  From October 2009 through March
2011, Mr. Ratini served as the director of marketing for Orbusneich Medical, which produces and sells interventional cardiology
products, and from October 2006 through September 2009, Mr. Ratini served as vice president global marketing and EMEA sales for Biosensors
International, Switzerland, where he established a global sales and marketing department and led the launch of the Bio Matrix
drug eluting stent.  Mr. Ratini has extensive cardiology and vascular experience and has worked in the medical information
technology industry since 1989.  Mr. Ratini graduated from the University of Applied Sciences in Bienne, Switzerland
with a Master of Computer Science.



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 over 30 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.



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Asher Holzer, PhD, has served
as our director since March 31, 2011. Dr. Holzer served as our president from March 31, 2011 until June 1, 2012 and served as our
chairman from March 31, 2011 until November 16, 2011. In addition, Dr. Holzer served as the president and chairman of the board
of InspireMD Ltd. from April 2007 until June 1, 2012. Previously, Dr. Holzer founded Adar Medical Ltd., an investment firm specializing
in medical device startups, and served as its chief executive officer from 2002 through 2004. Dr. Holzer currently serves on the
board of directors of Adar Medical Ltd., O.S.H.-IL The Israeli Society of Occupational Safety and Health Ltd., Ultra-Cure Ltd.,
GR-Ed Investment and Enterprise Ltd., Vasculogix Ltd., Theracoat Ltd., Cuber Stent Ltd., 2to3D Ltd., and S.P. Market Windows Cyprus.  Dr.
Holzer earned his PhD in Applied Physics from the Hebrew University.  Dr. Holzer is also an inventor and holder of numerous
patents.  Dr. Holzer brings to the board his more than 25 years of experience in advanced medical devices, as well as
expertise covering a wide range of activities, including product development, clinical studies, regulatory affairs, market introduction
and the financial aspects of the stent business.



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.



Paul Stuka has served as a
director since August 8, 2011.  Mr. Stuka has served as the managing member of Osiris Partners, LLC since 2000.  Prior
to forming Osiris Partners, LLC, Mr. Stuka, with 30 years 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’s qualifications to serve on the board include his significant strategic and business insight from his years of
experience investing in the healthcare industry.



Eyal Weinstein has served
as a director since August 8, 2011.  Mr. Weinstein is the chief executive officer of LEOREX Ltd., a company developing
and marketing Dermo Cosmetic products. From 2001 to 2007, Mr. Weinstein worked as manager-partner of C.I.G., an economic and accounting
consultancy, consulting for leading Israeli banks, including Leumi Bank, Hapoalim Bank, Discount Bank and Bank Hamizrachi. From
2000 to 2001, he was manager-partner of Exseed, a venture capital fund that invested in early-stage companies. Beginning in 1996,
Mr. Weinstein was a partner and founder in the establishment of three high-tech companies that were ultimately sold, two to Microsoft
Corporation. Mr. Weinstein brings to the board his considerable management and business experience as an executive of several companies
and investment funds in Israel.



Family Relationships



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



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Agreements with Executive Officers



Ofir Paz



On April 1, 2005, InspireMD Ltd. entered
into an employment agreement with Ofir Paz to serve as InspireMD Ltd.’s chief executive officer. Such employment agreement
was subsequently amended on October 1, 2008 and March 28, 2011. Pursuant to this employment agreement, as amended, Mr. Paz was
entitled to a monthly gross salary of $15,367. Mr. Paz was also entitled to certain social and fringe benefits as set forth in
the employment agreement, which totaled 25% of his gross salary, as well as a company car. Mr. Paz was also entitled to a minimum
bonus equivalent to three monthly gross salary payments based on achievement of objectives and the approval of the board of directors.
Mr. Paz was eligible to receive stock options pursuant to this agreement following its six month anniversary, subject to board
approval. If Mr. Paz’s employment was terminated with or without cause, he was entitled to at least six months’ prior
notice and would have been paid his salary and all social and fringe benefits in full during such notice period.



On April 1, 2011, in order to obtain
more favorable tax treatment in Israel, the employment agreement with Mr. Paz was terminated and InspireMD Ltd. entered into a
consultancy agreement with A.S. Paz Management and Investment Ltd., an entity wholly-owned by Mr. Paz, through which Mr. Paz was
retained to serve as InspireMD Ltd.’s chief executive officer. Pursuant to this consultancy agreement, Mr. Paz was entitled
to a monthly consultancy fee of $21,563. Mr. Paz was also entitled to a minimum bonus equivalent to three monthly gross salary
payments based on achievement of objectives and the approval of the board of directors. The consultancy agreement also contains
certain confidentiality, non-competition and non-solicitation requirements for Mr. Paz. If Mr. Paz’s employment was terminated
without cause, he was entitled to at least six months’ prior notice and would have been paid his consultancy fee during
such notice period.



At the request of the
compensation committee, Mr. Paz agreed, effective as of December 1, 2011, to be compensated as an employee, rather than as a
consultant, on substantially the same terms as the consultancy agreement.  Since December 1, 2011, Mr. Paz has been
treated as an employee of ours and has received the same level of compensation (i.e., base salary and benefits) as
was mandated under his consultancy agreement. We have otherwise complied with the terms of the consulting agreement.



For a description of certain severance and
pension payments to which Mr. Paz was and will be entitled under his agreements, see “Item 11. Executive Compensation—Potential
Payments Upon Termination or Change of Control.”



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 which further increased to $10,620 as of July 1, 2011.
Mr. Shore is also entitled to certain social and fringe benefits as set forth in the employment agreement. The consultancy 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 11,250 restricted ordinary shares of InspireMD Ltd. which were converted into
options to purchase 91,306 shares of our common stock following the consummation of our share exchange transactions on March
31, 2011; such options shall fully vest if Mr. Shore’s employment is terminated in connection with a change of control.
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.



For a description of certain severance and
pension payments to which Mr. Shore is entitled under his employment agreement, see “Item 11. Executive Compensation—Potential
Payments Upon Termination or Change of Control.”



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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.  Mr.
Bar is also entitled to certain social and fringe benefits as set forth in the employment agreement including a company car.  If
Mr. Bar’s employment is terminated without cause, he is entitled to at least 60 days’ prior notice and shall be paid
his salary in full and all social and fringe benefits during such notice period.



For a description of certain severance and
pension payments to which Mr. Bar is entitled under his employment agreement, see “Item 11. Executive Compensation—Potential
Payments Upon Termination or Change of Control.”



Robert Ratini



On March 27, 2012, InspireMD Ltd.
entered into a consultancy agreement with Robert Ratini to serve as InspireMD Ltd.’s vice-president of sales and
marketing.  Until May 31, 2012, Mr. Ratini provided services on a part-time basis and, beginning on June 1, 2012,
he has served as the full-time vice-president of sales and marketing.  Mr. Ratini is entitled to receive $20,000
per month in consideration for his services, which was paid on a pro-rata basis for the hours he worked until May 31,
2012, and is also entitled to receive a monthly phase-in payment of $7,000 from June 1, 2012 to December 31,
2012.  Mr. Ratini is eligible to receive various performance-based commissions, which are dependent upon the levels
of revenue generated by his sales activity.  The consultancy agreement also contains certain confidentiality,
non-competition and non-solicitation requirements for Mr. Ratini. The consultancy agreement has no termination date, but may
be terminated without cause by InspireMD Ltd. (i) upon 30 day prior written notice if such notice is submitted between June
1, 2012 and August 31, 2012; or (ii) upon 90 day prior written notice if such notice is submitted after September 1,
2012.



Asher Holzer



On April 1, 2005, InspireMD Ltd. entered
into an employment agreement with Asher Holzer, Ph.D. to serve as InspireMD Ltd.’s president. Such employment agreement
was subsequently amended on March 28, 2011. Pursuant to this employment agreement, as amended, Dr. Holzer was entitled to a monthly
gross salary of $15,367. Dr. Holzer was also entitled to certain social and fringe benefits as set forth in the employment agreement,
which totaled 25% of his gross salary, as well as a company car. Dr. Holzer was also entitled to a minimum bonus equivalent to
three monthly gross salary payments based on achievement of objectives and the approval of the board of directors. Dr. Holzer
was eligible to receive stock options pursuant to this agreement following its six month anniversary, subject to board approval.
If Dr. Holzer’s employment was terminated with or without cause, he was entitled to at least six months’ prior notice
and would have been paid his salary and all social and fringe benefits in full during such notice period.



On April 29, 2011, effective April 1,
2011, in order to obtain more favorable tax treatment in Israel, the employment agreement with Dr. Holzer was terminated and InspireMD
Ltd. entered into a consultancy agreement with OSH-IL, the Israeli Society Ltd., an entity wholly-owned by Dr. Holzer, through
which Dr. Holzer was retained to serve as InspireMD Ltd.’s president. Pursuant to this consultancy agreement, Dr. Holzer
was entitled to a monthly consultancy fee of $21,563. Dr. Holzer was also entitled to a minimum bonus equivalent to three monthly
gross salary payments based on achievement of objectives and the approval of the board of directors. The consultancy agreement
also contained certain confidentiality, non-competition and non-solicitation requirements for Dr. Holzer. If Dr. Holzer’s
employment was terminated without cause, he was entitled to at least six months’ prior notice and would have been paid his
consultancy fee during such notice period.



At the request of the compensation committee,
effective as of December 1, 2011, Dr. Holzer agreed to be treated as an employee for purposes of paying Dr. Holzer’s salary
and benefits rather than as a consultant under Dr. Holzer’s consultancy agreement.



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On June 1, 2012, Dr. Holzer,
OSH-IL, the Israeli Society of Occupational Health and Safety Ltd. and InspireMD Ltd. entered into a separation agreement and
release, pursuant to which, among other things, the consultancy agreement, dated as of April 29, 2011, by and between
InspireMD Ltd. and OSH-IL the Israeli Society Ltd. was terminated and Dr. Holzer resigned as president and director of
InspireMD Ltd. and president of InspireMD, Inc. As part of the separation agreement, Dr. Holzer agreed to release us,
InspireMD Ltd., and Inspire MD GmbH from any and all claims, rights or demands arising from or related to the previous
agreement, the relations between the parties or the termination thereof.



On June 1, 2012, we entered into
a consulting agreement with Dr. Holzer, which terminates on November 30, 2012, pursuant to which Dr. Holzer will provide
us with consulting services in exchange for monthly payments of $20,337. As part of the consulting agreement, Dr.
Holzer released us and our affiliates from any and all claims other than those related to Dr. Holzer’s position as a
shareholder. Under this consulting agreement, Dr. Holzer is not entitled to any additional benefits, other than benefit
plans or programs that we provide to our directors so long as Dr. Holzer remains on our board of directors.



For a description of certain severance and
pension payments to which Dr. Holzer was and will be entitled under his agreements, see “Item 11. Executive Compensation—Potential
Payments Upon Termination or Change of Control.”



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Exchange Act 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 June 30, 2012, 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, except that Dr. Barry reported one transaction on a late Form 4 and Mr. Ratini filed
one late Form 3 reporting no beneficial ownership of our securities and reported one transaction on a late Form 4.



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. Stuka and Weinstein and Dr. Barer, each of whom our board has determined to be financially literate
and qualify as an independent director under Section 5605(a)(2) of the rules of the Nasdaq Stock Market. Mr. Stuka 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.
Stuka and Weinstein and Dr. Barer, each of whom qualify as an independent director under Section 5605(a)(2) of the rules of
the Nasdaq Stock Market.  Mr. Stuka 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.



65







Compensation
Committee. Our compensation committee is currently comprised of Messrs. Stuka and Weinstein and Dr. Barer, each of
whom qualify as an independent director under Section 5605(a)(2) of the rules of the Nasdaq Stock Market. Mr. Weinstein 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 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 five business
days following the date of such amendment or waiver.



Item 11.  Executive Compensation.



Compensation Discussion and Analysis



The
Compensation Discussion and Analysis discusses the principles underlying our executive compensation policies and decisions for
our named executive officers. It provides qualitative information regarding the manner in which compensation is earned by our named
executive officers and places in context the data presented in the tables that follow. In addition, we address the compensation
paid or awarded during the six months ended June 30, 2012 and the fiscal year ended December 31, 2011 to our named executive officers:
Ofir Paz, our chief executive officer (principal executive officer), Craig Shore, our chief financial officer, secretary and treasurer
(principal financial and accounting officer), Asher Holzer, Ph.D., our former president, Eli Bar, the senior vice president of
research and development and chief technical officer of InspireMD Ltd., and Sara Paz, the former vice president of sales of InspireMD
Ltd.



We
formed a compensation committee on September 21, 2011. Prior to that date, all compensation decisions for Mr. Paz and Dr. Holzer
were made by our board of directors. Mr. Paz was responsible for the executive compensation packages of Messrs. Shore and Bar and
Ms. Paz.Because of the potential conflict of interest, Dr. Holzer and Mr. Shore also reviewed and approved Mr. Paz’s
decision with respect to Ms. Paz’s compensation before it was implemented. The current compensation package of Mr. Paz and
the compensation package of Dr. Holzer until his retirement were determined before our share exchange transactions on March 31,
2011, when InspireMD Ltd. was a private Israeli company. In accordance with Israeli law, their compensation was submitted to and
approved by the stockholders of InspireMD Ltd. on February 28, 2011. Our board of directors also reviewed and approved Mr. Shore’s
compensation package after the share exchange transactions.



Going
forward, the compensation committee of our board of directors will review at least annually and determine the executive compensation
packages for Mr. Paz, including approving any grants of stock options. Mr. Paz will remain responsible for making recommendations
to our compensation committee with respect to the executive compensation packages for Messrs. Shore and Bar, including any grants
of stock options. The compensation committee performed its annual review of named executive officer compensation in February
2012.



In
considering compensation for our named executive officers prior to 2012, the board of directors relied upon the officer’s
performance and contribution to our development and achievements. We did not engage in any formal benchmarking or conduct or obtain
any formal surveys of executive compensation at peer companies. We also considered general compensation trends.



66







During
the compensation committee’s review of named executive officer compensation for 2012, the compensation committee retained
the services of a compensation consultant. The consultant provided a report that included formal benchmarking of our named executive
officers’ compensation against that at companies selected by the consultant and approved by our compensation committee. The
peer group was comprised of 16 U.S.-based public medical devices companies and four Israel-based public medical device and biopharmaceutical
companies that were determined to have a comparable business and financial profile to us, in terms of revenue, employee size and/or
market value:



|Antares Pharma       | Atricure                     | Bacterin International Holdings
|-------------------- | ---------------------------- | -------------------------------
|BioLase Technology   | Cardica                      | Cerus                          
|Conceptus            | Cutera                       | Cytori Therapeutics            
|D Medical Industries | Palomar Medical Technologies | Pluristem Therapeutics         
|PROLOR Biotech       | Protalix BioTherapeutics     | SEQUENOM                       
|STAAR Surgical       | Stereotaxis                  | SurModics                      
|Uroplasty            | Vision-Sciences              |                                



The
compensation consultant’s report and recommendations primarily called for increases in named executive officer
compensation. However, in light of our current financial position, our long-term and short-term goals, the fact that many of
our named executive officers received salary increases in 2011 and the significant equity ownership of many of our named
executive officers,the compensation committee determined to take only two actions with respect to increases in named
executive officer compensation in 2012, in the form of a stock option grant to Mr. Shore, on the terms and for the reasons
described under “Named Executive Officer Compensation – Compensation of Chief Financial Officer, Secretary and
Treasurer” below and a cash bonus to Mr. Bar, in the amount and for the reason described under “Named Executive
Officer Compensation – Compensation of Senior Vice President of Research and Development and Chief Technical Officer of
InspireMD Ltd.” below. The compensation committee did not determine to target our overall compensation packages, or
elements of our compensation packages, to fall within a certain percentile of the comparator group above, although the
compensation committee may determine to do so in the future.





We have entered into agreements
with all of our named executive officers. These agreements are summarized under “Executive Officers and Directors
– Agreements with Executive Officers.” Mr. Paz and Dr. Holzer were compensated pursuant to consultancy
agreements beginning on April 1, 2011. However, at the request of the compensation committee, Mr. Paz and Dr. Holzer agreed,
effective as of December 1, 2011, to be compensated as employees rather than consultants. Since December 1, 2011, Mr. Paz has
been, and from December 1, 2011 until his resignation, Dr. Holzer was, treated as an employee of ours and received the same
level of compensation (i.e., base salary and benefits) as each would have been entitled to under his consultancy
agreement. We have otherwise complied with the terms of the consultancy agreements.



Philosophy of Compensation



The
goals of our compensation policy are to ensure that executive compensation rewards management for helping us achieve our financial
goals (increased sales, profitability, etc.) and meet our clinical trial milestones and aligns management’s overall goals
and objectives with those of our stockholders. To achieve these goals, our compensation committee and board of directors aims to:



| | · | provide a competitive compensation package that enables us to attract and retain superior management personnel;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | relate compensation to our overall performance, the individual officer’s performance and our assessment of the officer’s future potential;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | reward our officers fairly for their role in our achievements; and
| | - | ------------------------------------------------------------------



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| | · | align executives’ objectives with the objectives of stockholders by granting equity awards to encourage executive stock ownership.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



We
have determined that in order to best meet these objectives, our executive compensation program should balance fixed and bonus
compensation, as well as cash and equity compensation, as discussed below. Historically, there has been no pre-established policy
or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation for our executive
officers. We intend in the future to solicit recommendations from our compensation consultants with respect to the balance of fixed
and bonus compensation for our executive officers.





Components of Compensation



The
principal components of compensation for our named executive officers are base salary/consulting fees, equity based grants, personal
benefits and perquisites and, potentially in the future, cash bonuses.



Base
Salary/Consulting Fees.The primary component of compensation for our named executive officers is base salary (or consulting
fees for our named executive officers who are employed pursuant to consultancy agreements). Base salary levels for our named executive
officers have historically been determined based upon an evaluation of a number of factors, including the individual officer’s
level of responsibility, length and depth of experience and our assessment of the officer’s future potential with our company,
performance and, to the extent available, general compensation levels of similarly situated executives and general compensation
trends. Although our employment and consultancy agreements with our named executive officers set forth a fixed base salary, salaries
have been reviewed periodically and changed, when deemed appropriate, by oral or written amendment to the applicable officer’s
agreement. For 2011, we generally increased the base salaries of our executive officers, in part as a reflection of our becoming
a publicly traded company in the U.S. and the accompanying increased responsibilities for our executive officers.Prior
to April 1, 2011, Ms. Paz was compensated on an hourly basis, based on a fixed hourly consulting fee. In 2012, the compensation
committee determined not to make any changes to the base salaries of our named executive officers.



In
the future, the compensation committee intends to review each named executive officer’s base salary/consulting fee on an
annual basis. In addition to the factors described above, in setting base salary, the compensation committee intends to
consider the recommendations of our compensation consultant and more formal data regarding the compensation
levels of similarly situated executives.



Equity
Based Grants. An additional principal component of our compensation policy for named executive officers consists of grants
under the InspireMD, Inc. 2011 UMBRELLA Option Plan. Under this plan, among other awards, executive officers may be granted stock
options. Since its formation, the compensation committee of the board of directors has administered the grants of awards under
the InspireMD, Inc. 2011 UMBRELLA Option Plan, and prior to its formation, the board of directors administered such awards. We
believe that equity ownership of our company by our named executive officers will further align the interests of our executive
officers with those of our stockholders.



Prior to 2012, all equity
incentive awards were made either (i) in accordance with negotiated terms set forth in our employment or consultancy
agreements, at levels deemed necessary to attract or retain the executive at the time of such negotiations and determined
taking into account the recipient’s overall compensation package and the goal of aligning such executive’s
interest with that of our stockholders, or (ii) at the discretion of the board of directors or the compensation committee
without reference to any formal targets or objectives, when deemed appropriate in connection with extraordinary efforts or
results or necessary in order to retain the executive in light of the executive’s overall compensation package.



During its 2012 compensation review, the
compensation committee determined to make only one equity incentive award, to Mr. Shore,
on the terms and for the reasons described under “Named Executive Officer Compensation – Compensation of Chief Financial
Officer, Secretary and Treasurer” below.



Our compensation committee intends to consider
during our annual compensation review whether to grant equity incentive awards to our named executive officers, and the terms of
any such awards, including whether to set any performance targets or other objective or subjective criteria related to the final
grant or vesting of such awards. The compensation committee will also retain the flexibility to make additional grants throughout
the year if deemed necessary or appropriate in order to retain our named executive officers or reward extraordinary efforts or
achievements.



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Personal
Benefits and Perquisites. Certain of our named executive officers are entitled to additional personal benefits in accordance
with what we believe to be customary practice and law in Israel, including contributions towards pension and vocational studies
funds, annual recreational allowances, a company car, a daily food allowance and a company phone. We believe these benefits are
commonly provided to executives in Israel, and we therefore believe that it is necessary for us to provide these benefits in order
to attract and retain superior management personnel.



Cash
Bonus. Until 2012, we had never paid cash bonuses to our executives; however, our consultancy agreements with Mr. Paz and Dr.
Holzer provided for cash bonuses to be paid at the discretion of our board of directors in an amount not less than three months’
salary. We believe that cash bonus payments are an appropriate means to reward significant achievement and contribution to us by
an executive officer, especially for officers that already hold significant equity positions in our company. Therefore, going forward,
cash bonuses may become a more significant component of our compensation policy for executive officers.



During its 2012 compensation review, the
compensation committee determined to make a cash bonus award, to Mr. Bar, in the amount and
for the reason described under “Named Executive Officer Compensation – Compensation of Senior Vice President of Research
and Development and Chief Technical Officer of InspireMD Ltd.” below.



We
intend to consider the amount of cash bonus that each of our named executive officers should be entitled to receive in connection
with our annual compensation review, taking into account each executive’s total compensation package, the recommendations
of our compensation consultant, and any more formal data we obtain regarding the compensation levels of similarly situated executives.
We will also consider in connection with such review whether to designate certain financial or operational metrics or otherobjective
or subjective criteria in determining the final amounts of such awards.



Compensation of Named Executive Officers



Compensation
of Chief Executive Officer. During the six months ended June 30, 2012, Mr. Paz’s total compensation was
$153,597. In 2011, Mr. Paz’s total compensation was $247,039, as compared to $219,160 in total compensation in 2010.
Mr. Paz’s total compensation was comprised of (i) salary payments from December 1, 2011 through June 30, 2012, (ii)
consulting fees paid pursuantto the consultancy agreement InspireMD Ltd. entered into with A.S. Paz Management
and Investment Ltd., an entity wholly-owned by Mr. Paz, through which Mr. Paz was retained to serve as InspireMD Ltd.’s
chief executive officer from April 1, 2011 through November 30, 2011, (iii) salary payments made during December 2011, and
(iv) benefits and perquisites, as more fully discussed below. For the six months ended June 30, 2012, Mr. Paz’s salary
compensation was $121,327. In 2011, Mr. Paz’s salary compensation was $42,425
under his employment agreement, $122,970 under the consultancy agreement with A.S. Paz Management and Investment Ltd and
$15,371 as an employee in December 2011, for a total of $180,766, as compared to $89,197 under his employment agreement and
$78,491 under a consultancy agreement that was in effect prior to his employment agreement, for a total of $167,688, in 2010.
In determining the compensation for Mr. Paz in 2011, our board of directors evaluated the corporate and organizational
accomplishments of our company in 2010, as well as Mr. Paz’s individual accomplishments. Mr. Paz’s 2011
compensation was also increased in anticipation of our company becoming a publicly traded company in the U.S. and the
additional obligations that would entail for our chief executive officer.Mr. Paz’s compensation package for
2011 was determined before our share exchange transactions on March 31, 2011, when InspireMD Ltd. was a private Israeli
company. In accordance with Israeli law, his compensation was submitted to and approved by the stockholders of InspireMD Ltd.
on February 28, 2011. The compensation committee determined that no changes were needed to Mr. Paz’s compensation
package during 2012.



69







Mr.
Paz also received various benefits as both our salaried employee and our consultant, many of which either are required by Israeli
law or we believe are customarily provided to Israeli executives. These benefits included contributions to his pension and vocational
studies funds, an annual recreation payment, a company car, a cell-phone and a daily food allowance. For the six months ended June
30, 2012, Mr. Paz’s benefits compensation was $32,270. In 2011, Mr. Paz’s benefits compensation through payments made
to him as an employee and through payments made to A.S. Paz Management and Investment Ltd was $66,273, as compared to $51,472 in
2010. Our board of directors and compensation committee determined that equity based compensation would be inappropriate for Mr.
Paz in 2011 and 2012, in light of his current equity holdings in our company.



Compensation
of Chief Financial Officer, Secretary and Treasurer. Mr. Shore was initially hired as InspireMD Ltd.’s vice
president of business development and became our chief financial officer, secretary and treasurer on March 31, 2011. During
the six months ended June 30, 2012, Mr. Shore’s total compensation was $234,396. In 2011, Mr. Shore’s total
compensation was $419,433, as compared to $13,162 in total compensation in 2010, which represented compensation paid from the
commencement of Mr. Shore’s employment on November 24, 2010. Mr. Shore’s total compensation was comprised of
salary payments under his employment agreement with us, option grants under the InspireMD, Inc. 2011 UMBRELLA Option Plan, as
more fully discussed below,and benefits and perquisites, as more fully discussed below. For the six months
ended June 30, 2012, Mr. Shore’s salary compensation was $76,717. In 2011, Mr.
Shore’s annual salary was $118,333, as compared to $9,912 in 2010. Pursuant to his employment agreement with us, Mr.
Shore’s monthly salary was automatically increased during 2011, upon the consummation of our share exchange
transactions. Upon Mr. Paz’s recommendation, Mr. Shore’s salary was further increased as of July 1, 2011 by an
additional $838 per month on July 1, 2011. In determining to make such additional increase, Mr. Paz considered the corporate
and organizational accomplishments of our company since Mr. Shore joined us, his role in such accomplishments, his general
performance, his increased responsibilities as chief financial officer, the desire to ensure that his compensation is high
enough to retain his services and the desire to make his compensation consistent with what we pay to our other senior
executives. Mr. Paz recommended, and the compensation committee agreed, that no changes were needed to Mr.
Shore’s compensation package during 2012 other than the option grant described below.



Mr.
Shore also received various benefits, many of which either are required by Israeli law or we believe are customarily provided
to Israeli executives, including contributions to his pension and vocational studies funds, an annual recreation payment, a company
car, a company cell phone, and a daily food allowance. For the six months ended June 30, 2012, Mr. Shore’s benefits compensation
was $18,180. In 2011, Mr. Shore’s benefits compensation was $35,280, as compared to $3,250 in 2010.



On
February 27, 2011, Mr. Shore was granted options that currently represent the right to acquire up to 91,306 shares of our common
stock at an exercise price of $4.92 per share. This award was part of the initial package negotiated with Mr. Shore in connection
with his hiring in November 2010. The number of shares for which such award was exercisable and the exercise price were originally
set forth in Mr. Shore’s employment agreement and related to shares of InspireMD Ltd. The per share price was determined
based on the price at which InspireMD Ltd. had most recently raised capital. The option was converted into an option to acquire
the current number of shares at the current exercise price through the share exchange transactions. The options vest on an annual
basis over three years. The options had a fair market value of $260,554 as of February 27, 2011. In determining to grant Mr. Shore
a significant portion of his compensation in the form of options, our board of directors believed that it was important to give
Mr. Shore an equity interest in us. Providing Mr. Shore with an equity stake was viewed by our board as important, as Mr. Shore
previously did not hold any such stake in us, as opposed to Mr. Paz and Dr. Holzer. In determining the number of shares to award
to Mr. Shore, Mr. Paz and our board of directors considered the need to provide Mr. Shore with a compensation package that was
sufficient to attract him to accept employment with us, given that his base salary was believed to be relatively low for his position,
and the desire to provide Mr. Shore with an equity position in our company that was significant enough to align his objectives
with those of our stockholders and allow Mr. Shore to share in our future on financial growth and the benefits of the share exchange
and our becoming a U.S. public company.



On
May 20, 2011, Mr. Shore was awarded a warrant to purchase 750 shares of our common stock at an exercise price of $7.20 per share
as a bonus payment for his work performed in connection with our share exchange transactions. The warrant had a fair market value
of $5,266 and vested immediately. The award was given in recognition of Mr. Shore’s extraordinary efforts related to our
private placement transaction on March 31, 2011.



70







On
May 25, 2012, Mr. Shore was granted options to acquire up to 75,000 shares of our common stock at an exercise price of $3.20
per share. The options vest on an annual basis over three years. The options had a fair market value of $139,499 as of May
25, 2012. The award was given in recognition of Mr. Shore’s past contributions, to increase Mr. Shore’s equity
stake in us in order to further align Mr. Shore’s objectives with those of our stockholders and allow him to share in
our future financial growth and to compensate for Mr. Shore’s relatively low salary for his position.



Compensation
of Senior Vice President of Research and Development and Chief Technical Officer of InspireMD Ltd. During the six
months ended June 30, 2012, Mr. Bar’s total compensation was $112,432. In 2011, Mr. Bar’s total compensation was
$350,394, as compared to $942,689 in total compensation in 2010. Mr. Bar’s total compensation was comprised of salary
payments under his employment agreement with us, a cash bonus awarded in 2012, as more fully discussed below, option grants
under the InspireMD, Inc. 2011 UMBRELLA Option Plan, as more fully discussed below,and benefits and
perquisites, as more fully discussed below. For the six months ended June 30, 2012, Mr. Bar’s salary compensation was
$77,100. In 2011, Mr. Bar’s annual salary was $122,760, as compared to $91,684 in
2010. In determining the compensation for Mr. Bar in 2011, Mr. Paz evaluated the corporate and organizational accomplishments
of our company in 2010, particularly with respect to the development of our products, as well as Mr. Bar’s individual
achievements and contributions to such accomplishments. Mr. Bar’s increase in salary during 2011 reflected his
significant contributions to our success in 2010, and our desire to retain him going forward. His 2011 salary was increased
to the level it had been in August 2008, prior to salary reductions throughout the company.Mr. Paz recommended, and
the compensation committee agreed, that no changes were needed to Mr. Bar’s compensation package during 2012 other than
the cash bonus described below.



Mr.
Bar received a cash bonus of $12,850 in recognition for his efforts in achieving the successful completion of enrollment of
the MASTER Trial during the six months ended June 30, 2012. The amount of the bonus was equal to an additional month of
salary for Mr. Bar.



Mr.
Bar also received various benefits, many of which either are required by Israeli law or we believe are customarily provided to
Israeli executives, including contributions to his pension and vocational studies funds, an annual recreation payment, a company
car, a company cell phone, and a daily food allowance. During the six months ended June 30, 2012, Mr. Bar’s benefits compensation
was $22,482. In 2011, Mr. Bar’s benefits compensation was $42,459, as compared to $32,496, in 2010.



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 a bonus payment for his significant contributions to our company. In determining to make such award, Mr.
Paz considered 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 options vest on an annual
basis over a three year period. The options had a fair market value of $268,381 as of June 1, 2011. The exercise price was
the fair market value of our common stock on the date of grant. On August 31, 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 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. The fair value of
the 50,000 options as of August 31, 2011 was $185,175.



71







Mr.
Bar also received two option awards in July 2010. The first award currently represents the right to acquire up to 152,177
shares of our common stock at an exercise price of $0.004 per share. The number of shares for which such award was
exercisable and the exercise price originally related to shares of InspireMD Ltd. The per share price was set at $0.04 per
share. The option was converted into an option to acquire the current number of shares at the current exercise price through
the share exchange transactions. The second award currently represents the right to acquire up to 20,290 shares of our common
stock at an exercise price of $4.92 per share. The number of shares for which such award was exercisable and the exercise
price also originally related to shares of InspireMD Ltd. The per share price was determined based on the price at which
InspireMD Ltd. had most recently raised capital. The option was converted into an option to acquire the current number
of shares at the current exercise price through the share exchange transactions. Both awards were made in recognition of
Mr. Bar’s contributions to our corporate and organizational achievements. The first award was related to Mr.
Bar’s performance over the long-term of his tenure with us and to our desire to grant Mr. Bar an equity stake that
would not be at risk. In particular, in determining to make this award, the board of directors took into account the fact
that, from September 2008 to April 2009, Mr. Bar accepted several salary reductions, which resulted in his monthly salary
being reduced from approximately $10,133 to approximately $7,387. Mr. Bar’s salary remained approximately $7,387 per
month until August 2010, at which time his monthly salary was increased to $8,000. Furthermore, our board of directors
decided that recognizing Mr. Bar’s efforts and sacrifices through an equity award was the most appropriate form of
compensation, as it would also serve to give Mr. Bar an additional equity interest in us. Providing Mr. Bar with an increased
equity stake was viewed by our board as important, as Mr. Bar’s existing options were deemed a very small stake in
comparison to that held by Mr. Paz and Dr. Holzer. The second award was intended as a more traditional annual incentive award
and related primarily to Mr. Bar’s performance in 2010 and our desire to grant Mr. Bar traditional options whose value
would fluctuate depending on the performance of our common stock. Both option awards vest one-twelfth quarterly commencing
with the quarter in which they were granted. The first award had a fair market value of $750,000 as of July 25, 2010. The
second award had a fair market value of $68,509 as of July 31, 2010.



Compensation
of Former President. During the six months ended June 30, 2012, Dr. Holzer’s total compensation
was $189,290. In 2011, Dr. Holzer’s total compensation was $245,406, as compared to $209,592 in total compensation in
2010. Dr. Holzer’s total compensation was comprised of (i) consulting fees paid pursuantto the
consultancy agreement InspireMD Ltd. entered into with OSHIL, The Israeli Society Ltd., an entity wholly-owned by Dr.
Holzer, through which Dr. Holzer was retained to serve as
InspireMD Ltd.’s president from June 1, 2012 through June 30, 2012,(ii) salary
payments from December 1, 2011 through May 31, 2012, (iii) consulting fees paid pursuantto the consultancy agreement
InspireMD Ltd. entered into with OSHIL, The Israeli Society Ltd. from April 1, 2011 through November 30, 2011, (iv) salary
payments made during December 2011, and (v) benefits and perquisites, as more fully discussed below. For
the six months ended June 30, 2012, Dr. Holzer’s salary compensation was $139,654 as an employee, which includes
a payout of his unused vacation days of $36,010, and $14,474under the consultancy agreement with OSHIL, The Israeli
Society Ltd., for a total of $154,128. In 2011, Dr. Holzer’s salary compensation was $42,425 under his employment
agreement, $122,970under the consultancy agreement with OSHIL, The Israeli Society Ltd., and $15,371 as an employee in
December 2011, for a total of $180,766, as compared to $89,197 under his employment agreement and $74,791 under a consultancy
agreement that was in effect prior to his employment agreement, for a total of $163,988, in 2010. In determining the
compensation for Dr. Holzer in 2011, our board of directors evaluated the corporate and organizational accomplishments of our
company in 2010, as well as Dr. Holzer’s individual accomplishments and contributions to our accomplishments. Our board
of directors determined that an increase in compensation for Dr. Holzer was appropriate in 2011, in part, in anticipation of
our company becoming a U.S. publicly traded company in 2011 and the increased responsibilities that would result for our
president.Dr. Holzer’s compensation package for 2011 was determined before the share exchange transactions,
when InspireMD Ltd. was a private Israeli company. In accordance with Israeli law, his compensation was submitted to and
approved by the stockholders of InspireMD Ltd. on February 28, 2011. The compensation committee determined that no changes
were needed to Dr. Holzer’s compensation package during its 2012 compensation review.



Dr.
Holzer also received various benefits as both our salaried employee and our consultant, many of which either are required by Israeli
law or we believe are customarily provided to Israeli executives. These benefits included contributions to his pension and vocational
studies funds, an annual recreation payment, a company car and cell phone, and a daily food allowance. For the six months ended
June 30, 2012, Dr. Holzer’s benefits compensation through payments made to him as an employee and through payments made
toOSHIL, The Israeli Society Ltd.was $35,163. In 2011, Dr. Holzer’s
benefits compensation through payments made to him as an employee and through payments made toOSHIL, The Israeli Society
Ltd.was $64,640, as compared to $45,604 in 2010. Our board of directors and compensation
committee determined that equity based compensation would be inappropriate for Dr. Holzer in 2011 and 2012, in light of his current
equity holdings in our company.



72







Compensation of Former Vice President
of Sales of InspireMD Ltd.During the six months ended June 30, 2012, Ms. Paz’s total compensation was $83,569. In 2011,
Ms. Paz’s total compensation was $782,016, as compared to $77,603 in total compensation in 2010. Ms. Paz’s total compensation
was comprised of (i) payments for consulting fees under a consultancy agreement InspireMD Ltd. entered into with Ms. Paz which
terminated on March 31, 2011 and provided for the payment of a fixed hourly consulting fee of $45 for services provided in Israel
and a fixed daily consulting fee of $400 for services provided outside of Israel, and (ii) payments for consulting fees under
a consultancy agreement InspireMD Ltd. entered into with Sara Paz Management and Marketing Ltd, an entity wholly-owned by Ms.
Paz, through which Ms. Paz was retained to serve as InspireMD Ltd.’s vice president of sales from April 1, 2011 until its
termination on June 30, 2012, (iii) an option grant under the InspireMD, Inc. 2011 UMBRELLA Option Plan, as more fully discussed
below, and (iv) benefits and perquisites, as more fully discussed below. Ms. Paz’s payments under her consultancy agreements
were $89,819during the six months ended June 30, 2012. Ms. Paz’s payments under her consultancy agreements were $112,136
in 2011 as compared to $77,603 in 2010. In determining the compensation for Ms. Paz in 2011, Mr. Paz evaluated the corporate and
organizational achievements of our company in 2010, with a particular emphasis on our sales growth, to which Ms. Paz’s work
contributed, her contributions and perceived future potential on a full-time basis and the compensation paid to similarly situated
executives within our company. Dr. Holzer and Mr. Shore approved Mr. Paz’s determination with respect to Ms. Paz’s
compensation. Mr. Paz recommended, and the compensation committee agreed, that no changes were needed to Ms. Paz’s compensation
package during 2012.



In
conjunction with InspireMD Ltd. entering into the consultancy agreementwithSara Paz Management and Marketing Ltd, we commenced paying Ms. Paz the benefits required by Israeli law and comparable benefits
to our other executives. As such, pursuant to the consultancy agreement, in 2011 and 2012, Ms. Paz received various benefits,
including contributions to her pension and vocational studies funds, an annual recreation payment, a company car, a company cell
phone, and a daily food allowance. During the six months ended June 30, 2012, Ms. Paz’s benefits compensation was $24,750.
In 2011, Ms. Paz’s benefits compensation was $30,473.



In
addition, in recognition of Ms. Paz’s contributions to our corporate and organizational achievements in 2010, particularly
with respect to the increased sales of our products, in June 2011, our board of directors awarded Ms. Paz options to acquire up
to 91,306 shares of common stock at an exercise price of $6.00 per share. The options vest on a monthly basis over a three year
period. The options had a fair market value of $639,407 as of June 1, 2011. The amount was determined with reference to the award
made to Mr. Shore during 2011, for an approximately equal number of shares. The exercise price was the fair market value of our
common stock on the date of grant. We did not consider the Black-Scholes valuation of the grant prior to making it. We did take
into account the desire to provide Ms. Paz with an equity position in our company, separate from that of her husband, that would
further align her objectives with those of our stockholders and allow her to share in our future financial growth.



Impact of Tax Laws



Deductibility
of Executive Compensation. Generally, under U.S. law, a company may not deduct compensation of more than $1,000,000
that is paid to an individual employed by the company who, on the last day of the taxable year, either is the company’s
principal executive officer or an individual who is among the three highest compensated officers for the taxable year (other than
the principal executive officer or the principal financial officer). The $1,000,000 limitation on deductions does not apply to
certain types of compensation, including qualified performance-based compensation, and only applies to compensation paid by a
publicly-traded corporation (and not compensation paid by non-corporate entities). Because the compensation deducted in the U.S.
for each individual to whom this rule applies has historically been less than $1,000,000 per year, we do not believe that the
$1,000,000 limitation will affect us in the near future. If the deductibility of executive compensation becomes a significant
issue, our compensation plans and policies may be modified to maximize deductibility if our compensation committee and we determine
that such action is in our best interests.



Impact of Israeli Tax Law. The awards
granted to employees pursuant to Section 102 of the Tax Ordinance under the InspireMD, Inc.
2011 UMBRELLA Option Plan may be designated by us as approved options under the capital gains alternative, or as approved
options under the ordinary income tax alternative.



To qualify for the capital gains alternative,
certain requirements must be met, including registration of the options in the name of a trustee. Each option, and any shares of
common stock acquired upon the exercise of the option, must be held by the trustee for a period commencing on the date of grant
and deposit into trust with the trustee and ending 24 months thereafter.



Under the terms of the capital gains alternative,
we may not deduct expenses pertaining to the options for tax purposes.



73







Under the InspireMD,
Inc. 2011 UMBRELLA Option Plan, we may also grant to employees options pursuant to Section 102(b)(3) of the Israeli Tax
Ordinance that are not required to be held in trust by a trustee. This alternative, while facilitating immediate exercise of vested
options and sale of the underlying shares, will subject the optionee to the marginal income tax rate of up to 45% as well as payments
to the National Insurance Institute and health tax on the date of the sale of the shares or options. Under the InspireMD,
Inc. 2011 UMBRELLA Option Plan, we may also grant to non-employees options pursuant to Section 3(I) of the Israeli Tax Ordinance.
Under that section, the income tax on the benefit arising to the optionee upon the exercise of options and the issuance of common
stock is generally due at the time of exercise of the options.



Allotment of these options may be subject
to terms of the tax ruling that has been obtained by InspireMD Ltd. from the Israeli tax authorities according to Section 103 of
the Israeli tax ordinance, with regard to the share exchange. According to the tax pre-ruling, the exchange of shares and options
of InspireMD Ltd. for shares and options of our company pursuant to the share exchange will not result in an immediate tax event
for InspireMD Ltd.’s former shareholders, but a deferred tax event, subject to certain conditions as stipulated in the tax
pre-ruling. The main condition of the tax pre-ruling is a restriction on the exchanged shares for two years from December 31, 2010
for shareholders holding over of 5%.



Termination Payments



Our agreements with Messrs. Paz, Bar and
Shore and Israeli law provide, and our agreements with Dr. Holzer and Ms. Paz provided, for payments and other compensation in
the event of termination under certain circumstances, as more fully described under “Executive Compensation – Potential
Payments Upon Termination or Change of Control.” These provisions are comprised of (i) notice periods of varying length prior
to a termination without cause (180 days for Mr. Paz and Dr. Holzer, 30 days in general and 180 days following certain change in
control events for Mr. Shore, 60 days for Mr. Bar and 30 days for Ms. Paz), (ii) severance payments as required by Israeli law,
(iii) vesting of Mr. Shore’s, options upon his termination in connection with a change of control and (iv) vesting of Mr.
Shore’s, Mr. Bar’s and Ms. Paz’s options automatically upon a change of control if such stock options are not
assumed or substituted by the surviving company. We believe that having these provisions in our agreements with our officers enables
our officers to focus solely on the performance of their jobs by providing them with security in the event of certain terminations
of employment. With respect to the notice provisions, we believe that these provide us with a mechanism to ensure a successful
transition if we have to replace one of our named executive officers. In addition, we have provided these benefits to our officers
because we believe it is necessary for retention purposes, to attract well qualified and talented executives and, in the case of
severance payments, to comply with Israeli law. In exchange for these protections, our officers have agreed to be bound by certain
restrictive covenants, including confidentiality, non-competition and non-solicitation provisions.



Risk Considerations
in our Compensation Programs



Our
compensation committee believes that risks arising from our policies and practices for compensating employees are not reasonably
likely to have a material adverse effect on us anddo not encourage risk taking that is reasonably likely to have a material
adverse effect on us. Our compensation committee believes that the structure of our executive
compensation program mitigates risks by avoiding any named executive officer placing undue emphasis on any particular performance
metric at the expense of other aspects of our business.



Summary Compensation Table



The table below sets forth, for
the transition period and our last three fiscal years, the compensation earned by Ofir Paz, our chief executive officer,
Craig Shore, our chief financial officer, secretary and treasurer, Eli Bar, InspireMD Ltd.’s senior vice president of
research and development and chief technical officer, Asher Holzer, Ph.D., our former president, and Sara Paz, InspireMD
Ltd.’s former vice president of sales.





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|Name and Principal Position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Year(*) |      |  | Salary ($)(1) |  |         | Bonus ($)(1) |  |  | Option Awards($)(2) |  |  | All Other
                                                                                                         Compensation ($)(1) |         |     | Total ($)(1) | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ---- |  | ------------- |  | ------- | ------------ |  |  | ------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------- | ------- | --- | ------------ | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         |      |  |               |  |         |              |  |  |                     |  |  |                                                                                                                                        |         |     |              | 
|Ofir Paz(3) Chief
                                                                                                                                Executive
                                                                                                                                Officer                                                                                                                                                                                                                                                                                                                                                                                   |  |         | 2012 |  |               |  | 121,327 |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2011 |  |               |  | 57,796  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2010 |  |               |  | 89,197  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2009 |  |               |  | 76,524  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         |      |  |               |  |         |              |  |  |                     |  |  |                                                                                                                                        |         |     |              | 
|Craig Shore Chief
                                                                                                                    Financial
                                                                                                                    Officer, Secretary
                                                                                                                    and Treasurer                                                                                                                                                                                                                                                              |  |         | 2012 |  |               |  | 76,717  |              |  |  | -                   |  |  |                                                                                                                                        | 139,499 |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2011 |  |               |  | 118,333 |              |  |  | -                   |  |  |                                                                                                                                        | 260,554 |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2010 |  |               |  | 9,912   |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         |      |  |               |  |         |              |  |  |                     |  |  |                                                                                                                                        |         |     |              | 
|Eli Bar Senior
                                                                                                                Vice President,
                                                                                                                Research and Development
                                                                                                                and Chief Technical
                                                                                                                Officer of InspireMD
                                                                                                                Ltd. |  |         | 2012 |  |               |  | 77,100  |              |  |  | 12,850              |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2011 |  |               |  | 122,760 |              |  |  | -                   |  |  |                                                                                                                                        | 185,175 | (7) |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2010 |  |               |  | 91,684  |              |  |  | -                   |  |  |                                                                                                                                        | 818,509 |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2009 |  |               |  | 86,971  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         |      |  |               |  |         |              |  |  |                     |  |  |                                                                                                                                        |         |     |              | 
|Asher Holzer, Ph.D.(3) Former
                                                                                                                               President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |         | 2012 |  |               |  | 139,654 |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2011 |  |               |  | 57,796  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2010 |  |               |  | 89,197  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2009 |  |               |  | 73,526  |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         |      |  |               |  |         |              |  |  |                     |  |  |                                                                                                                                        |         |     |              | 
|Sara Paz Former
                                                                                                                 Vice President
                                                                                                                 of Sales of InspireMD
                                                                                                                 Ltd.                                                                                                                                                                                                                                                                          |  |         | 2012 |  |               |  | -       |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2011 |  |               |  | -       |              |  |  | -                   |  |  |                                                                                                                                        | 639,407 |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2010 |  |               |  | -       |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         | 2009 |  |               |  | -       |              |  |  | -                   |  |  |                                                                                                                                        | -       |     |              | 



| | (*) | 2012 refers to our transition period from January 1 through
June 30, 2012. Years 2009 to 2011 refer to our annual reporting periods for those years.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (1) | Compensation amounts received in non-U.S. currency have been converted into U.S. dollars
                                                                                using the average exchange rate for the applicable year.  The average exchange rate for 2012 was 3.80 NIS per
                                                                                dollar, the average exchange rate for 2011 was 3.5781 NIS per dollar, the average exchange rate for 2010 was 3.7330 NIS per
                                                                                dollar and the average exchange rate for 2009 was 3.9326 NIS per dollar.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The amounts in this column reflect the dollar amounts recognized for financial statement reporting purposes with respect to
the six months ended June 30, 2012 and the years ended December 31, 2009, 2010 and 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 Operation
— Critical Accounting Policies—Share-Based Compensation” and Note 2—“Significant Accounting Policies”
and Note 10—“Equity (Capital Deficiency)” of the Notes to the Consolidated Financial Statements for the Six Months
Ended June 30, 2012 included herein.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Both Mr. Paz and Dr. Holzer are directors but do not receive any additional compensation for their services as directors.
| | --- | -------------------------------------------------------------------------------------------------------------------------



75







| | (4) | Mr. Paz’s other compensation consisted of $57,612 in consulting salary and $72,297 in benefits in
2009, $78,491 in consulting salary and $51,472 in benefits in 2010 and $122,970 in consulting salary and $66,273 in benefits in
2011 and consisted solely of benefits in 2012. In each of 2009, 2010, 2011 and 2012, Mr. Paz’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. In 2012, the car-related benefits for Mr. Paz were valued at $12,549.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Mr. Shore’s other compensation consisted solely of benefits in 2010 and 2012 and consisted of a
warrant award valued at $5,266 and $35,280 in benefits in 2011. In each of 2010, 2011 and 2012, 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Mr. Shore’s total compensation in 2010 represented amounts paid beginning on November 24, 2010, the date of the commencement
of Mr. Shore’s employment with us.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | 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 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 the option to purchase 50,000 shares of common stock that were awarded to Mr. Bar in June 2011 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 new options had a fair market value of $185,175.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Mr. Bar’s other compensation in 2009, 2010, 2011 and 2012 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Dr. Holzer’s other compensation consisted of $55,040 in consulting salary and $54,014 in benefits
in 2009, $74,791 in consulting salary and $45,604 in benefits in 2010, $122,970 in consulting salary and $64,640 in benefits in
2011 and $14,474 in consulting salary and $35,163 in benefits in 2012. In each of 2009, 2010, 2011 and 2012, Dr. Holzer’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) | Ms. Paz’s other compensation consisted of $59,197
                                                               in consulting salary in 2009, $77,603 in consulting salary in 2010,
                                                               $112,136 in consulting salary and $30,473 in benefits in 2011 and
                                                               $60,000 in consulting salary and $23,569 in benefits in 2012. In
                                                               each of 2011 and 2012, Ms. Paz’s benefits included our contributions
                                                               to her severance, pension, vocational studies and disability funds,
                                                               an annual recreation payment, a company car and cell phone, and
                                                               a daily food allowance.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2012 Grants of Plan-Based Awards



The following table sets forth information
regarding grants of plan-based awards to our named executive officers in the six months ended June 30, 2012:



|Name                                                                                                                                                                                                                                                                                                                                                                                                  |  | Grant Date |           |  | Option Awards: Number of Securities Underlying (#) |  |        | Exercise or Base Price of Option
    Awards Options ($/Sh) |  |  | Grant Date Fair Value of Option
    Awards ($) | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | --------- |  | -------------------------------------------------- |  | ------ | ---------------------------------------------------------- |  |  | ---------------------------------------------- | 
|Ofir Paz Chief
                                                                                                                 Executive Officer                                                                                                                                                                                                                                                     |  |            | -         |  |                                                    |  | -      |                                                            |  |  | -                                              | 
|Craig ShoreChief Financial Officer, Secretary
    and Treasurer                                                                                                                                                                                                                                                                                                                                       |  |            | 5/25/2012 |  |                                                    |  | 75,000 | (1)                                                        |  |  | 3.20                                           | 
|Eli Bar (2)Senior Vice President, Research and Development and Chief Technical Officer
    of InspireMD Ltd.                                                                                                                                                                                                                                                                                          |  |            | -         |  |                                                    |  | -      |                                                            |  |  | -                                              | 
|Asher Holzer, Ph.D. Former
                                                                                                                            President                                                                                                                                                                                                                                      |  |            | -         |  |                                                    |  | -      |                                                            |  |  | -                                              | 
|Sara Paz Vice
                                                                                                                 President of
                                                                                                                 Sales of InspireMD
                                                                                                                 Ltd. |  |            | -         |  |                                                    |  | -      |                                                            |  |  | -                                              | 



76







|(1) | On May 25, 2012, Mr. Shore was granted options to acquire up to 75,000 shares of our common stock at an exercise price of $3.20 per share. The options vest on an annual basis over three years. The options had a fair market value of $139,499 as of May 25, 2012.  The award was given in recognition of Mr. Shore’s past contributions, to increase Mr. Shore’s equity stake in us in order to further align Mr. Shore’s objectives with those of our stockholders and allow him to share in our future financial growth and to compensate for Mr. Shore’s relatively low salary for his position.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Outstanding Equity Awards at End of Transition Period



The following table shows information concerning
unexercised options outstanding as of June 30, 2012 for each of our named executive officers.   There are no outstanding
stock awards with our named executive officers.



|Name                |  | Number of securities underlying unexercised options
    (#) exercisable |         |  | Number of securities underlying unexercised options
    (#) unexercisable |  |        | Option exercise price ($) |  |  | Option expiration date | 
|------------------- |  | ----------------------------------------------------------------------- | ------- |  | ------------------------------------------------------------------------- |  | ------ | ------------------------- |  |  | ---------------------- | 
|Ofir Paz            |  |                                                                         | -       |  |                                                                           |  | -      |                           |  |  | -                      | 
|                    |  |                                                                         |         |  |                                                                           |  |        |                           |  |  |                        | 
|Craig Shore         |  |                                                                         | 30,435  |  |                                                                           |  | 60,871 | (1)                       |  |  | 4.92                   | 
|                    |  |                                                                         | -       |  |                                                                           |  | 75,000 | (2)                       |  |  | 3.20                   | 
|                    |  |                                                                         |         |  |                                                                           |  |        |                           |  |  |                        | 
|Eli Bar             |  |                                                                         | 60,870  |  |                                                                           |  | -      |                           |  |  | 0.004                  | 
|                    |  |                                                                         | 91,306  |  |                                                                           |  | -      |                           |  |  | 0.004                  | 
|                    |  |                                                                         | 101,451 |  |                                                                           |  | 50,726 | (3)                       |  |  | 0.004                  | 
|                    |  |                                                                         | 13,527  |  |                                                                           |  | 6,764  | (3)                       |  |  | 4.92                   | 
|                    |  |                                                                         | 16,667  |  |                                                                           |  | 33,333 | (4)                       |  |  | 7.72                   | 
|                    |  |                                                                         |         |  |                                                                           |  |        |                           |  |  |                        | 
|Asher Holzer, Ph.D. |  |                                                                         | -       |  |                                                                           |  | -      |                           |  |  | -                      | 
|                    |  |                                                                         |         |  |                                                                           |  |        |                           |  |  |                        | 
|Sara Paz            |  |                                                                         | 30,435  |  |                                                                           |  | 60,871 | (5)                       |  |  | 6.00                   | 



| | (1) | These options were granted in February 2011 and vest annually,
                                                           with 1/3 vesting on November 23, 2011, November 23, 2012 and November
                                                           23, 2013.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | These options were granted on May 25, 2012 and vest annually,
                                                           with 1/3 vesting on May 25, 2013, May 25, 2014 and May 25, 2015.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | These options were granted in July 2010 and vest quarterly over
                                                           three years, commencing with the quarter in which they were granted.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | These options were granted in June 2011 and vest annually, with
                                                           1/3 vesting on April 8, 2012, April 8, 2013 and April 8, 2014.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



77







Option Exercises and Stock Vested



There were no stock options exercised by
our named executive officers during the six months ended June 30, 2012.



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.  Under the InspireMD, Inc. 2011 UMBRELLA Option Plan, we have reserved 15,000,000 shares of our common stock
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.



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.



Potential Payments Upon Termination or Change of Control



Our agreements with Messrs. Paz, Bar and
Shore, Dr. Holzer and Ms. Paz as well as Israeli law provide for payments and other compensation in the event of their termination
or a change of control of us under certain circumstances, as described below.



Chief
Executive Officer.  Pursuant to Mr. Paz’s consultancy agreement, we
possess the right to terminate his employment without “cause” (as such term is defined in the agreement) upon at least
180 days prior notice to Mr. Paz. During such notice period, we will continue to compensate Mr. Paz according to his agreement
and Mr. Paz will be obligated to continue to discharge and perform all of his duties and obligations under the 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.
Paz’s responsibilities.  We believe that this arrangement will assist us in achieving a successful transition
upon Mr. Paz’s departure.  Mr. Paz is entitled to terminate his employment with us in the event that we do not
fulfill our undertakings under our agreement, upon at least 30 days prior notice to us, during which time we may cure the breach.  During
such notice period, we will continue to compensate Mr. Paz according to his agreement and Mr. Paz will be obligated to continue
to discharge and perform all of his duties and obligations under the agreement.



If Mr. Paz’s employment is terminated
for any reason other than for cause, as a senior executive under Israeli law, he will also be entitled to severance payments equal
to the total amount that has been contributed to and accumulated in his severance payment fund. The total amount accumulated in
his severance payment fund as of June 30, 2012 was $86,408, as adjusted for conversion from New Israeli Shekels to U.S. Dollars.



We
are entitled to terminate Mr. Paz’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. Paz and
Mr. Paz will not be entitled to the amount that has been contributed to and accumulated in his severance payment fund.



78







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



Chief
Financial Officer, Secretary and Treasurer.  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 ofJune 30, 2012 was $14,165as 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 June 30, 2012, Mr. Shore would have been entitled
to receive $15,498in severance under Israeli law, thereby requiring us to pay Mr.
Shore $1,333, in addition to releasing the $14,165in 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.



In
addition, 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.



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



Senior
Vice President of Research and Development and Chief Technical Officer of InspireMD Ltd.  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.



79







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 June 30, 2012 was $63,450, 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 June 30, 2012, Mr. Bar would be entitled to receive $68,397 in severance under Israeli law, thereby requiring
us to pay Mr. Bar $4,947, in addition to releasing the $63,450 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.



Former President. Pursuant
to Dr. Holzer’s consultancy agreement with us dated June 1, 2012, both Dr. Holzer and we possess the right to terminate
the consultancy agreement for any reason or for no reason upon at least 15 days prior notice to other party. During such notice
period, we will continue to compensate Dr. Holzer his consulting fees according to his agreement and Dr. Holzer will be obligated
to continue to discharge and perform all of his duties and obligations under the agreement. In the event we terminate the consulting
agreement without “cause” (as such term is defined in the agreement), we shall pay Dr. Holzer his consulting fees
for the entire term of the consulting agreement, which terminates November 30, 2012. Upon termination of the consulting agreement,
we believe that we will have no further obligation to compensate Dr. Holzer and Dr. Holzer will not be entitled to any additional
compensation, other than as set forth above.



Former
Vice President of Sales of InspireMD Ltd. Subject to certain conditions, either party to our consultancy agreement
with Ms. Paz may terminate the agreement without “cause” (as such term is defined in her consultancy agreement) upon
at least 30 days prior written notice to the other party.  During such notice period, we will continue to compensate
Ms. Paz according to her consultancy agreement and Ms. Paz will be obligated to continue to discharge and perform all of her duties
and obligations under her consultancy agreement, and to cooperate with us and use her best efforts to assist with the integration
of any persons that we have delegated to assume Ms. Paz’s responsibilities.  We believe that our severance arrangement
with Ms. Paz will assist us in achieving a successful transition upon Ms. Paz’s departure.  Ms. Paz is entitled
to terminate her employment with us in the event that we do not fulfill our undertakings under our agreement, upon at least 30
days prior notice to us, during which time we may cure the breach.  During such notice period, we will continue to compensate
Ms. Paz according to her agreement and Ms. Paz will be obligated to continue to discharge and perform all of his duties and obligations
under the agreement.



80







In
addition, pursuant to terms contained in Ms. Paz’s stock option award agreement, in the event of a change of control of our
company, the stock options granted to Ms. Paz that were unvested will vest immediately upon such change of control if such stock
options are not assumed or substituted by the surviving company.





We
are entitled to terminate Ms. Paz’s employment immediately at any time for any reason, upon which we believe we will have
no further obligation to compensate Ms. Paz under her consultancy agreement or Israeli law, except as provided above.



81







The following table shows, as of June
30, 2012, potential payments to our named executive officers for various scenarios involving a resignation, termination, change
of control, retirement, death or disability, using, where applicable, the closing price of our common stock of $4.24 (as reported
on the OTC Bulletin Board as of June 29, 2012).  Compensation amounts to be paid in non-U.S. currency have been converted
into U.S. dollars using 3.923 NIS per dollar, which was the exchange rate as of June 30, 2012.





|Type of Event                  |  | Voluntary
    Resignation Upon Breach By Us |        |      | Voluntary
    Resignation |   |        | Termination
     for Cause |  |   | Termination
    Not for Cause |      |  | Death |         |      | Disability |   |        | Termination
    Not for
    Cause in
    Connection
    with a
    Change of
    Control |  |   | Change of
    Control (No
    Termination) |    
|------------------------------ |  | ------------------------------------------- | ------ | ---- | ------------------------- | - | ------ | -------------------------- |  | - | ----------------------------- | ---- |  | ----- | ------- | ---- | ---------- | - | ------ | ---------------------------------------------------------------------------------------- |  | - | ------------------------------------------ | ---
|Ofir
    Paz                   |  |                                             |        |      |                           |   |        |                            |  |   |                               |      |  |       |         |      |            |   |        |                                                                                          |  |   |                                            |    
|Employment agreement payments  |  | $                                           | 19,873 | (1)  |                           | $ | 19,873 | (1)                        |  |   | —                             |      |  | $     | 119,238 | (2)  |            |   | —      |                                                                                          |  |   | —                                          |    
|Severance payments(3)          |  | $                                           | 86,408 |      |                           | $ | 86,408 |                            |  |   | —                             |      |  | $     | 86,408  |      |            | $ | 86,408 |                                                                                          |  | $ | 86,408                                     |    
|Accrued vacation payments(4)   |  | $                                           | 61,527 |      |                           | $ | 61,527 |                            |  | $ | 61,527                        |      |  | $     | 61,527  |      |            | $ | 61,527 |                                                                                          |  | $ | 61,527                                     |    
|Value of accelerated options   |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Craig
    Shore                |  |                                             |        |      |                           |   |        |                            |  |   |                               |      |  |       |         |      |            |   |        |                                                                                          |  |   |                                            |    
|Employment agreement payments  |  | $                                           | 12,369 | (5)  |                           | $ | 12,369 | (5)                        |  |   | —                             |      |  | $     | 12,369  | (5)  |            |   | —      |                                                                                          |  |   | —                                          |    
|Severance payments             |  | $                                           | 14,165 | (6)  |                           | $ | 14,165 | (6)                        |  |   | —                             |      |  | $     | 15,498  | (7)  |            | $ | 15,498 | (7)                                                                                      |  | $ | 15,498                                     | (7)
|Accrued vacation payments(4)   |  | $                                           | 12,242 |      |                           | $ | 12,242 |                            |  | $ | 12,242                        |      |  | $     | 12,242  |      |            | $ | 12,242 |                                                                                          |  | $ | 12,242                                     |    
|Value of accelerated options   |  |                                             | —      |      |                           |   |        |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Eli
    Bar                    |  |                                             |        |      |                           |   |        |                            |  |   |                               |      |  |       |         |      |            |   |        |                                                                                          |  |   |                                            |    
|Employment agreement payments  |  | $                                           | 24,942 | (10) |                           | $ | 24,942 | (10)                       |  |   | —                             |      |  | $     | 24,942  | (10) |            |   | —      |                                                                                          |  |   | —                                          |    
|Severance payments             |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  | $     | 68,397  | (7)  |            | $ | 68,397 | (7)                                                                                      |  | $ | 68,397                                     | (7)
|Accrued vacation payments(4)   |  | $                                           | 40,591 |      |                           | $ | 40,591 |                            |  | $ | 40,591                        |      |  | $     | 40,591  |      |            | $ | 40,591 |                                                                                          |  | $ | 40,591                                     |    
|Value of accelerated options   |  |                                             | —      |      |                           |   |        |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Asher
    Holzer               |  |                                             |        |      |                           |   |        |                            |  |   |                               |      |  |       |         |      |            |   |        |                                                                                          |  |   |                                            |    
|Employment agreement payments  |  | $                                           | 10,169 | (12) |                           | $ | 10,169 | (12)                       |  | $ | 10,169                        | (12) |  | $     | 101,685 | (13) |            |   | —      |                                                                                          |  |   | —                                          |    
|Severance payments(3)          |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Accrued vacation payments(4)   |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Value of accelerated options   |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Sara Paz                       |  |                                             |        |      |                           |   |        |                            |  |   |                               |      |  |       |         |      |            |   |        |                                                                                          |  |   |                                            |    
|Consultancy agreement payments |  | $                                           | 13,491 | (5)  |                           | $ | 13,491 | (5)                        |  | $ | —                             |      |  | $     | 13,491  | (5)  |            |   | —      |                                                                                          |  |   | —                                          |    
|Severance payments             |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Accrued vacation payments      |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    
|Value of accelerated options   |  |                                             | —      |      |                           |   | —      |                            |  |   | —                             |      |  |       | —       |      |            |   | —      |                                                                                          |  |   | —                                          |    



82
















| | (1) | Represents total
compensation for 30 days, during which time we will continue to compensate the officer according to his agreement and the officer
will be obligated to continue to discharge and perform all of his duties and obligations under the agreement.  In the
event of material breach by us, we are permitted to cure our breach of the agreement during the 30 day notice period.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Represents
total compensation for 180 days, during which time we will continue to compensate the officer
according to his agreement and the officer will be obligated to continue to discharge and perform all of his duties and obligations
under the agreement.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Representsthe
total amount that has been contributed to and accumulated in his severance payment fund.
| | --- | ------------------------------------------------------------------------------------------------------



| | (4) | Pursuant to Israeli
law, the value of a vacation day is equal to gross salary divided by 22 working days per month.
| | --- | -------------------------------------------------------------------------------------------------------------------



| | (5) | Represents total
compensation for 30 days, during which time we will continue to compensate the officer according to his or her agreement and the
officer will be obligated to continue to discharge and perform all of his or her duties and obligations under the agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Representsthe
total amount that has been contributed to and accumulated in his severance payment fund, to be paid pursuant to his employment
agreement.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Represents the
total amount to be paid under Israeli law in the event of termination not for cause, calculated based upon the officer’s
monthly salary as of June 30, 2012, multiplied by his years of employment with us.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Represents the
vesting of options to purchase 75,000 shares of our common stock, multiplied by the difference between the exercise price of
$3.24 andthe closing price of our common stock of $4.24 (as reported on the OTC Bulletin Board as of June 30, 2012),
which shall occur upon termination of Mr. Shore’s employment within one year of a change of control.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Assumes that such
stock options are not assumed or substituted by the surviving company and represents the
vesting of options to purchase 75,000 shares of our common stock, multiplied by the difference between the exercise price of
$3.24 andthe closing price of our common stock of $4.24 (as reported on the OTC Bulletin Board as of June 30, 2012).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



83







| | (10) | Represents total
compensation for 60 days, during which time we will continue to compensate the officer according to his agreement and the officer
will be obligated to continue to discharge and perform all of his duties and obligations under the agreement.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Assumes that such
stock options are not assumed or substituted by the surviving company and represents the sum of the
vesting of options to purchase 50,726 shares of our common stock, multiplied by the difference between the exercise price of
$0.004 andthe closing price of our common stock of $4.24 (as reported on the OTC Bulletin Board as of June 30, 2012).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (12) | Represents total compensation for 15 days, during
which time we will continue to compensate the officer according to his agreement and the officer will be obligated to continue
to discharge and perform all of his duties and obligations under the agreement.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (13) | Represents total
compensation for the remainder of the term of Dr. Holzer’s consulting agreement, which terminates November 30, 2012.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------





Director Compensation



The following table shows information concerning
our directors other than Mr. Paz and Dr. Holzer, during the six months ended June 30, 2012.



|Name                |  | Fees Earned or Paid in Cash ($) |   |  | Stock Awards ($) |  |  | Option Awards(1) ($) |  |  | All Other Compensation ($) |  |  | Total ($) | 
|------------------- |  | ------------------------------- | - |  | ---------------- |  |  | -------------------- |  |  | -------------------------- |  |  | --------- | 
|Sol J. Barer, Ph.D. |  |                                 | - |  |                  |  |  |                      |  |  | 215,044                    |  |  |           | 
|James Barry, Ph.D.  |  |                                 |   |  |                  |  |  |                      |  |  | 129,695                    |  |  |           | 
|Paul Stuka          |  |                                 | - |  |                  |  |  |                      |  |  | 23,323                     |  |  |           | 
|Eyal Weinstein      |  |                                 | - |  |                  |  |  |                      |  |  | 23,323                     |  |  |           | 



|(1) | The amounts in this column reflect the dollar amounts recognized for financial statement reporting purposes with respect to the six months ended June 30, 2012, 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 10—“Equity (Capital Deficiency)” of the Notes to the Consolidated Financial Statements for the Six Months Ended June 30, 2012 included herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We do not currently provide cash compensation
to our directors for acting as such, although we may do so in the future. We reimburse our directors for reasonable expenses incurred
in connection with their service as directors.  In addition, during the six months ended June 30, 2012, we made the following
option grants to the following directors.  Each grant was made under the InspireMD, Inc. 2011 UMBRELLA Option Plan, unless
otherwise noted.



84







|Name                |  | Shares Subject
    to Options |        |     | Grant Date |                  | Exercise Price |   |      | Vesting Schedule |  | Expiration                                                                                                                                                                                                                                                                                                                                                                                                 |  | Fair Market Value
    on Grant Date | 
|------------------- |  | ----------------------------- | ------ | --- | ---------- | ---------------- | -------------- | - | ---- | ---------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | 
|Sol J. Barer, Ph.D. |  |                               | 12,500 | (1) |            | June 18, 2012    |                | $ | 3.16 |                  |  | One-third annually in 2013, 2014 and 2015 on the anniversary of the date of grant,
    provided that Dr. Barer is providing services to us or our subsidiaries or affiliates on the applicable vesting date.                                                                                                                                                                                               |  | June 18, 2022                       | 
|                    |  |                               |        |     |            |                  |                |   |      |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                     | 
|James Barry, Ph.D.  |  |                               | 25,000 | (2) |            | January 30, 2012 |                | $ | 7.80 |                  |  | One-third annually in 2013, 2014 and 2015 on the anniversary of the date of grant, provided
    that if Dr. Barry 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. |  | January 30, 2022                    | 
|                    |  |                               |        |     |            |                  |                |   |      |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                     | 
|                    |  |                               | 12,500 | (1) |            | June 18, 2012    |                | $ | 3.16 |                  |  | One-third annually in 2013, 2014 and 2015 on the anniversary of the date of grant, provided
    that Dr. Barry is providing services to us or our subsidiaries or affiliates on the applicable vesting date.                                                                                                                                                                                               |  | June 18, 2022                       | 
|                    |  |                               |        |     |            |                  |                |   |      |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                     | 
|Paul Stuka          |  |                               | 12,500 | (1) |            | June 18, 2012    |                | $ | 3.16 |                  |  | One-third annually in 2013, 2014 and 2015 on the anniversary of the date of grant, provided
    that Mr. Stuka is providing services to us or our subsidiaries or affiliates on the applicable vesting date.                                                                                                                                                                                               |  | June 18, 2022                       | 
|                    |  |                               |        |     |            |                  |                |   |      |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                     | 
|Eyal Weinstein      |  |                               | 12,500 | (1) |            | June 18, 2012    |                | $ | 3.16 |                  |  | One-third annually in 2013, 2014 and 2015 on the anniversary of the date of grant, provided
    that Mr. Weinstein is providing services to us or our subsidiaries or affiliates on the applicable vesting date.                                                                                                                                                                                           |  | June 18, 2022                       | 








(1) This option was granted as the director’s 2012
annual director compensation.

(2) This option was granted in connection with the appointment
of this person to our board of directors.



85







Directors’ and Officers’ Liability Insurance



We currently have directors’ and officers’
liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors
or officers, subject to certain exclusions.  Such insurance also insures us against losses which we may incur in indemnifying
our officers and directors.  In addition, we have entered into indemnification agreements with key officers and directors
and such persons shall also have indemnification rights under applicable laws, and our certificate of incorporation and bylaws.



Compensation Committee Interlocks and Insider Participation



During the transition period ended June
30, 2012, Messrs. Stuka and Weinstein and Dr. Barer served on our compensation committee.  None of our executive officers
currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving on our board of directors or compensation committee.



Compensation Committee Report



The compensation committee has reviewed
and discussed the Compensation Discussion and Analysis with the members of our management and, based on such review and discussions,
the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this
Transition Report on Form 10-K/T.



| | COMPENSATION
        COMMITTEE
| | ------------------------------
| | Eyal Weinstein, Chairman      
| | Paul Stuka                    
| | Sol J. Barer, Ph.D.           



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 September 1, 2012 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., 4 Menorat Hamaor St., Tel Aviv, Israel
67448. As of September 1, 2012, we had 17,070,477 shares outstanding.







86











|Name of Beneficial Owner                                    |  | Number of Shares Beneficially
    Owned(1) |           |      | Percentage Beneficially Owned(1) | 
|----------------------------------------------------------- |  | ------------------------------------------ | --------- | ---- | -------------------------------- | 
|5% Owners                                                   |  |                                            |           |      |                                  | 
|Yuli Ofer (2)                                               |  |                                            | 1,129,575 |      |                                  | 
|Genesis Capital Advisors LLC(3)                             |  |                                            | 2,098,844 | (4)  |                                  | 
|Ayer Capital Management, LP(5)                              |  |                                            | 1,309,426 | (6)  |                                  | 
|Officers and Directors                                      |  |                                            |           |      |                                  | 
|Ofir Paz                                                    |  |                                            | 2,603,982 | (7)  |                                  | 
|Asher Holzer, Ph.D.                                         |  |                                            | 2,575,109 | (8)  |                                  | 
|Eli Bar                                                     |  |                                            | 281,526   | (9)  |                                  | 
|Craig Shore                                                 |  |                                            | 30,435    | (10) |                                  | 
|Sara Paz                                                    |  |                                            | 2,603,982 | (7)  |                                  | 
|Sol J. Barer, Ph.D. (11)                                    |  |                                            | 1,156,250 | (12) |                                  | 
|James Barry, Ph.D. (13)                                     |  |                                            | 0         |      |                                  | 
|Paul Stuka (14)                                             |  |                                            | 508,333   | (15) |                                  | 
|Eyal Weinstein (16)                                         |  |                                            | 2,083     | (17) |                                  | 
|All directors and executive officers as a group (9 persons) |  |                                            | 7,155,636 |      |                                  | 



|* | 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 September 1, 2012. 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) | Mr. Ofer’s address is 36 Hamesila Street, Herzeliya, Israel.
|--- | ------------------------------------------------------------



|(3) | Genesis Capital Advisors LLC’s address is 1212 Avenue of the Americas, 19th Floor, New York, New York 10036.
|--- | ------------------------------------------------------------------------------------------------------------



|(4) | Comprised of (i) 98,784 shares of common stock issuable upon the exercise of a warrant held by HUG Funding
LLC, (ii) 206,619 shares of common stock issuable upon the conversion of
a convertible debenture held by HUG Funding LLC, (iii) 319,149 shares of common stock issuable upon the exercise of a warrant
held by Genesis Opportunity Fund L.P., (iv) 667,537 shares of common stock issuable upon the conversion of a convertible debenture
held by Genesis Opportunity Fund L.P., (v) 377,630 shares of common stock issuable upon the exercise of warrants held by Genesis
Asset Opportunity Fund L.P., (vi) 317,875 shares of common stock issuable upon the conversion of a convertible debenture held
by Genesis Asset Opportunity Fund L.P., (vii) 25,000 shares of common stock held directly by Genesis Asset Opportunity Fund L.P.
and (viii) 86,250 shares of common stock held directly by Genesis Life Science Fund LP. Genesis Capital Advisors LLC is the investment
adviser to Genesis Opportunity Fund L.P., Genesis Asset Opportunity Fund L.P. and Genesis Life Science Fund LP, and, as such, may
be deemed to beneficially own securities owned by each of Genesis Opportunity Fund L.P., Genesis Asset Opportunity Fund L.P. and
Genesis Life Science Fund LP. Each of Genesis Capital Advisors LLC and HUG Funding LLC are controlled by Daniel Saks, Ethan Benovitz
and Jaime Hartman, and, as such, Genesis Capital Advisors LLC may be deemed to beneficially own securities held by HUG Funding
LLC. In addition, each of Daniel Saks, Ethan Benovitz and Jaime Hartman have shared voting and dispositive power over the securities
held by HUG Funding LLC, Genesis Opportunity Fund L.P., Genesis Asset Opportunity Fund L.P. and Genesis Life Science Fund LP. Each
of the convertible debentures and warrants held by HUG Funding LLC, Genesis Opportunity Fund L.P. and Genesis Asset Opportunity
Fund L.P. have contractual provisions limiting conversion and exercise to the extent such conversion or exercise would cause the
holder, together with its affiliates or members of a “group”, to beneficially own a number of shares of common stock
that would exceed 4.99% or 9.99% of our then outstanding shares of common stock following such conversion or exercise. The shares
and percentage ownership of our outstanding shares indicated in the table above as beneficially owned by Genesis Capital Advisors
LLC do not give effect to these limitations.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



87







|(5) | Ayer Capital Management, LP’s address is 230 California Street, Suite 600, San Francisco,
    CA 94111.
|--- | -------------------------------------------------------------------------------------------------------



|(6) | Comprised of (i) 247,455 shares of common stock issuable upon the exercise of a warrant held by Ayer Capital
Partners Master Fund, L.P., (ii) 517,580 shares of common stock issuable upon the conversion of a convertible debenture held
by Ayer Capital Partners Master Fund, L.P., (iii) 4,901 shares of common stock issuable upon the exercise of a warrant held by
Ayer Capital Partners Kestrel Fund, LP, (iv) 10,252 shares of common stock issuable upon the conversion of a convertible debenture
held by Ayer Capital Partners Kestrel Fund, LP, (v) 13,602 shares of common stock issuable upon the exercise of warrants held by
Epworth-Ayer Capital, (vi) 28,450 shares of common stock issuable upon the conversion of a convertible debenture held by Epworth-Ayer
Capital, (vii) 454,813 shares of common stock held directly by Ayer Capital Partners Master Fund, L.P., (viii) 8,384 shares
of common stock held directly by Ayer Capital Partners Kestrel Fund, LP, and (ix) 23,991 shares of common stock held directly by
Epworth-Ayer Capital. The investment advisor for each of Ayer Capital Partners Master Fund, L.P., Ayer Capital Partners Kestrel
Fund, LP and Epworth-Ayer Capital is Ayer Capital Management, LP, of which Jay Venkatesan serves as managing member. Jay Venkatesan
may therefore be deemed to beneficially own the shares of common stock held by the Funds, as he holds or shares voting and dispositive
power over such shares. Each of the convertible debentures and warrants held by Ayer Capital Partners Master Fund, L.P., Ayer Capital
Partners Kestrel Fund, LP and Epworth-Ayer Capital have contractual provisions limiting conversion and exercise to the extent such
conversion or exercise would cause the holder, together with its affiliates or members of a “group”, to beneficially
own a number of shares of common stock that would exceed 4.99% or 9.99% of our then outstanding shares of common stock following
such conversion or exercise. The shares and percentage ownership of our outstanding shares indicated in the table above as beneficially
owned by Ayer Capital Management, LP do not give effect to these limitations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This amount includes options to purchase 30,436 shares of common stock that are held by Sara Paz,
    Ofir Paz’s wife, that are currently exercisable within 60 days of September 1, 2012.  This amount does not
    include 93,132 shares of common stock that Mr. Paz presently holds as trustee for a family trust.  Mr. Paz does
    not have either voting power or dispositive power over these shares and disclaims all beneficial ownership therein.  Ofir
    Paz and Sara Paz, as husband and wife, share voting and investment power with respect to all shares reported by Mr. Paz or
    Ms. Paz.  On March 27, 2012, Ms. Paz ceased to be an executive officer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | This amount does not include 14,731 shares of common stock that Dr. Holzer presently holds as trustee for a family trust.  Dr. Holzer does not have either voting power or dispositive power over these shares and disclaims all beneficial ownership therein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Represents options that are currently exercisable or exercisable within 60 days of September 1, 2012.
|--- | -----------------------------------------------------------------------------------------------------



|(10) | Represents options that are currently exercisable or exercisable within 60 days of September 1, 2012.
|---- | -----------------------------------------------------------------------------------------------------



|(11) | Dr. Barer’s address is c/o InspireMD, Inc., 4 Menorat Hamaor St., Tel Aviv, Israel 67448.
|---- | -----------------------------------------------------------------------------------------



|(12) | Comprised of (i) 975,000 shares of common stock and (ii) options to purchase 181,250 shares of common
stock that are currently exercisable or exercisable within 60 days of September 1, 2012.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | Dr. Barry’s address is c/o InspireMD, Inc., 4 Menorat Hamaor St., Tel Aviv, Israel 67448.
|---- | -----------------------------------------------------------------------------------------



|(14) | Mr. Stuka’s address is c/o Osiris Partners, LLC, 1 Liberty Square, 5th Floor, Boston, MA 02109.
|---- | -----------------------------------------------------------------------------------------------



|(15) | Mr. Stuka is the principal and managing member of Osiris Investment Partners, L.P., and, as such,
    has beneficial ownership of the (i) 333,333 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, Mr. Stuka individually holds an option
    to purchase 8,333 shares of common stock that is currently exercisable or exercisable within 60 days of September 1, 2012.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(16) | Mr. Weinstein’s address is c/o Leorlex Ltd., P.O. Box 15067 Matam, Haifa, Israel 3190.
|---- | --------------------------------------------------------------------------------------





| | (17) | Represents options that are currently exercisable or exercisable
                                                               within 60 days of September 1, 2012.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Equity Compensation Plan Information



Equity Compensation Plan Information





The following table provides certain information
as of June 30, 2012 with respect to our equity compensation plans under which our equity securities are authorized for issuance:



|Plan Category                                              |  | Number of securities to be issued upon
    exercise of outstanding options, warrants and rights (a) |           |     | Weighted- average exercise price of outstanding
    options, warrants and rights (b) |   |      | Number of securities remaining available
    for future issuance under equity compensation plans (excluding securities reflected in column
    (a)) (c) | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | --------- | --- | ------------------------------------------------------------------------------------ | - | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by security holders     |  |                                                                                                     | 2,417,033 |     |                                                                                      | $ | 3.20 |                                                                                                                                                         | 
|Equity compensation plans not approved by security holders |  |                                                                                                     | 964,646   | (1) |                                                                                      | $ | 6.36 |                                                                                                                                                         | 
|Total                                                      |  |                                                                                                     | 3,381,679 |     |                                                                                      | $ | 4.12 |                                                                                                                                                         | 



88














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



| | · | Options issued to certain providers of finder services: from May 2005 through December 2010, we
    issued options to purchase an aggregate of 74,849 shares of common stock to five different finders who assisted in raising
    funds for us.  The exercise price of these options range from par value to $4.92.  All such options are
    fully vested.  These options expire between April 2012 through 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.  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. Peled 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. The exercise price of these options is $4.92 and they expire on December 31, 2014.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Options issued to current director: in November 2011, we issued options to purchase an aggregate
    of 725,000 shares of common stock to Sol J. Barer, Ph.D., the chairman of our board of directors.  For a description
    of these options, please see “Item 11. Executive Compensation—Director Compensation.”
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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.



On June 1, 2012, we entered into a consulting agreement with Asher Holzer, Ph.D., our director and former president, which
terminates on November 30, 2012, pursuant to which Dr. Holzer will provide us with consulting services in exchange for monthly
payments of $20,337.



Director Independence



The board of directors has determined that
Drs. Barer and Barry and Messrs. Stuka and Weinstein satisfy the requirement for independence set out in Section 5605(a)(2) of
the Nasdaq Stock Market 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 Nasdaq 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, a member of PricewaterhouseCoopers International Limited,
for the six months ended June 30, 2012 and the fiscal year ended December 31, 2011 and 2010 are described below.



89







Audit Fees



Kesselman & Kesselman billed us
audit fees in the aggregate amount of $155,000 for the six months ended June 30, 2012, $205,000 for the year ended December
31, 2011 and $132,000 for the year ended December 31, 2010. These fees relate to the audit of our annual financial statements,
the review of our interim quarterly financial statements and, in 2011 and 2012, Sarbanes-Oxley Act compliance work.



Audit-Related Fees



Kesselman & Kesselman billed us
audit-related fees in the aggregate amount of $20,000 for the six months ended June 30, 2012 and $106,300 for the year ended December
31, 2011. The fees in 2011 related to 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.
The fees in 2012 related to our registration statement on Form S-1 initially filed with the Securities and Exchange Commission
on June 16, 2011 and amendments thereto. Kesselman & Kesselman did not bill us for any audit-related fees for the year ended
December 31, 2010.



Tax Fees



Kesselman & Kesselman billed us
tax fees in the aggregate amount of $44,000 for the six months ended June 30, 2012, $26,000 for the year ended December 31, 2011
and $29,000 for the year ended December 31, 2010. These fees relate to professional services rendered for tax compliance, tax
advice and tax planning.



All Other Fees



Kesselman & Kesselman billed us
other fees in the aggregate amount of $0 for the six months ended June 30, 2012, $0 for the year ended December 31, 2011 and $31,675
for the year ended December 31, 2010. These fees relate to review of unaudited pro forma financial statements and to due diligence
in connection with the share exchange transactions.



For the fiscal year ended December 31, 2010
and 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



The following financial statements are included herein:



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



| | • | Consolidated
                                                                                   Balance Sheets as of June 30, 2012 and December
                                                                                   31, 2011 and 2010
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Consolidated
                                                                                   Statements of Operations for the Six Months
                                                                                   Ended June 30, 2012 and the Years Ended December
                                                                                   31, 2011, 2010 and 2009
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



90







| | • | Consolidated
                                                                                   Statements of Changes in Equity (Capital Deficiency)
                                                                                   for the Six Months Ended June 30, 2012 and
                                                                                   the Years Ended December 31, 2011, 2010 and
                                                                                   2009
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Consolidated
                                                                                   Statements of Cash Flows for the Six Months
                                                                                   Ended June 30, 2012 and the Years Ended December
                                                                                   31, 2011, 2010 and 2009
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Notes to
                                                                                   Consolidated Financial Statements
| | - | -----------------------------------------------------------------------------------------------------------------------------



2.  Financial Statement Schedules



| | None
| | ----



3.  Exhibits



| | See Index to Exhibits
| | ---------------------





91







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: January 3, 2013 | By:             | /s/ Ofir Paz           
|                      |                 | Ofir Paz               
|                      |                 | Chief Executive Officer
|                      |                 |                        
|                      |                 |                        



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/ Ofir Paz       |  | Chief Executive Officer and Director             |  | January 3, 2013
|Ofir Paz           |  | (principal executive officer)                    |  |                
|                   |  |                                                  |  |                
|/s/ Craig Shore    |  | Chief Financial Officer, Secretary and Treasurer |  | January 3, 2013
|Craig Shore        |  | (principal financial and accounting officer)     |  |                
|                   |  |                                                  |  |                
|/s/ Sol J. Barer   |  | Chairman of the Board of Directors               |  | January 3, 2013
|Sol J. Barer       |  |                                                  |  |                
|                   |  |                                                  |  |                
|/s/ Asher Holzer   |  | Director                                         |  | January 3, 2013
|Asher Holzer       |  |                                                  |  |                
|                   |  |                                                  |  |                
|/s/ James Barry    |  | Director                                         |  | January 3, 2013
|James Barry        |  |                                                  |  |                
|                   |  |                                                  |  |                
|/s/ Paul Stuka     |  | Director                                         |  | January 3, 2013
|Paul Stuka         |  |                                                  |  |                
|                   |  |                                                  |  |                
|/s/ Eyal Weinstein |  | Director                                         |  | January 3, 2013
|Eyal Weinstein     |  |                                                  |  |                
|                   |  |                                                  |  |                
|/s/ James Loughlin |  | Director                                         |  | January 3, 2013
|James Loughlin     |  |                                                  |  |                
|                   |  |                                                  |  |                



92







Index to Exhibits





|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Share Exchange Agreement, dated as of December 29, 2010, by and among InspireMD Ltd., Saguaro Resources, Inc., and the Shareholders of InspireMD Ltd. that are signatory thereto (incorporated by reference to Exhibit 10.1 to Saguaro Resources, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2011)
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|2.2         |  | Amendment to Share Exchange Agreement, dated February 24, 2011 (incorporated by reference to Exhibit 2.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|2.3         |  | Second Amendment to Share Exchange Agreement, dated March 25, 2011 (incorporated by reference to Exhibit 2.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|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)                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|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        |  | Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations, dated as of March 31, 2011 (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|10.4        |  | Stock Purchase Agreement, by and between InspireMD, Inc. and Lynn Briggs, dated as of March 31, 2011 (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|10.5        |  | 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)                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|10.6        |  | 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)                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|10.7        |  | 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)                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|10.8        |  | $1,250,000 Convertible Debenture, dated July 20, 2010, by and between InspireMD Ltd. and Genesis Asset Opportunity Fund, L.P. (incorporated by reference to Exhibit 10.8 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                        
|10.9        |  | Unprotected Leasing Agreement, dated February 22, 2007, by and between Block 7093 Parcel 162 Company Ltd. Private Company 510583156 and InspireMD Ltd. (incorporated by reference to Exhibit 10.9 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                        





93











|10.10  |  | Securities Purchase Agreement, dated as of July 22, 2010, by and among InspireMD Ltd. and certain purchasers set forth therein (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)     
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                               
|10.11  |  | 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)
|       |  |                                                                                                                                                                                                                                                                                                               
|10.12  |  | 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)    
|       |  |                                                                                                                                                                                                                                                                                                               
|10.13  |  | 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)                       
|       |  |                                                                                                                                                                                                                                                                                                               
|10.14+ |  | Agreement, by and between InspireMD Ltd. and Ofir Paz, dated as of April 1, 2005 (incorporated by reference to Exhibit 10.14 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                                
|       |  |                                                                                                                                                                                                                                                                                                               
|10.15+ |  | Amendment to the Employment Agreement, by and between InspireMD Ltd. and Ofir Paz, dated as of October 1, 2008 (incorporated by reference to Exhibit 10.15 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                  
|       |  |                                                                                                                                                                                                                                                                                                               
|10.16+ |  | Second Amendment to the Employment Agreement, by and between InspireMD Ltd. and Ofir Paz, dated as of March 28, 2011 (incorporated by reference to Exhibit 10.16 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                            
|       |  |                                                                                                                                                                                                                                                                                                               
|10.17+ |  | Personal Employment Agreement, by and between InspireMD Ltd. and Asher Holzer, Ph.D., dated as of April 1, 2005 (incorporated by reference to Exhibit 10.17 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                 
|       |  |                                                                                                                                                                                                                                                                                                               
|10.18+ |  | Amendment to the Employment Agreement, by and between InspireMD Ltd. and Asher Holzer, Ph.D., dated as of March 28, 2011 (incorporated by reference to Exhibit 10.18 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                        
|       |  |                                                                                                                                                                                                                                                                                                               
|10.19+ |  | 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)                                                             
|       |  |                                                                                                                                                                                                                                                                                                               
|10.20+ |  | Employment Agreement, by and between InspireMD Ltd. and Bary Oren, dated as of August 25, 2009 (incorporated by reference to Exhibit 10.20 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                                  
|       |  |                                                                                                                                                                                                                                                                                                               
|10.21+ |  | 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)                                                              
|       |  |                                                                                                                                                                                                                                                                                                               
|10.22+ |  | 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)                       







94











|10.23  |  | Agreement with Bank Mizrahi Tefahot LTD. for a loan to InspireMD Ltd. in the original principal amount of $750,000 (incorporated by reference to Exhibit 10.23 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2011)                                                  
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.24  |  | Securities Purchase Agreement, dated as of April 18, 2011, by and among InspireMD, Inc. and certain purchasers set forth therein (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2011)                                    
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.25  |  | 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)                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.26  |  | 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)                                 
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.27  |  | 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)                                          
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.28  |  | 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)                 
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.29  |  | Factoring Agreement by and between InspireMD Ltd. and Bank Mizrahi Tefahot Ltd., dated as of February 22, 2011 (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 26, 2011)                         
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.30+ |  | $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)                                         
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.31+ |  | Consultancy Agreement, dated as of April 1, 2011, by and between InspireMD Ltd. and Ofir Paz (incorporated by reference to Exhibit 10.34 to Amendment No. 2 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on September 21, 2011)                                        
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.32+ |  | Consultancy Agreement, dated as of April 29, 2011, by and between InspireMD Ltd. and Asher Holzer, Ph.D. (incorporated by reference to Exhibit 10.35 to Amendment No. 2 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on September 21, 2011)                            
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.33  |  | 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)        
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.34  |  | 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)
|       |  |                                                                                                                                                                                                                                                                                                                   
|10.35  |  | 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)               
|       |  |                                                                                                                                                                                                                                                                                                                   







95











|10.36  |  | 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)  
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                           
|10.37+ |  | Consultancy Agreement by and between InspireMD Ltd. and Sara Paz, dated as of May 6, 2008 (incorporated by reference to Exhibit 10.40 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011)                                     
|       |  |                                                                                                                                                                                                                                                                                                           
|10.38+ |  | Consultancy Agreement by and between InspireMD Ltd. and Sara Paz Management and Marketing Ltd., dated as of September 1, 2011 (incorporated by reference to Exhibit 10.41 to Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 12, 2011) 
|       |  |                                                                                                                                                                                                                                                                                                           
|10.39  |  | Clinical Trial Services Agreement, dated as of October 4, 2011, by and between InspireMD Ltd. and Harvard Clinical Research Institute, Inc. (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2011)               
|       |  |                                                                                                                                                                                                                                                                                                           
|10.40  |  | 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)                             
|       |  |                                                                                                                                                                                                                                                                                                           
|10.41+ |  | 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)                                             
|       |  |                                                                                                                                                                                                                                                                                                           
|10.42+ |  | 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)                               
|       |  |                                                                                                                                                                                                                                                                                                           
|10.43  |  | 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)    
|       |  |                                                                                                                                                                                                                                                                                                           
|10.44  |  | 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)
|       |  |                                                                                                                                                                                                                                                                                                           
|10.45  |  | 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)                                                                 
|       |  |                                                                                                                                                                                                                                                                                                           
|10.46  |  | Securities Purchase Agreement, dated April 5, 2012, by and between InspireMD, Inc. and certain purchasers set forth therein (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                  
|       |  |                                                                                                                                                                                                                                                                                                           
|10.47  |  | Form of Senior Secured Convertible Note issued April 5, 2012 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                           
|10.48  |  | Form of April 2012 $7.20 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)                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                           







96











|10.49   |  | 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)                                                                                  
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.50   |  | Security Agreement, dated April 5, 2012, by and between InspireMD, Inc., InspireMD Ltd., Inspire MD GmbH and certain purchasers set forth therein (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.51   |  | Intellectual Property Security Agreement, dated April 5, 2012, by and between InspireMD, Inc., InspireMD Ltd., Inspire MD GmbH and certain purchasers set forth therein (incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.52   |  | Deposit Account Control Agreement, dated April 5, 2012, among InspireMD, Inc., Bank Leumi USA and certain purchasers set forth therein (incorporated by reference to Exhibit 10.7 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.53   |  | Subsidiary Guarantee, dated April 5, 2012, by InspireMD Ltd. and Inspire MD GmbH, in favor of certain purchasers set forth therein (incorporated by reference to Exhibit 10.8 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.54   |  | Fixed and Floating Charge Debenture, dated April 5, 2012, by and between InspireMD Ltd. and certain purchasers set forth therein (incorporated by reference to Exhibit 10.9 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.55   |  | Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.10 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2012)                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.56   |  | Consulting Agreement, dated as of June 1, 2012, by and between InspireMD, Inc. and Asher Holzer, Ph.D.(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 5, 2012)                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.57   |  | Separation Agreement and Release, made as of June 1, 2012, by and between InspireMD Ltd., OSH-IL, the Israeli Society of Occupational Health and Safety Ltd., Company No. 513308247 and Asher Holzer, Ph.D.(incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 5, 2012)
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.58** |  | Mutual Waiver and Release, dated as of July 22, 2012, by and between InspireMD Ltd. and Hand-Prod Sp. Z o.o.                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.59** |  | Exclusive Distribution Agreement, dated as of August 1, 2007, by and between InspireMD Ltd. and Kardia Srl.                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.60** |  | Addendum to the Distribution Agreement, dated as of January 18, 2011, by and between InspireMD Ltd. and Kardia Srl.                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.61** |  | Exclusive Distribution Agreement, dated as of May 13, 2010, by and between InspireMD Ltd. and Euromed Deutschland GmbH.                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10.62** |  | Exclusive Distribution Agreement, dated as of May 26, 2011, by and between InspireMD Ltd. and Bosti Trading Ltd.                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                       













97











|10.63** |  | Addendum to the Distribution Agreement, dated as of August 29, 2011, by and between InspireMD Ltd. and Bosti Trading Ltd.                                                                                                                                                                                                                                                                                                                     
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.64** |  | Omnibus Debenture Amendment, dated May 31, 2012, by and between InspireMD, Inc. and the debenture holders set forth therein.                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.65** |  | Amendment No. 1 to Registration Rights Agreement, dated May 31, 2012, by and between InspireMD, Inc. and the purchasers set forth therein.                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|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)                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|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                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|99.1*   |  | Supplemental Financial Information - Financial Statements for the Years Ended June 30, 2012 and June 30, 2011 (unaudited)                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101**   |  | The following materials from InspireMD, Inc.’s Transition Report on Form 10-K/T for the year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Changes in Equity (Capital Deficiency), (iv) Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements





* Filed herewith.

** Filed previously.

+ Management contract or compensatory plan or arrangement.









98







INSPIREMD, INC.



CONSOLIDATED FINANCIAL STATEMENTS



FOR THE SIX MONTH PERIOD ENDED JUNE 30,
2012











INSPIREMD, INC.



CONSOLIDATED FINANCIAL STATEMENTS



FOR THE SIX MONTH PERIOD ENDED JUNE 30,
2012



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 (Capital Deficiency) | F-6       
|Consolidated Statements of Cash Flows                             | F-7       
|Notes to the Consolidated Financial Statements                    | F-8 - F-47



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



_______________

_________________________

_______________

















Report of Independent Registered Public
Accounting Firm



To the shareholders of

InspireMD Inc.



In our opinion, the accompanyingconsolidatedbalance sheets and the relatedconsolidatedstatements
of operations, changes in equity (capital deficiency	) and cash flowspresent fairly, in all material
respects, the financial position ofInspireMD Inc. (the “Company”)and its subsidiariesatJune 30, 2012, December 31, 2011 and 2010, and
the results ofitsoperations anditscash flowsfor
the six month period ended June 30, 2012and for each of the three years in the period endedDecember 31, 2011,in conformity with accounting principles generally accepted in the United
States of America.Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of June 30, 2012, based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management
is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying“Management's Report on Internal Control Over Financial Reporting” appearing under Item 9(A). Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting
based on our integrated audits (which were integrated audits in the six month period ended June 30, 2012 and in 2011). We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.



The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has had recurring losses, negative cash flows from operating activities and has significant future commitments that
raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.



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





|Tel Aviv, Israel                                                                     |  | /s/ Kesselman & Kesselman                                                                           
|------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------
|September 11, 2012, except for Note 16 for which the date is
        January 3, 2013 |  | Certified Public Accountants (Isr.)
        A member of PricewaterhouseCoopers International Limited





F-2







INSPIREMD, INC.



CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)



|                                                   |  | June 30 |        |  | December 31 |  
|-------------------------------------------------- |  | ------- | ------ |  | ----------- | -
|                                                   |  | 2012    |        |  | 2011        |  
|                                                   |  |         |        |  |             |  
|ASSETS                                             |  |         |        |  |             |  
|                                                   |  |         |        |  |             |  
|CURRENT ASSETS:                                    |  |         |        |  |             |  
|Cash and cash equivalents                          |  | $       | 10,284 |  |             | $
|Restricted cash                                    |  |         | 37     |  |             |  
|Accounts receivable:                               |  |         |        |  |             |  
|Trade                                              |  |         | 1,824  |  |             |  
|Other                                              |  |         | 264    |  |             |  
|Prepaid expenses                                   |  |         | 93     |  |             |  
|Inventory:                                         |  |         |        |  |             |  
|On hand                                            |  |         | 1,744  |  |             |  
|On consignment                                     |  |         | 63     |  |             |  
|Total current assets                               |  |         | 14,309 |  |             |  
|                                                   |  |         |        |  |             |  
|PROPERTY, PLANT AND EQUIPMENT, net                 |  |         | 462    |  |             |  
|                                                   |  |         |        |  |             |  
|NON-CURRENT ASSETS:                                |  |         |        |  |             |  
|Deferred debt issuance costs                       |  |         | 961    |  |             |  
|Fund in respect of employee rights upon retirement |  |         | 282    |  |             |  
|Total non-current assets                           |  |         | 1,243  |  |             |  
|Total assets                                       |  | $       | 16,014 |  |             | $



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



F-3







INSPIREMD, INC.



CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)



|                                                                                                                                                                                                            |  | June 30 |         |   | December 31 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | - | ----------- | -
|                                                                                                                                                                                                            |  | 2012    |         |   | 2011        |  
|                                                                                                                                                                                                            |  |         |         |   |             |  
|LIABILITIES AND EQUITY (CAPITAL DEFICIENCY)                                                                                                                                                                 |  |         |         |   |             |  
|                                                                                                                                                                                                            |  |         |         |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                                        |  |         |         |   |             |  
|Current maturities of long-term loan                                                                                                                                                                        |  |         |         |   |             | $
|Accounts payable and accruals:                                                                                                                                                                              |  |         |         |   |             |  
|Trade                                                                                                                                                                                                       |  | $       | 441     |   |             |  
|Other                                                                                                                                                                                                       |  |         | 2,925   |   |             |  
|Advanced payment from customers                                                                                                                                                                             |  |         | 174     |   |             |  
|Loans from shareholders                                                                                                                                                                                     |  |         |         |   |             |  
|Deferred revenues                                                                                                                                                                                           |  |         | 10      |   |             |  
|Total current liabilities                                                                                                                                                                                   |  |         | 3,550   |   |             |  
|                                                                                                                                                                                                            |  |         |         |   |             |  
|LONG-TERM LIABILITIES:                                                                                                                                                                                      |  |         |         |   |             |  
|Long-term loan                                                                                                                                                                                              |  |         |         |   |             |  
|Liability for employees rights upon retirement                                                                                                                                                              |  |         | 354     |   |             |  
|Convertible loans                                                                                                                                                                                           |  |         | 5,018   |   |             |  
|Contingently redeemable warrants                                                                                                                                                                            |  |         | 1,706   |   |             |  
|Total long-term liabilities                                                                                                                                                                                 |  |         | 7,078   |   |             |  
|                                                                                                                                                                                                            |  |         |         |   |             |  
|COMMITMENTS AND CONTINGENT LIABILITIES(Note 9)                                                                                                                                                              |  |         |         |   |             |  
|Total liabilities                                                                                                                                                                                           |  |         | 10,628  |   |             |  
|                                                                                                                                                                                                            |  |         |         |   |             |  
|EQUITY (CAPITAL DEFICIENCY):                                                                                                                                                                                |  |         |         |   |             |  
|                                                                                                                                                                                                            |  |         |         |   |             |  
|Common stock, par value $0.0001 per share; 125,000,000 shares authorized; 17,040,040, 17,044,737 and 12,465,951 shares issued and outstanding at June 30, 2012 and December 31, 2011 and 2010, respectively |  |         | 2       |   |             |  
|Additional paid-in capital                                                                                                                                                                                  |  |         | 49,106  |   |             |  
|Accumulated deficit                                                                                                                                                                                         |  |         | (43,722 | ) |             |  
|Total equity (capital deficiency)                                                                                                                                                                           |  |         | 5,386   |   |             |  
|Total liabilities and equity (less capital deficiency)                                                                                                                                                      |  | $       | 16,014  |   |             | $



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 |            |   | Year ended December 31 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---------------------- | -
|                                                                                                                                                                                                                |  | June 30, 2012        |            |   | 2011                   |  
|                                                                                                                                                                                                                |  |                      |            |   |                        |  
|REVENUES                                                                                                                                                                                                        |  | $                    | 2,071      |   |                        | $
|COST OF REVENUES                                                                                                                                                                                                |  |                      | 1,377      |   |                        |  
|GROSS PROFIT                                                                                                                                                                                                    |  |                      | 694        |   |                        |  
|OPERATING EXPENSES:                                                                                                                                                                                             |  |                      |            |   |                        |  
|Research and development                                                                                                                                                                                        |  |                      | 2,607      |   |                        |  
|Selling and marketing                                                                                                                                                                                           |  |                      | 1,246      |   |                        |  
|General and administrative (including $1,454, $8,542, $869 and $65 of share-based compensation for the six month period ended June 30, 2012 and the years ended December 31, 2011, 2010 and 2009, respectively) |  |                      | 3,999      |   |                        |  
|Total operating expenses                                                                                                                                                                                        |  |                      | 7,852      |   |                        |  
|LOSS FROM OPERATIONS                                                                                                                                                                                            |  |                      | (7,158     | ) |                        |  
|FINANCIAL EXPENSES (INCOME), net                                                                                                                                                                                |  |                      | (109       | ) |                        |  
|LOSS BEFORE TAX EXPENSES                                                                                                                                                                                        |  |                      | (7,049     | ) |                        |  
|TAX EXPENSES                                                                                                                                                                                                    |  |                      | 32         |   |                        |  
|NET LOSS                                                                                                                                                                                                        |  | $                    | (7,081     | ) |                        | $
|NET LOSS PER SHARE -basic and diluted                                                                                                                                                                           |  | $                    | (0.41      | ) |                        | $
|WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES USED IN COMPUTING NET LOSS PER SHARE -basic and diluted                                                                                                              |  |                      | 17,044,221 |   |                        |  



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



F-5







INSPIREMD, INC.



CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY (CAPITAL DEFICIENCY)



|                                                                |  | Ordinary shares  |            |   |                           |   |   |                             |  |   |                     |  
|--------------------------------------------------------------- |  | ---------------- | ---------- | - | ------------------------- | - | - | --------------------------- |  | - | ------------------- | -
|                                                                |  | Number of shares |            |   | Par value                 |   |   | Additional  paid-in capital |  |   | Accumulated deficit |  
|                                                                |  |                  |            |   | U.S. dollars in thousands |  
|BALANCE AT JANUARY 1, 2009                                      |  |                  | 11,765,484 |   |                           | $ | 1 |                             |  | $ | 15,965              |  
|CHANGES DURING 2009:                                            |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Net loss                                                        |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Exercise of options by employees                                |  |                  | 114,681    |   |                           |   | * |                             |  |   | *                   |  
|Employee and non-employee share-based compensation expenses     |  |                  |            |   |                           |   |   |                             |  |   | 594                 |  
|Redemption of beneficial conversion feature of convertible loan |  |                  |            |   |                           |   |   |                             |  |   | (308                | )
|Issuance of ordinary shares, net of $44 issuance cost           |  |                  | 204,431    |   |                           |   | * |                             |  |   | 965                 |  
|BALANCE AT DECEMBER 31, 2009                                    |  |                  | 12,084,596 |   |                           |   | 1 |                             |  |   | 17,216              |  
|                                                                |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|CHANGES DURING 2010:                                            |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Net loss                                                        |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Employee and non-employee share-based compensation expenses     |  |                  |            |   |                           |   |   |                             |  |   | 1,640               |  
|Issuance of warrants, net of $23 issuance costs                 |  |                  |            |   |                           |   |   |                             |  |   | 424                 |  
|Issuance of ordinary shares, net of $97 issuance costs          |  |                  | 381,355    |   |                           |   | * |                             |  |   | 1,781               |  
|BALANCE AT DECEMBER 31, 2010                                    |  |                  | 12,465,951 |   |                           |   | 1 |                             |  |   | 21,061              |  
|                                                                |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|CHANGES DURING 2011:                                            |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Net loss                                                        |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Employee and non-employee share-based compensation expenses     |  |                  | 748,446    |   |                           |   | * |                             |  |   | 11,606              |  
|Issuance of shares and warrants, net of $2,835 issuance costs   |  |                  | 3,248,067  |   |                           |   | 1 |                             |  |   | 7,653               |  
|Issuance of ordinary shares, net of $185 issuance costs         |  |                  | 200,717    |   |                           |   | * |                             |  |   | 805                 |  
|Exercise of options by employee                                 |  |                  | 250,000    |   |                           |   | * |                             |  |   | 1,500               |  
|Conversion of convertible loans                                 |  |                  | 131,556    |   |                           |   | * |                             |  |   | 768                 |  
|BALANCE AT DECEMBER 31, 2011                                    |  |                  | 17,044,737 |   |                           | $ | 2 |                             |  | $ | 43,393              |  
|                                                                |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|CHANGES DURING THE 6 MONTH PERIOD ENDED JUNE 30, 2012:          |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Net loss                                                        |  |                  |            |   |                           |   |   |                             |  |   |                     |  
|Employee and non-employee share-based compensation expenses     |  |                  |            |   |                           |   |   |                             |  |   | 1,944               |  
|Acquisition and cancellation of shares                          |  |                  | (4,697     | ) |                           |   | * |                             |  |   | (21                 | )
|Beneficial conversion feature of convertible loan               |  |                  |            |   |                           |   |   |                             |  |   | 3,790               |  
|BALANCE AT JUNE 30, 2012                                        |  |                  | 17,040,040 |   |                           | $ | 2 |                             |  | $ | 49,106              |  



*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 |        |   | Year ended December 31 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | - | ---------------------- | -
|                                                                                                                                                              |  | June 30, 2012        |        |   | 2011                   |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                                         |  |                      |        |   |                        |  
|Net loss                                                                                                                                                      |  | $                    | (7,081 | ) |                        | $
|Adjustments required to reconcile net loss to net cash  used in operating activities:                                                                         |  |                      |        |   |                        |  
|Depreciation of property, plant and equipment                                                                                                                 |  |                      | 69     |   |                        |  
|Loss from sale of property, plant and equipment                                                                                                               |  |                      |        |   |                        |  
|Change in liability for employees right upon retirement                                                                                                       |  |                      | 84     |   |                        |  
|Financial expenses (income)                                                                                                                                   |  |                      | (315   | ) |                        |  
|Share-based compensation expenses                                                                                                                             |  |                      | 1,944  |   |                        |  
|Loss (gains) on amounts funded in respect of employee rights upon retirement, net                                                                             |  |                      | (6     | ) |                        |  
|Changes in operating asset and liability items:                                                                                                               |  |                      |        |   |                        |  
|Decrease (increase) in prepaid expenses                                                                                                                       |  |                      | (21    | ) |                        |  
|Decrease (increase) in trade receivables                                                                                                                      |  |                      | 460    |   |                        |  
|Decrease (increase) in other receivables                                                                                                                      |  |                      | (146   | ) |                        |  
|Decrease in inventory on consignment                                                                                                                          |  |                      | 47     |   |                        |  
|Decrease (increase) in inventory on hand                                                                                                                      |  |                      | 317    |   |                        |  
|Increase (decrease) in trade payables                                                                                                                         |  |                      | (291   | ) |                        |  
|Increase (decrease) in deferred revenues                                                                                                                      |  |                      | 10     |   |                        |  
|Increase (decrease)  in other payable and advance payment from customers                                                                                      |  |                      | 566    |   |                        |  
|Net cash used in operating activities                                                                                                                         |  |                      | (4,363 | ) |                        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                                         |  |                      |        |   |                        |  
|Decrease (increase) in restricted cash                                                                                                                        |  |                      | 54     |   |                        |  
|Purchase of property, plant and equipment                                                                                                                     |  |                      | (193   | ) |                        |  
|Proceeds from sale of property, plant and equipment                                                                                                           |  |                      |        |   |                        |  
|Amounts funded in respect of employee rights upon retirement, net                                                                                             |  |                      | (61    | ) |                        |  
|Net cash provided (used) in investing activities                                                                                                              |  |                      | (200   | ) |                        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                                         |  |                      |        |   |                        |  
|Proceeds from issuance of convertible loan and warrants, net of issuance costs of $1,132 in the six month period ended June 30, 2012                          |  |                      | 9,868  |   |                        |  
|Proceeds from issuance of shares and warrants, net of issuance costs of $1,014, $78 and $11 in the years ended December 31, 2011, 2010 and 2009, respectively |  |                      |        |   |                        |  
|Exercise of options                                                                                                                                           |  |                      |        |   |                        |  
|Proceeds from long-term loan, net of $41 issuance costs                                                                                                       |  |                      |        |   |                        |  
|Proceeds from convertible loan at fair value through
    profit or loss, net of $60 issuance costs                                                            |  |                      |        |   |                        |  
|Repayment of long-term loan                                                                                                                                   |  |                      | (94    | ) |                        |  
|Acquisition and cancellation of shares                                                                                                                        |  |                      | (21    | ) |                        |  
|Repayment of loans from shareholders                                                                                                                          |  |                      |        |   |                        |  
|Repayment of convertible loans                                                                                                                                |  |                      |        |   |                        |  
|Net cash provided by financing activities                                                                                                                     |  |                      | 9,753  |   |                        |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                                                                                  |  |                      | -      |   |                        |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                                              |  |                      | 5,190  |   |                        |  
|BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                                                                   |  |                      | 5,094  |   |                        |  
|BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                                                         |  | $                    | 10,284 |   |                        | $
|                                                                                                                                                              |  |                      |        |   |                        |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                                                                            |  |                      |        |   |                        |  
|Taxes on income  paid                                                                                                                                         |  | $                    | 37     |   |                        | $
|Interest paid                                                                                                                                                 |  | $                    | 224    |   |                        | $
|                                                                                                                                                              |  |                      |        |   |                        |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:                                                                                                     |  |                      |        |   |                        |  
|Receivables on account of shares                                                                                                                              |  | $                    | -      |   |                        | $
|Conversion of convertible loan into shares                                                                                                                    |  | $                    | -      |   |                        | $
|Purchasing of property plant and equipment in credit and in consideration of share-based payment                                                              |  | $                    | -      |   |                        | $



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



F-7







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - DESCRIPTION
OF BUSINESS



InspireMD, Inc., formerly Saguaro Resources, Inc.,
(the “Company”), a public company, is a Delaware corporation formed on February 29, 2008. On March 28, 2011, the Company
changed its name to InspireMD, Inc.



On December 29, 2010, the Company entered into a
Share Exchange Agreement (the “Exchange Agreement”) by and among the Company and InspireMD Ltd., a limited company
incorporated under the laws of the State of Israel in April 2005. Subsequent to the date of execution of the Exchange Agreement,
shareholders of InspireMD Ltd., holding 91.7% of InspireMD Ltd.’s issued and outstanding ordinary shares, executed a joinder
to the Exchange Agreement and became parties thereto (the “InspireMD Shareholders”). Pursuant to the Exchange Agreement,
on March 31, 2011, the InspireMD Shareholders transferred all of their ordinary shares in InspireMD Ltd. to the Company in exchange
for 11,617,977 newly issued shares of common stock of the Company (the “Initial Share Exchange”). In addition, the
remaining holders of InspireMD Ltd.’s ordinary shares separately transferred all of their ordinary shares of InspireMD Ltd.
to the Company, in exchange for an aggregate of 1,048,689 newly issued shares of common stock of the Company (the “Follow
Up Share Exchange”) and, together with the Initial Share Exchange, the “Share Exchange”). As a result of the
Share Exchange, InspireMD Ltd. became a wholly owned subsidiary of the Company.



The Share Exchange was accounted for as a reverse
recapitalization, equivalent to the issuance of stock by InspireMD Ltd. for the net monetary assets of the Company. Accordingly,
the historical financial statements of the Company reflect the historical operations and financial statements of InspireMD Ltd.



The Company, together with its subsidiaries, is
a medical device company focusing on the development and commercialization of its proprietary stent platform technology, MGuardTM.
MGuardTM 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 through distributors in international
markets, mainly in Europe and Latin America.



In addition, the Company operates in Germany through
its wholly-owned subsidiary, InspireMD GmbH, a German limited liability company incorporated in November 2007, where the Company
subcontracts the manufacturing of its stents.



The Company has had recurring
losses and negative cash flows from operating activities and has significant future commitments. For the six months ended June
30, 2012, the Company had losses of approximately $7.1 million and negative cash flows from operating activities of approximately
$4.4 million. The Company’s management believes that its working capital as of June 30, 2012 of approximately $10.8 million
should enable it to continue funding the negative cash flows from operating activities until October 2013, when its 2012 Convertible
Debentures (defined and described in Note 6a) are subject to a noncontingent redemption option that could require the Company
to make a payment of $13.3 million, including accrued interest. Since the Company expects to continue incurring negative cash
flows from operations and in light of the cash requirement in connection with the 2012 Convertible Debentures, there is substantial
doubt about the Company’s ability to continue operating as a going concern. These financial statements include no adjustments
of the values of assets and liabilities and the classification thereof, if any, that will apply if the Company is unable to continue
operating as a going concern.



The Company will need to raise
further capital at some future point in time, through the sale of additional equity securities or debt. The Company’s future
capital requirements and the adequacy of the Company’s available funds will depend on many factors, including the Company’s
ability to successfully commercialize the Company’s MGuardTM products, development of future products, competing
technological and market developments, and the need to enter into collaborations with other companies or acquire other companies
or technologies to enhance or complement the Company’s product offerings. However, the Company may be unable to raise sufficient
additional capital when the Company will need it or with favorable terms. The terms of any securities issued by the Company in
future financing 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 the Company’s
securities then outstanding. If the Company is unable to obtain adequate funds on reasonable terms, the Company will need to curtail
operations significantly, including possibly postponing or halting the Company’s Unites States of America (“U.S.”)
Food and Drug Administration clinical trials or entering into financing agreements with unattractive terms.



F-8







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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.



As applicable to these consolidated
financial statements, the most significant estimates and assumptions relate to inventory write-off, provisions for returns, legal
contingencies, estimation of the fair value of share-based compensation 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 of the subsidiaries 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.



| | 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.



F-9







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 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 Israel
Shekel (“NIS”). See also Note 9c(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, cash equivalents and restricted cash, which are deposited
in major financial 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. To mitigate risks, the Company deposits cash and cash equivalents with high credit quality financial institutions.



Provisions for doubtful accounts
receivable are netted against “Accounts receivable-Trade.”



| | 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, five years for
vehicles 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 of property,
plant and equipment
| | -- | -------------------------------------------



The Company reviews its property,
plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) of the property,
plant and equipment is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets would
be written down to their estimated fair values.



F-10







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



To date, the Company has not recorded
any impairment charges relating to its property, plant and equipment.



| | 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.



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 June 30, 2012, there are
no deferred revenues related to sales for which the rate of return cannot be reliably estimated.



The Company’s revenue arrangements
may contain delivery of free products upon the achievement of sales targets. Each period, the Company estimates the amount of free
products to which these 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.



F-11







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SIGNIFICANT ACCOUNTING
POLICIES(continued):



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.



However,
when the grant relates to options granted to third parties as consideration for introducing investors to the Company, the costs
are recorded as issuance costs, of the various financial instruments issued.



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 the 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 and penalties related to unrecognized tax benefits within “Financial
expenses (income)-net”.



| | 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 subsidiary. 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 when this can be facilitated in connection
with a specific tax opportunity that may arise.



Taxes that would apply in the event
of disposal of investments in the 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, this investment.



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



Costs related to advertising and
promotion of products are charged to sales and marketing expense as incurred. Advertising expenses were $361 thousand for the six
month period ended June 30, 2012, and $400 thousand, $467 thousand and $275 thousand for the years ended December 31, 2011, 2010
and 2009, respectively.



F-12







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 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 ordinary shares outstanding during the year.
The calculation of diluted net loss per share excludes potential ordinary shares as the effect is anti-dilutive. Potential ordinary
shares are comprised of incremental ordinary shares issuable upon the exercise of share options, warrants and convertible loans.



For the six month period ended June
30, 2012, as well as the years ended December 31, 2011, 2010 and 2009, all ordinary shares underlying outstanding options,
warrants and convertible loans have been excluded from the calculation of the diluted loss per share since their effect was anti-dilutive.
The total number of ordinary shares related to outstanding options, warrants and convertible loans excluded from the calculations
of diluted loss per share were 8,117,577 for the six month period ended June 30, 2012, and 5,406,613, 2,375,528 and 1,469,347
for the years ended December 31, 2011, 2010 and 2009, respectively.



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



The Company has one operating and
reportable segment.



| | s. | Factoring of receivables
| | -- | ------------------------



The Company entered into factoring
agreements amounting to $1,200 thousand and $942 thousand during the years ended December 31, 2011 and 2010, respectively, with
certain banking institutions on a non-recourse basis. The factoring of trade receivables under these agreements were accounted
for as sales. Under the terms of these factoring agreements, the Company transferred ownership of eligible trade receivables without
recourse to the respective banking institutions in exchange for cash. Proceeds on the transfers reflect the face value of the account
less a discount. The discounts, $12 thousand and $37 thousand during the years ended December 31, 2011 and 2010, respectively,
were recorded to “Financial expenses (income)-net” within the Consolidated Statements of Operations.



The receivables sold pursuant to
these factoring agreements are excluded from ’Accounts receivable-Trade” on the Consolidated Balance Sheets and are
reflected as cash provided by operating activities on the Consolidated Statements of Cash Flows. The banking institution had no
recourse to the Company’s assets for failure of debtors to pay when due.



The related commissions on the sales
of trade receivables sold under these factoring agreements amounting to $23 thousand and $4 thousand during the years ended December
31, 2011 and 2010, respectively, were recorded to “Financial expenses (income)-net” within the Consolidated Statements
of Operations.



| | t. | 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.



F-13













INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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.



| | u. | 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 6a(4)(A).
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | v. | 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 6a(4)(B).



| | w. | 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 6a(4)(B).



| | x. | Allocation of issuance proceeds
| | -- | -------------------------------



The Company allocated
proceeds from its issuance of debt that was sold with detachable warrants that are classified as liability as follows: first to
the warrants based on their full fair value; then to any embedded derivatives in the debt that require bifurcation at their fair
values; then the residual amount of the proceeds to the debt. See Note 6a(4)(B).



| | y. | Newly adopted accounting guidance
| | -- | ---------------------------------



Fair value measurement



In May 2011, the FASB issued Accounting
Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 changes certain fair value measurement principles
and clarifies the application of existing fair value measurement guidance. These amendments include, among others, (1) the application
of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting
entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs used within
the Level 3 hierarchy.



Effective January 1, 2012, the Company
adopted ASU 2011-04. The adoption of this accounting standards update did not have a material impact on the Company’s consolidated
financial statements.



F-14







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|                            |  |       |   |  | June 30          |   |       | December 31 | 
|--------------------------- |  | ----- | - |  | ---------------- | - | ----- | ----------- | 
|                            |  | Level |   |  | 2012             |   |       | 2011        | 
|                            |  |       |   |  | ($ in thousands) |  
|                            |  |       |   |  |                  |   |       |             | 
|2010 Convertible Debentures |  |       | 3 |  |                  | $ | -     |             | 
|2012 Warrants at fair value |  |       | 2 |  |                  |   | 1,706 |             | 
|Embedded derivative         |  |       | 3 |  |                  |   | 49    |             | 
|                            |  |       |   |  |                  | $ | 1,755 |             | 



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



|                                                                                                             |  | Embedded Derivative |    |  | Convertible Loan |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------- | -- |  | ---------------- | -
|                                                                                                             |  | ($ in thousands)    |    |  | ($ in thousands) |  
|                                                                                                             |  |                     |    |  |                  |  
|Balance as of January 1, 2010                                                                                |  | $                   | -  |  |                  | $
|Issuances                                                                                                    |  |                     |    |  |                  |  
|Total losses (gains) (realized and unrealized)
    - included in earnings - Financial expenses (income), net |  |                     |    |  |                  |  
|Balance as of December 31, 2010                                                                              |  |                     | -  |  |                  |  
|Total losses (gains) (realized and unrealized)
    - included in earnings - Financial expenses (income), net |  |                     |    |  |                  |  
|Convertion to Company’s shares of common stock                                                               |  |                     |    |  |                  |  
|Redemption                                                                                                   |  |                     |    |  |                  |  
|Balance as of December 31, 2011                                                                              |  |                     | -  |  |                  |  
|Issuances                                                                                                    |  |                     | 8  |  |                  |  
|Total losses (gains) (realized and unrealized)
    - included in earnings - Financial expenses (income), net |  |                     | 41 |  |                  |  
|Balance as of June 30, 2012                                                                                  |  | $                   | 49 |  |                  | $



Level 3 liabilities include an embedded
derivative related to the Company’s senior secured convertible debenture due April 5, 2014, as described 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.



F-15











INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





In calculating the fair value of embedded derivative,
the Company used the following assumptions: Company’s credit spread of 23.1% and 26.5% for the transaction date and for
June 30, 2012, respectively, Company’s recovery rate of 49.8% and 49.8% for the transaction date and for June 30, 2012,
respectively, probability of non-financial event of default 5% and 5% for the transaction date and for June 30, 2012, respectively.





The credit spread is the yield to maturity of
risky bonds over risk free bonds and was based on an average of sample comparable companies.



The recovery rate is the estimated amount to be
recovered through bankruptcy procedures in event of a default,
expressed as a percentage of face value.



A non-financial event of default is a contractual
event of default which does not result from a declining financial standing of the Company.



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



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



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
Company’s senior secured convertible debenture due April 5, 2014 approximates the carrying amount (after considering the
BCF, as described in Note 6a).



NOTE 4 - PROPERTY, PLANT AND EQUIPMENT



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



|                                                 |  | June 30          |      |   | December 31 |  
|------------------------------------------------ |  | ---------------- | ---- | - | ----------- | -
|                                                 |  | 2012             |      |   | 2011        |  
|                                                 |  | ($ in thousands) |     
|Cost:                                            |  |                  |      |   |             |  
|Vehicles                                         |  | $                | -    |   |             | $
|Computer equipment                               |  |                  | 142  |   |             |  
|Office furniture and equipment                   |  |                  | 83   |   |             |  
|Machinery and equipment                          |  |                  | 598  |   |             |  
|Leasehold improvements                           |  |                  | 111  |   |             |  
|                                                 |  |                  | 934  |   |             |  
|Less - accumulated depreciation and amortization |  |                  | (472 | ) |             |  
|Net carrying amount                              |  | $                | 462  |   |             | $



| | b. | Depreciation and amortization expenses totaled approximately $69 thousand for the six month period ended June 30, 2012, and
$89 thousand, $91 thousand and $89 thousand for the years ended December 31, 2011, 2010 and 2009, respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-16









INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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 make withdrawals from the amounts
funded for the purpose of paying severance pay. The severance pay expenses were approximately $117 thousand in the six month period
ended June 30, 2012, and $155thousand, $114thousandand $78 thousand in the years ended December 31, 2011, 2010 and 2009, respectively.



Defined
contribution plan expenses were $96 in the six month period ended June 30 2012, and $197, $90 and $82 in the years ended December
31, 2011, 2010 and 2009, respectively. Gain (loss) on amounts funded with respect to employee rights upon retirement totaled
to approximately $6 thousand for the six month period ended June 30 2012, and $(8)thousand,
$11thousand and $10 thousand for the years ended December 31, 2011, 2010 and 2009,
respectively.



The Company
expects contribution plan expenses in fiscal year 2013 to be approximately $198 thousand.



NOTE 6 - convertible
LOANS



| | a. | 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 $11,000 thousand. The
                                                                         2012 Convertible Debentures bear interest at an annual rate of 8% (payable quarterly beginning on July 1, 2012) and are
                                                                         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 are summarized below:



| | 1) | 2012 Convertible Debentures
| | -- | ---------------------------



| | A. | Conversion and contingent conversion
| | -- | ------------------------------------



The 2012 Convertible Debentures, including
accrued interest on such 2012 Convertible Debentures, are 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.



The number of conversion shares
issuable upon a conversion shall be 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.



F-17







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



The “conversion adjustment
amount” is 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 will not be greater than 548 days regardless
of the actual number of days elapsed from the original issue date.



The Company may force conversion of
the 2012 Convertible Debentures if the closing bid price of the Company’s common stock equals or exceeds 165% of the conversion
price for twenty consecutive trading days, the minimum daily trading volume for such period is $1,100 thousand, all of the underlying
shares during such period are either registered for resale with the Securities and Exchange Commission or eligible for resale pursuant
to Rule 144 and there is no existing event of default or existing event which, with the passage of time or the giving of notice,
would constitute an event of default during such period.



The 2012 Convertible Debentures contain
certain limitations on conversion. No conversion may be made if, after giving effect to the conversion, any holder would beneifially
own in excess of 4.99% of the Company’s outstanding shares of common stock. This percentage may be increased to a percentage
not to exceed 9.99%, at the option of such holder, except any increase will not be effective until the holder has given 61 days’
prior 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.



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



If there is 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
must 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 will accrue interest
at a rate of 24% per annum commencing on the fifth calendar date following the relevant event of default.



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



Commencing 18 months following the
original issuance date of the 2012 Convertible Debentures, the holders may 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.



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



Commencing 6 months following the
original issuance date of the 2012 Convertible Debentures, the Company may 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.



| | E. | Covenants
| | -- | ---------



The 2012 Convertible Debentures contain
certain covenants which prohibit or limit the Company’s and its subsidiaries ability to, among other things:

| | 1. | pay cash dividends to stockholders;
| | -- | -----------------------------------



F-18







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | redeem, repurchase or otherwise
                                                               acquire more than a de minimis number of shares of its common stock
                                                               or common stock equivalents;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | incur additional indebtedness;
| | -- | ------------------------------

| | 4. | permit liens on assets or conduct sales of assets;
| | -- | --------------------------------------------------

| | 5. | 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;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | cease making public filings under
                                                               the Securities Exchange Act of 1934, as amended;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | engage in transactions with affiliates;
                                                               and
| | -- | ----------------------------------------------------------------------------------------------------------

| | 8. | amend its charter documents in
                                                               a way that would materially and adversely affect any holder of
                                                               the 2012 Convertible Debentures.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F. | Pro rata distributions
| | -- | ----------------------



If the Company, at any time while
the 2012 Convertible Debentures are outstanding, distributes 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 shall be 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.



| | 2) | 2012 Warrants
| | -- | -------------



| | A. | Exercisability
| | -- | --------------



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



Similar to the 2012 Convertible Debentures,
the 2012 Warrants also contain 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.



| | B. | Anti-dilution protection
| | -- | ------------------------



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



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



The 2012 Warrants are also subject
to an adjustment pursuant to which, in the event that the Company issues or is 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
will automatically be incorporated into the 2012 Warrants.



F-19







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | D. | Contingent holder redemption
                                                                    option
| | -- | -------------------------------------------------------------------------------------------------------



Upon the occurrence of a transaction
involving a change of control that is (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 will have 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.



| | E. | Pro rata distributions
| | -- | ----------------------



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



| | F. | Public information failure
| | -- | --------------------------



If the Company fails 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 must pay to the holders, in cash, partial liquidated damages as set forth in the agreement.



| | 3) | Transaction costs
| | -- | -----------------



In connection with the
Transaction, the Company paid issuance costs, including placement agent and legal fees, of approximately $1,200 thousand, 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.



| | 4) | Accounting treatment
| | -- | --------------------



| | A. | 2012 Warrants
| | -- | -------------



The Company determined, based on
the provisions of ASC 480-10-25-8, that equity classification is 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 are classified as a liability in the Consolidated Balance Sheets and measured at fair value at each reporting
period. The fair value of the 2012 Warrants is estimated using the Black-Scholes valuation model. See Note 2u.



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



| | B. | 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 $3,790 thousand was recorded in equity.



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



F-20







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



| | · | embedded
derivative - $8 thousand based on its fair value; and
| | - | --------------------------------------------------------------



| | · | 2012 Convertible Debentures - $8,185 thousand based on the residual
amount after the allocation of other components as described above. In addition, an amount of $3,790 thousand was recognized as
a BCF against the 2012 Convertible Debentures.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | C. | Transaction costs
| | -- | -----------------



Direct transaction costs of $1,394
thousand, which included the placement agents fees and the 2012 Placement Agents Warrants valued at $262 thousand 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 $1,037 thousand
was recorded as “Deferred debt issuance costs” in the Consolidated Balance Sheets and will be amortized over the loan
period using the effective interest method until the maturity date.



| | b. | In July 2010, InspireMD Ltd. entered into a securities purchase agreement, pursuant to which
                                                                       InspireMD Ltd. issued (i) 8% senior convertible debentures in the principal amount of $1.58 million (the “2010
                                                                       Convertible Debentures”) and (ii) three year warrants (the “2010 Warrants”) to purchase up to  253,628
                                                                       shares of common stock at an exercise price of $4.92 per share (as adjusted for the Share Exchange) in exchange for aggregate
                                                                       gross proceeds of $1.58 million. The 2010 Convertible Debentures accrued interest at the annual rate of 8% and were payable
                                                                       on the later of (i) two months following receipt by InspireMD Ltd. of a tax ruling from the Israeli Tax Authority that the
                                                                       issuance of shares of a U.S. “shell company” in exchange for securities held by shareholders and option holders
                                                                       of InspireMD Ltd. would constitute a deferred tax event for InspireMD Ltd. and/or its security holders or (ii) the six month
                                                                       anniversary of the issuance of the 2010 Convertible Debentures (the “Original Maturity Date); provided however, that so
                                                                       long as the Company was not in default under the 2010 Convertible Debentures, InspireMD Ltd. had the right to extend the
                                                                       maturity date of the 2010 Convertible Debentures to nine months following the Original Maturity Date (the “Second
                                                                       Maturity Date”).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If InspireMD
Ltd. completed a qualified financing in connection with a reverse merger prior to the Original Maturity Date, or the Second Maturity
Date, if applicable, the holders of the 2010 Convertible Debentures had the option to convert the 2010 Convertible Debentures into
shares of common stock of the surviving corporation at $6.00 per share or be repaid in cash.



F-21







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



In addition, provided that there was
not an event of default, if InspireMD Ltd. completed a financing for at least $3 million prior to the Second Maturity Date, the
2010 Convertible Debentures would automatically convert into ordinary shares of InspireMD Ltd. at a 15% discount to the pricing
of the new financing.



Finally, if an event of default had
not occurred, and any 2010 Convertible Debentures were still outstanding, following the Second Maturity Date, such 2010 Convertible
Debentures would automatically convert into ordinary shares of InspireMD Ltd. (i) if InspireMD Ltd. completed a financing for at
least $3 million prior to the one year anniversary of the Second Maturity Date, at a 15% discount to the pricing of the new financing,
or (ii) or if InspireMD Ltd. did not complete a financing for at least $3 million prior to the one year anniversary of the Second
Maturity Date, at $10 per ordinary share.



Upon an event of default under the
2010 Convertible Debentures, the holders had the right to demand payment of all then unpaid principal and accrued but unpaid interest
under the 2010 Convertible Debentures.



The Company elected to apply the
fair value option regarding the 2010 Convertible Debentures in accordance with ASC 825 (i.e. the 2010 Convertible Debentures were
measured at each balance sheet date at fair value and the changes in their fair value were recorded in profit and loss). See Note
3.



The proceeds from the 2010 Convertible
Debenture Transaction were allocated to the 2010 Convertible Debentures at their fair value with the residual proceeds ascribed
to the 2010 Warrants as follows:



| | · | 2010
Debenture at fair value - $1,133 thousand; and
| | - | ---------------------------------------------------

| | · | 2010
Warrants - $447 thousand, net of $23 thousand direct transaction costs.
| | - | ----------------------------------------------------------------------------



The issuance of the 2010 Warrants
was recorded in the “Additional paid-in capital”, net of $23 thousand direct transaction costs allocated to the 2010
Warrants.



On March 31, 2011, holders of the
2010 Convertible Debentures surrendered $667,596 of outstanding principal and interest due under such debentures in exchange for
shares of common stock and warrants as part of the Company’s private placement on such date (the “Debt Conversions”)
as described in Note 10b.



As a result of the Debt Conversions,
there was $1 million of unpaid principal outstanding remaining under the 2010 Convertible Debentures on March 31, 2011, which was
repaid by the Company in May 2011, plus all accrued interest thereon.



| | c. | On January 4, 2011, InspireMD Ltd. entered into a convertible loan agreement with its distributor
in Israel (the “Lender”), in the amount of $100 thousand subject to the following conditions:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the convertible loan did not bear annual interest;
| | - | --------------------------------------------------

| | · | in the event of a share exchange or similar transaction, the Lender
would have, at its sole discretion, the option to convert the loan into either (i) shares of the Company’s common stock at
a price of $4.92 per share ($10 prior to the Share Exchange), or (ii) the Company’s product at a price of 400 euro per unit
(which represented the market price for the Lender);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | in the event that the Company did not close a share exchange or similar
transaction by June 1, 2011, the Lender had the right to extend the loan and its terms for up to an additional 6 months (as noted
in Note 1, the Exchange Agreement was closed on March 31, 2011); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-22







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | · | in
no event was cash required to be repaid by the Company.
| | - | ----------------------------------------------------------



On June 1, 2011 the Lender surrendered
the $100 thousand convertible loan in exchange for 20,290 shares of common stock of the Company.



| | d. | In April 2008 InspireMD Ltd. entered into a convertible loan agreement with certain lenders. Under
this agreement, the lenders were issued convertible notes in the aggregate principal amount of $720 thousand, bearing annual interest
of 10%, in exchange for $720 thousand. While the notes did not have a maturity date, they were repayable on demand upon an event
of default. The notes were convertible, at any time, into ordinary shares of InspireMD Ltd. at the option of the holders.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The notes were automatically convertible
into ordinary shares of InspireMD Ltd. if InspireMD Ltd. completed a financing that resulted in at least $1 million (“qualified
financing”), at the lower conversion price of: (i) $5.92; or (ii) a discount of 30% on the price per share in such qualified
financing.



The notes were
also automatically convertible into ordinary shares of InspireMD Ltd. upon an initial public offering (“IPO”) or upon
a consolidation, merger or sale of all assets or shares of InspireMD Ltd. (“exit transaction”), at the lower conversion
price of: (i) $5.92; or (ii) a discount of 20% on the price per share in such exit transaction.



In accordance
with ASC 470-20, "Debt with Conversion and Other Options", the Company determined that a BCF existed at the issuance
date of these notes, totaling $308 thousand. Because these notes did not have a stated redemption date (except on an event of
default), and could be converted by the holder at any time, the BCF was recognized immediately on the issuance date under “Financial
expenses (income)-net” in the Consolidated Statements of Operations.



In March
2009 these convertible notes were fully repaid (principal and accrued interest) due to a breach of the covenants by InspireMD
Ltd. InspireMD Ltd. allocated the proceeds paid between the portion related to the redemption of the beneficial conversion feature
and that related to the convertible loan, based on the guidance in ASC 470-20. The Company measured the portion allocated to the
beneficial conversion feature based on the intrinsic value of the conversion feature at the extinguishment date, which amounted
to $308 thousand (which equals the original BCF since the price of InspireMD Ltd.’s shares on the issuance date and the
redemption date was the same). Accordingly, the difference between the amount allocated to the BCF plus the loan’s carrying
amount, and the cash paid, was recognized as financial income in the Consolidated Statements of Operations.



NOTE 7 - LONG-TERM LOAN



In January 2009, InspireMD
Ltd. signed a loan agreement with Mizrahi Tefahot Bank. According to the agreement, InspireMD Ltd. was entitled to receive the
following:



| | 1. | A loan (the “First Loan”) amounting to $750 thousand, bearing annual interest (paid quarterly) equal to the London
Interbank Offer Rate plus 4%. The loan was payable in eight quarterly installments beginning in April 2010.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | An additional loan (the “Second Loan”) amounting to $750 thousand, to be received no
later than August 3, 2009, subject to certain terms. InspireMD Ltd. did not meet the specific terms and therefore was not able
to receive the Second Loan.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | A credit line amounting to $500 thousand for the purpose of financing export shipments. The credit
line was not utilized by the Company.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------



F-23







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



In addition,
InspireMD Ltd. was required to pay an additional $250 thousand in the following events:



| | 1. | A liquidity event of at least $100 million (as stipulated in the agreement); or
| | -- | -------------------------------------------------------------------------------



| | 2. | An IPO in which the Company’s valuation was at least $100 million.
| | -- | ------------------------------------------------------------------



InspireMD Ltd. granted to the
bank a floating lien on all of its assets, as well as a fixed lien on all of its intellectual property and rights of future payments
from the Company’s clients. InspireMD Ltd. also committed to maintain in its bank account a minimum of $250 thousand in order
to support an estimated cash burn rate of three months of activity based on average monthly cash flow in the preceding three months.
This amount was recorded in the Consolidated Balance Sheets under “Restricted cash.”



On February 2009 InspireMD Ltd.
received the First Loan and in accordance with the loan agreement, issued 58,704 ordinary shares to the bank. Subsequently, InspireMD
Ltd. estimated the fair value of the First Loan, the Second Loan, the credit line and the 58,704 ordinary shares issued to the
bank using the following assumptions:



| | 1. | Discount rate of 25.13% per year calculated by using Altman-Z score model
| | -- | -------------------------------------------------------------------------

| | 2. | Probability of realizing the Second Loan - 40%
| | -- | ----------------------------------------------

| | 3. | Probability of realizing the credit line - 80%
| | -- | ----------------------------------------------



The relative
fair value of each component based on the valuation report was as follows:



| | 1. | The First Loan - $540 thousand
| | -- | ------------------------------

| | 2. | The Second Loan option - $20 thousand
| | -- | -------------------------------------

| | 3. | The credit line - $59 thousand
| | -- | ------------------------------

| | 4. | The 58,704 ordinary shares issued to the bank - $290 thousand
| | -- | -------------------------------------------------------------



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



The Second Loan option and the
credit line have been recorded in the Consolidated Financial Statements in “Financial expenses” during 2009.



The 58,704 ordinary shares were
recorded as equity according to their fair market value at the time.



Direct transaction costs of $41
thousand were recorded as deferred debt issuance costs in the Consolidated Balance Sheet and were amortized over the First Loan
period.



In November 2010, InspireMD Ltd.
was asked by Mizrahi Tefahot Bank to grant it a fixed lien in the amount of $300 thousand that would replace the $250 thousand
of restricted cash since the actual cash burn rate was higher than the cash amount maintained in the Company’s bank account.
The transaction was effectuated in January 2011.



On July 20, 2011, Mizrahi Tefahot
Bank approved the release of a fixed lien in the amount of $300 thousand. Following the approval, $300 thousand of restricted cash
was classified to cash and cash equivalents.



In March 2012, following the complete
repayment of the loan, Mizrahi Tefahot Bank approved the release of the floating lien.



NOTE 8 - RELATED PARTIES TRANSACTIONS



| | a. | In January 2009, InspireMD Ltd. signed a sub-lease agreement with a company controlled by the Company’s shareholders,
for a period of 12.5 months, for a monthly rent payment of $1 thousand. 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-24







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| | b. | On
                                                                       May 6, 2008, InspireMD Ltd. entered into a consultancy
                                                                       agreement (the “2008 Consultancy Agreement”)
                                                                       for marketing services with a member of the immediate family
                                                                       of the CEO. Pursuant to the 2008 Consultancy Agreement,
                                                                       InspireMD Ltd. paid a fixed hourly fee of $45 (154 NIS)
                                                                       in Israel and a fixed daily fee of $400 when traveling
                                                                       abroad with respect to the consulting services. On September
                                                                       1, 2011, effective April 1, 2011, the 2008 Consultancy
                                                                       Agreement was terminated and InspireMD Ltd. entered into
                                                                       a new consultancy agreement (the “2011 Consultancy
                                                                       Agreement”) pursuant to which the consultant was
                                                                       retained to serve as the Company’s vice president
                                                                       of sales. Pursuant to the agreement, she was paid a monthly
                                                                       consultancy fee of $12,500 from April 1, 2011 through June
                                                                       30, 2011 and a monthly consultancy fee of $15,500 thereafter.
                                                                       On July 2, 2012, effective August 1, 2012, the 2011 Consultancy
                                                                       Agreement was termainated and InspireMD Ltd. entered into
                                                                       a new consultancy agreement (the “2012 Consultancy
                                                                       Agreement”) pursuant to which the consultant would
                                                                       be retained for sale services. Pursuant to the agreement,
                                                                       she would be entitled to a fixed fee of $625 (2,500 NIS)
                                                                       for each full working day and a bonus fee up to $10,000
                                                                       (40,000 NIS) upon 100% achievement of set objectives. The
                                                                       2012 Consultancy Agreement has a termination date of September
                                                                       30, 2012, but can be terminated without cause by InspireMD
                                                                       Ltd. upon 7 days’ notice, and may be terminated with
                                                                       cause by InspireMD Ltd. immediately, upon the occurrence
                                                                       of certain events, such as a breach of fiduciary duties
                                                                       owed to the Company.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | During 2007, InspireMD Ltd received a loan of $40 thousand from its controlling shareholders. Half of the loan was paid during
2009, and the second half was paid during 2011.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | On April 1, 2005, InspireMD Ltd. entered into employment agreements with the Company’s president and the Company’s
CEO (both are directors and shareholders). Such employment agreements were subsequently amended on October 1, 2008 (in the case
of the Company’s CEO) and March 28, 2011 (in the case of both the president and the CEO). Pursuant to these employment agreements,
as amended on March 28, 2011, each officer was entitled to a monthly gross salary of $15,367. Each officer was also entitled to
certain social and fringe benefits as set forth in the employment agreements, which totaled 25% of their gross salary, as well
as a company car. Each officer was also entitled to a minimum bonus equivalent to three monthly gross salary payments based on
achievement of objectives and board of directors’ approval. If such officer’s employment was terminated with or without
cause, he was entitled to at least six months’ prior notice, and would have been paid his salary and all social and fringe
benefits in full during such notice period.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On April 1, 2011, the employment
agreements with the Company’s president and CEO were terminated and the Company entered into consulting agreements with the
Company’s president and CEO for a monthly consultancy fee of $21,563 each.



At the request of the compensation
committee, the Company’s CEO and president 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 president
of the Company resigned. In connection with his resignation, effective June 1, 2012, he remains on the Company’s board of
directors. In connection with the resignation, the Company and the president entered into a consulting agreement, pursuant to which,
among other things, the 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 $20 thousand per month.



F-25







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| | e. | During the second half of 2008, InspireMD Ltd. decreased the salaries for most of its employees due to the economic slowdown.
InspireMD Ltd. also decreased the salaries of the former president and the CEO. Their salaries were decreased 25%, and an additional
25% was accrued and recorded in “Accounts payable-trade.” The accrued amounts were fully paid as of December 31, 2010.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2009, the 25% decrease
in salaries described above was cancelled.



| | f. | InspireMD Ltd. entered into a license agreement to use a unique stent design developed by an American
company owned by a former director of InspireMD Ltd. (“MGuard Prime”). See Note 9b.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | Certain directors of the Company were granted options to purchase shares of the Company’s common
stock. See Note 10.
| | -- | --------------------------------------------------------------------------------------------------------------------



| | h. | Balances with related parties:
| | -- | ------------------------------



|                        |  | June 30          |    |  | December 31 |  
|----------------------- |  | ---------------- | -- |  | ----------- | -
|                        |  | 2012             |    |  | 2011        |  
|                        |  | ($ in thousands) |   
|Current liabilities:    |  |                  |    |  |             |  
|Trade payable           |  | $                | -  |  |             | $
|Other accounts payable  |  | $                | 45 |  |             | $
|Loans from shareholders |  | $                | -  |  |             | $



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



|                              |  | 6 month period ended |       |   | Year ended December 31 |  
|----------------------------- |  | -------------------- | ----- | - | ---------------------- | -
|                              |  | June 30, 2012        |       |   | 2011                   |  
|                              |  | ($ in thousands)     |      
|Expenses:                     |  |                      |       |   |                        |  
|Share-based compensation      |  | $                    | 1,365 |   |                        | $
|Salaries and related expenses |  | $                    | 261   |   |                        | $
|Consulting fees               |  | $                    | 105   |   |                        | $
|Financial expenses            |  |                      |       |   |                        |  
|Rent income                   |  | $                    | (2    | ) |                        | $



NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES



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



| | 1) | The Company is a party to two lease agreements for its facilities, which expire in March 2014 and December 2014. The Company
has the option, under both agreements, to extend the agreements for two additional two year periods, for a total of four years
each.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rent expense included in the Consolidated
Statements of Operations totaled approximately $167 for the six month period ended June 30, 2012, and $119 thousand, $131 thousand
and $126 thousand for the years ended December 31, 2011, 2010 and 2009, respectively.



F-26







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





As of June 30, 2012, the aggregate
future minimum lease obligations for office rent under non-cancelable operating lease agreements were as follows:



|                    |  | ($ in thousands) |    
|------------------- |  | ---------------- | ---
|Year Ended June 30: |  |                  |    
|2013                |  | $                | 345
|2014                |  |                  | 320
|2015                |  |                  | 122
|                    |  | $                | 787



| | 2) | The Company leases its motor vehicles under non-cancelable operating lease agreements.
| | -- | --------------------------------------------------------------------------------------



As of June 30, 2012, the aggregate
future minimum lease obligations for motor vehicles under non-cancelable operating lease agreements were as follows:



|                    |  | ($ in thousands) |    
|------------------- |  | ---------------- | ---
|Year Ended June 30: |  |                  |    
|2013                |  | $                | 58 
|2014                |  |                  | 46 
|2015                |  |                  | 22 
|                    |  | $                | 126



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



In March 2010, the Company
entered into a new license agreement to use MGuard Prime, a unique stent design developed by an American company owned by a former
director of InspireMD Ltd. According to the agreement, the licensor is entitled to receive 7% royalties for sales outside the
U.S. and inside the U.S. as follows: 7% royalties for the first $10 million of net sales and 10% royalties for net sales exceeding
the first $10 million. Royalties accrued for these sales are included in “Accounts payable and accruals -Other.” Royalties
expenses for the six month period ended June 30, 2012 and the year ended December 31, 2011 amounted to $136 thousand and $39 thousand,
respectively.



| | c. | Liens and pledges
| | -- | -----------------



| | 1) | The Company’s obligations under the 2012 Convertible Debentures (Note 6) are secured by a first priority perfected
security interest in all of the assets and properties of the Company and InspireMD Ltd., including the stock of InspireMD Ltd.
and InspireMD GmbH.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | As of June 30, 2012, the Company had fixed liens amounting to $37 thousand to Bank Mizrahi in connection with the Company’s
credit cards.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



| | d. | Litigation:
| | -- | -----------



The Company is a party to various
claims arising in the ordinary course of its operations in the aggregate amount of $10 thousand. The Company has not recorded an
expense provision related to damages in connection with these matters because management, after considering the views of its legal
counsel as well as other factors, is of the opinion that a loss to the Company is neither probable nor in an amount or range of
loss that is estimable.



F-27







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





In February 2011, representatives
of a third party indicated that they intended to seek damages from the Company in connection with certain finders’ fees that
they claim are owed to them. The claimants’ demand was for approximately $1 million. The claimants’ most recent settlement
demand, conveyed in April 2011, was for a total of $250 thousand in cash and 62,500 shares of the Company common stock. To date,
no lawsuit has been filed and the Company has not accrued a provision in connection with this matter because the Company’s
management, after considering the views of its legal counsel as well as other factors, is of the opinion that a loss to the Company
is neither probable nor in an amount or range of loss that is estimable.



In November 2010, a former
senior employee submitted a claim against the Company in the total amount of $430 thousand and options to purchase  507,256
shares of the Company’s common stock at an exercise price of $0.004 per share in the Magistrate’s Court in Tel
Aviv, claiming unpaid back wages and commissions. The fair value of those options was valued using the Black-Scholes
valuation model at $2.5 million as of the period he claimed to be entitled to the options. In June 2012, the parties reached
a settlement agreement for a payment of $88 thousand by the Company to the plaintiff and following the a mutual petition
filed by the parties , on July 6, 2012 the Labor Court dismissed the claim. As of June 30, 2012, a provision of $88 thousand
was included in the Company’s Consolidated Financial Statements.



In November 2010, an alleged founder
and former legal advisor of the Company submitted a claim against the Company for options to purchase 124,014 shares of the Company’s
common stock at an exercise price of $0.004 per share in the Magistrate’s Court in Tel Aviv. The fair value of those options
was estimated using the Black-Scholes valuation model at $134 thousand as of the grant date. It was during 2005 and 2006 that the
Company first became aware of the events that gave rise to this litigation. Also, during this time, the Company had discussions
with the plaintiffs on an informal basis. The Company’s management, after considering the views of its legal counsel as well
as other factors, recorded a share-based compensation expense of $134 thousand in 2006, in respect of services allegedly provided
in 2005 and 2006.



In November 2010, a former legal
advisor of the Company submitted in the Magistrate’s Court in Tel Aviv a claim against the Company in the total amount of
$53 thousand due to an alleged breach of employment promise. It was during 2005 and 2006 that the Company first became aware of
the events that gave rise to this litigation. Also during this time, the Company had discussions with the plaintiff on an informal
basis. The Company’s management, after considering the views of its legal counsel as well as other factors, recorded a provision
of $53 thousand in 2006.



With respect to the two claims
against the Company submitted by an alleged founder and former legal advisor of the Company in November 2010, described
above, following a mediation held in January 2012, the parties reached the following settlement agreement: (i) the plaintiff
shall be the owner of options to purchase  48,697 shares of common stock of the Company and withdraw their claim for the
remaining 75,318 options; and (ii) the Company would withdraw its counterclaim against the plaintiff. In January 2012, the
District Court in Tel Aviv approved the settlement and a corresponding judgment was given by the court. Following the
settlement agreement, as of December 31, 2011, the provision in the amount of $53 thousand was reversed.



In February 2011, a service provider
submitted a claim against the Company in the amount of $327 thousand in the Magistrate’s Court in Tel Aviv, claiming a future
success fee and commission for assistance in finding the Company’s distributor in Brazil. The Company’s management,
after considering the views of its legal counsel as well as other factors, recorded a provision of $327 thousand in the financial
statements in the first quarter of 2011. The related expense has been recorded to “General and administrative” within
the Consolidated Statements of Operations. On October 5, 2011, the Company filed a counter claim against the plaintiff in the amount
of $29 thousand.



F-28







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





In August 2011, a former senior
employee submitted to the Regional Labor Court in Tel Aviv a claim against the Company for (i) compensation of $118
thousand and (ii) a declaratory ruling that he is entitled to exercise 121,742 options to purchase shares of the Company’s
common stock at an exercise price of $0.004 per share. After consulting with its legal advisor, the Company is unable to assess
the probable outcome of this claim.



In November 2011, a previous
service provider of InspireMD Ltd. submitted to the Magistrate Court in Tel Aviv a claim against the Company, InspireMD Ltd.
and the Company’s President and the Company’s CEO for a declaratory ruling that it is entitled to convert options
to purchase 13,650 of InspireMD Ltd.’s ordinary shares at an exercise price of $3.67 per share into options to purchase
27,696 shares of the Company’s common stock at an exercise price of $1.80 per share, and to convert options to purchase
4,816 of InspireMD Ltd.’s ordinary shares at an exercise price of $10 per share into options to purchase  9,772 shares
of the Company’s common stock at an exercise price of $4.92 per share. On July 30, 2012, the parties held a mediation
which resulted in a settlement agreement according to which the Company paid $7 thousand plus value added taxes to the
plaintiff and the plaintiff waived all of his claims to any options and agreed to the irrevocable dismissal of the above
mentioned claim. On August 5, 2012, the court approved the settlement and dismissed the claim.



In
December 2011, a statement of claim against the Company was submitted by an alleged finder of the Company, regarding  146,089
options to purchase the Company’s shares. The Company filed its defense in this case on March 11, 2012. The Company and
the plaintiff agreed to refer the case to mediation. A second hearing in this case was set for September 20, 2012. After
consulting the views of its legal counsel as well as other factors, the Company is unable to assess the probable outcome of
this claim.



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 CEO and former 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. The Company must file its defense
to the abovementioned claim by September 30, 2012. After consulting the views of its legal counsel as well as other factors,
the Company is unable to assess the probable outcome of this claim.



NOTE 10 –
EQUITY (CAPITAL DEFICIENCY)



| | a. | Share capital
| | -- | -------------



As of June 30, 2012, 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.



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 (the “Reverse Stock Split”), which approval will allow the board of
directors to effect the Reverse Stock Split any time prior to the Company’s annual meeting of stockholders in 2012.



As of June 30, 2012, the Company
had yet to effect the Reverse Stock Split.



F-29







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| | b. | Share exchange and private placement agreements and share issuance
| | -- | ------------------------------------------------------------------



As noted in Note 1 above, in
connection with the Share Exchange, the Company issued  12,666,666 shares of its common stock in exchange for 6,242,754
ordinary shares of InspireMD Ltd., which represented all of InspireMD Ltd.’s outstanding shares, resulting in InspireMD
Ltd. became a wholly owned subsidiary of the Company.



In connection with the Share
Exchange, the Company also assumed all of InspireMD Ltd.’s obligations under InspireMD Ltd.’s outstanding stock
options. Immediately prior to the Share Exchange, InspireMD Ltd. had outstanding stock options to purchase an aggregate of
937,256 ordinary shares, which outstanding options became options to purchase an aggregate of  1,901,693 shares of common
stock of the Company after giving effect to the Share Exchange. In addition, three-year warrants to purchase up to 125,000
ordinary shares of InspireMD Ltd. at an exercise price of $10 per share were assumed by the Company and converted into
warrants to purchase  253,625 shares of the Company’s common stock at an exercise price of $4.92 per share.



In connection with the
closing of the Share Exchange, the Company sold  1,613,501 shares of its common stock at a purchase price of $6.00 per share
and five-year warrants to purchase up to  806,750 shares of common stock at an exercise price of $7.20 per share in a
private placement to accredited investors (the “Private Placement”).



As part of the Private
Placement, certain holders of the 2010 Convertible Debentures surrendered $667,596 of outstanding principal and interest due
under the 2010 Convertible Debentures in exchange for  111,266 shares of common stock and warrants to purchase an aggregate
of  56,283 shares of common stock. The number of shares of common stock and warrants issued in connection with the Debt
Conversions are included in the aggregate figures for the Private Placement. As a result, the Company received aggregate cash
proceeds of $9,013,404 in the Private Placement.



In
connection with the Share Exchange, the Company also entered into a stock escrow agreement with certain stockholders,
pursuant to which these stockholders deposited  253,906 shares of common stock held by them and warrants to purchase
208,125 shares of common stock into escrow. These shares and warrants were to be released to the Company for cancellation or
surrender to an entity designated by the Company should the Company have $10 million in consolidated revenue, as certified by
the Company’s independent auditors, during the first 12 months following the closing of the Private Placement, yet
fail, after a good faith effort, to have the Company’s common stock approved for listing on a national securities
exchange. If the Company failed to record at least $10 million in consolidated revenue during the first 12 months following
the closing of the Private Placement or have its common stock listed on a national securities exchange within 12 months
following the closing on the Private Placement, these escrowed shares were to be released back to the
stockholders.



As it appeared
unlikely that the Company would satisfy the revenue threshold set forth above, on November 16, 2011, the
Company’s board of directors approved the release of the 253,906 shares of common stock and warrants to
purchase  208,125 shares of common stock then held in escrow in order to immediately increase the
Company’s public float.



In connection with the Share
Exchange, the Company issued certain consultants five-year warrants to purchase up to an aggregate of  625,000 shares of
common stock at an exercise price of $6.00 per share in consideration for consulting services related to the Share Exchange,
which warrants have a fair value of $1.5 million. The expenses related to the issuance of the warrants are recorded as
share-based compensation and treated as issuance costs.



F-30







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





In connection with the
Private Placement, the Company paid placement agent fees of approximately $300 thousand and issued five-year warrants to
purchase  93,435 shares of the Company’s common stock at an exercise price of $7.20 per share to the placement agent.
The fair value of the warrants is $212 thousand.



During the first quarter of
2011 and prior to the Share Exchange, InspireMD Ltd. raised approximately $990 thousand and issued approximately  200,873
ordinary shares through private placements.



On April 18, 2011, the
Company issued  166,667 shares of its common stock and five-year warrants to purchase  83,333 shares of the Company’s
common stock at an exercise price of $7.20 per share, for an aggregate purchase price of $1,000 thousand, in a private
placement.



On April 18, 2011, the
Company issued  70,834 shares of its common stock and five-year term warrants to purchase  35,417 shares of the
Company’s common stock at an exercise price of $7.20 per share, for an aggregate purchase price of $425 thousand, in a
private placement.



In connection with the
above-referenced transactions from April 18, 2011, the Company paid placement agent fees of approximately $471 thousand,
which were recorded as issuance costs, and five-year term warrants to purchase  14,250 shares of the Company common stock at
an exercise price of $7.20 per share to the placement agent. The fair value of those warrants, amounting to $67 thousand, is
estimated using the Black-Scholes valuation model.



On April 21, 2011, the
Company issued 8,333 shares of its common stock, and five-year term warrants to purchase 4,167 shares of the Company’s
common stock at an exercise price of $7.20 per share, for an aggregate purchase price of $50 thousand, in a private
placement.



| | c. | 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
                                                                the Company’s common stock as awards to the employees, consultants, and service providers to the Company and its
                                                                subsidiaries and affiliates worldwide. 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



F-31











INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





Pursuant to the current Section
102 of the 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).



| | 2. | 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%.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 $1.7 million.



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
thousand.



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 ended December 31, 2011. In calculating the fair value of these options, 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 options
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 options, using the Black-Scholes option-pricing model was approximately $3.1 million.



F-32







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





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 this date the performance condition of tranche B was deemed probable and the performance condition of tranche C was deemed not
probable. The Company continues to record expense related to tranche B, in accordance with the fair value that was caculated 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 thousand.



| | 3. | 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 stockholder. 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 vests and become exercisable in two 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, is approximately $118 thousand.



| | 4. | 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, is approximately $424,000.



| | 5. | 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:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-33







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| | · | 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 $21 thousand;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------

| | · | 12,500 restricted shares of the Company’s common stock, valued
at $62 thousand, 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 $30 thousand; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 6,250 shares of the Company’s common stock, valued at $68.75
thousand.
| | - | ----------------------------------------------------------------------



The Company recorded share-based
compensation expenses of $181.75 thousand related to these issuances.



| | 6. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Incalculating 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.



| | 7. | 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 thousand each.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | As of June
                                                                                  30, 2012, the Company had reserved 1,332,967
                                                                                  ordinary shares for issuance under the plans
                                                                                  as described above. The following table summarizes
                                                                                  information about warrants and share options
                                                                                  to employees:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-34







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





|                                         |  | 6 month period
    ended           |           |   | Year
    Ended December 31,         |  
|---------------------------------------- |  | ---------------------------------- | --------- | - | ----------------------------------- | -
|                                         |  | June
    30, 2012                  |           |   | 2011                                |  
|                                         |  | Number
    of warrants and options |           |   | Weighted
    average exercise price |  
|Outstanding -
     beginning of period   |  |                                    | 2,017,756 |   |                                     | $
|Granted*                                 |  |                                    | 333,750   |   |                                     |  
|Forfeited                                |  |                                    | (30,421   | ) |                                     |  
|Exercised                                |  |                                    | -         |   |                                     |  
|Outstanding
    -end of period           |  |                                    | 2,321,085 |   |                                     | $
|Exercisable
    at the end of the period |  |                                    | 904,108   |   |                                     | $



* Including 140,000 and 362,500
options with performance conditions in the period ended June 30, 2012 and the year ended December 31, 2011, respectively. See Note
2m.



The following table summarizes information
about warrants and share options to non-employees:



|                                         |  | 6
    month period ended           |           |   | Year
    Ended December 31,         |  
|---------------------------------------- |  | ---------------------------------- | --------- | - | ----------------------------------- | -
|                                         |  | June
    30, 2012                  |           |   | 2011                                |  
|                                         |  | Number
    of warrants and options |           |   | Weighted
    average exercise price |  
|Outstanding
    - beginning of period    |  |                                    | 2,100,507 |   |                                     | $
|Granted*                                 |  |                                    | 132,862   |   |                                     |  
|Forfeited                                |  |                                    | (109,427  | ) |                                     |  
|Exercised                                |  |                                    | -         |   |                                     |  
|Outstanding
    - end of period          |  |                                    | 2,123,942 |   |                                     | $
|Exercisable
    at the end of the period |  |                                    | 2,056,710 |   |                                     | $



* Including 19,479 and 24,349
options with performance conditions in the period ended June 30, 2012 and the year ended December 31, 2011, respectively. See Note
2m.



F-35







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





The following table provides additional
information about all warrants and options outstanding and exercisable:



|                   |         |  | Outstanding as of June 30, 2012      | 
|------------------ | ------- |  | ------------------------------------ | 
|Exercise
    price |         |  | Warrants and options
    outstanding | 
|                   | 0-0.004 |  |                                      | 
|                   | 0.732   |  |                                      | 
|                   | 0.752   |  |                                      | 
|                   | 2.92    |  |                                      | 
|                   | 3.16    |  |                                      | 
|                   | 3.2     |  |                                      | 
|                   | 3.96    |  |                                      | 
|                   | 4.92    |  |                                      | 
|                   | 6.00    |  |                                      | 
|                   | 6.9     |  |                                      | 
|                   | 7       |  |                                      | 
|                   | 7.2     |  |                                      | 
|                   | 7.72    |  |                                      | 
|                   | 7.8     |  |                                      | 
|                   | 8.00    |  |                                      | 
|                   | 8.4     |  |                                      | 
|                   | 10.00   |  |                                      | 
|                   | 10.4    |  |                                      | 
|                   |         |  |                                      | 



The weighted average of the remaining
contractual life of total vested and exercisable warrants and options as of June 30, 2012 is 4.46 years.



The aggregate intrinsic value
of the total exercisable warrants and options as of June 30, 2012 is $4,440 thousand.



The total intrinsic value of options
exercised was $800 thousand for the year ended December 31, 2011. No options were exercised during the six month period ended June
30, 2012, and the years ended December 31, 2010 and December 31, 2009.



The weighted average fair value of
warrants and options granted was approximately $0.59 for the six month period ended June 30, 2012, and $0.89, $0.82 and $0.96 for
the years ended December 31, 2011, 2010 and 2009, respectively. The weighted average fair value of warrants and options granted
was estimated using the Black-Scholes option-pricing model.



| | 9. | 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 June 30, 2012, as well as the years ended December 31, 2011, 2010 and 2009:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-36







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





|                         |  | 6 months ended |               |   | Year ended December 31 | 
|------------------------ |  | -------------- | ------------- | - | ---------------------- | 
|                         |  | June 30, 2012  |               |   | 2011                   | 
|Expected life            |  |                | 5.5-6.5 years |   |                        | 
|Risk-free interest rates |  |                | 0.7%-1.3      | % |                        | 
|Volatility               |  |                | 58%-66        | % |                        | 
|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 six month period
ended June 30, 2012, as well as the years ended December 31, 2011, 2010 and 2009:



|                         |  | 6 month period ended |            |   | Year ended December 31 | 
|------------------------ |  | -------------------- | ---------- | - | ---------------------- | 
|                         |  | June 30, 2012        |            |   | 2011                   | 
|Expected life            |  |                      | 2-10 years |   |                        | 
|Risk-free interest rates |  |                      | 0.3%-1.47  | % |                        | 
|Volatility               |  |                      | 47%-65     | % |                        | 
|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 plain vanilla 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).



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.



| | 10. | As of June 30, 2012, the total unrecognized compensation cost on employee and non-employee stock options, related to unvested
stock-based compensation, amounted to approximately $2,745 thousand. This cost is expected to be recognized over a weighted-average
period of approximately 1.96 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:



F-37







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





|                           |  | 6 months ended   |       |  | Year ended December 31 |  
|-------------------------- |  | ---------------- | ----- |  | ---------------------- | -
|                           |  | June 30, 2012    |       |  | 2011                   |  
|                           |  | ($ in thousands) |      
|Revenue                    |  | $                | 68    |  |                        | $
|Cost of revenues           |  |                  | 35    |  |                        |  
|Research and development   |  |                  | 206   |  |                        |  
|Sales and marketing        |  |                  | 181   |  |                        |  
|General and administrative |  |                  | 1,454 |  |                        |  
|                           |  | $                | 1,944 |  |                        | $



The Company recorded $62 thousand
of share-based compensation as part of Property, Plant and Equipment in the year ended December 31, 2011



| | d. | Acquisition and cancellation of shares
| | -- | --------------------------------------



Following a settlement agreement
signed on June 5, 2011, the Company issued 4,697 shares of common stock. The Company issued a stock certificate in the name of
the plaintiff for such shares for the Company to hold in trust pending consummation of the settlement terms under the settlement
agreement. On June 10, 2012, both parties agreed to amend the settlement agreement to provide that the Company would pay $24 thousand
rather than issue the shares. Whereas the shares were never released to the plaintiff, and both parties agreed to cancel the share
certificate evidencing the shares, the Company cancelled the shares and recorded $21 thousand as a deduction from equity. The difference
was recorded as “General and administrative” based on the cash amount paid net of the fair value of the cancelled shares
as of the cancellation date.



| | e. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



NOTE 11 - 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.



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 will increase to 25% beginning 2012.

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 12.075%.



F-38







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







| | 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.



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 to eight years of reduced tax rate of 10% to 25% from tax on income derived from their production
facilities in Israel. The tax benefit period is twelve years from the years of implementation.



The tax-exempt income attributable
to the “Beneficiary Enterprises” can be distributed to shareholders without imposing
tax liability on the Company only upon the complete liquidation of the Company. In the event of a distribution of such tax-exempt
income as a cash dividend in a manner other than in the complete liquidation of the Company, the Company will be required to pay
tax at the rate of 10% to 25% on the amount distributed. In addition, these dividends will be subject to 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 InspireMD Ltd. may be required to refund the amount of the benefits, in whole or in
part, with the addition of interest.





| | 3. | Amendment
                                                                                         of the Law for the Encouragement of Capital
                                                                                         Investments, 1959
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 tax rates at company level, under
the law, were as follows:



|Years                                          |  | Development
Zone A |    |   | Other Areas in
Israel | 
|---------------------------------------------- |  | ------------------ | -- | - | --------------------- | 
|                                               |  |                    |    |   |                       | 
|“Preferred enterprise”                         |  |                    |    |   |                       | 
|2011-2012                                      |  |                    | 10 | % |                       | 
|2013-2014                                      |  |                    | 7  | % |                       | 
|2015 and thereafter                            |  |                    | 6  | % |                       | 
|“Special Preferred Enterprise” commencing 2011 |  |                    | 5  | % |                       | 



The benefits granted to the preferred
enterprises were to be unlimited in time, unlike the benefits granted to special preferred enterprises, which were to be limited
for a period of 10 years. The benefits were to be granted to companies that qualified under criteria set in the amendment; for
the most part, those criteria were similar to the criteria that were set in the law prior to its amendment.



Under the transitional provisions
of the amendment, an Israeli company was allowed to continue to enjoy the tax benefits available under the law prior to its amendment
until the end of the period of benefits, as defined in the law. The company was allowed to set the “year of election”
no later than tax year 2012, provided that the minimum qualifying investment commenced not later than the end of 2010. On each
year during the period of benefits, the company would have been able to opt for application of the amendment, thereby making available
to itself the tax rates above. Company’s opting for application of the amendment was irrecoverable.



| | c. | Carry forward tax losses
| | -- | ------------------------



As of June 30, 2012, InspireMD
Ltd. had a net carry forward tax loss of approximately $18 million. Under Israeli tax laws, the carry forward tax losses
can be utilized indefinitely. InspireMD, Inc. had a net carry forward tax loss of approximately $10 million. Under U.S. tax
laws, InspireMD, Inc.’s tax losses can be utilized two years back and twenty years forward. InspireMD, Inc.'s carry forward
tax losses will begin to expire on June 30, 2031.



| | 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:



F-39







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





|                                       |  | 6 month period ended |        |   | Year ended December 31 |  
|-------------------------------------- |  | -------------------- | ------ | - | ---------------------- | -
|                                       |  | June 30, 2012        |        |   | 2011                   |  
|                                       |  | ($ in thousands)     |       
|Profit (loss)  before taxes on income: |  |                      |        |   |                        |  
|InspireMD, Inc.                        |  | $                    | (2,226 | ) |                        | $
|InspireMD Ltd.                         |  |                      | (4,814 | ) |                        |  
|InspireMD GmbH                         |  |                      | (9     | ) |                        |  
|                                       |  | $                    | (7,049 | ) |                        | $



Current taxes on income



Tax expenses in the amount of $32 thousand for the
six month period ended June 30, 2012, and $2, $47 thousand and $47 thousand thousand for the years ended December 31, 2011, 2010
and 2009, respectively, are related to non-U.S. operations.



Following is a reconciliation of
the theoretical tax expense, assuming all income were taxed at the regular tax rates applicable to the Company in the U.S. (see
c above), and the actual tax expense:



|                                                                                                                                                   |  | 6 month period ended |        |   | Year ended December 31 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | - | ---------------------- | -
|                                                                                                                                                   |  | June 30, 2012        |        |   | 2011                   |  
|                                                                                                                                                   |  | ($ in thousands)     |       
|Loss before taxes on income, as reported
    in the statements of operations                                                                       |  | $                    | 7,049  |   |                        | $
|Theoretical tax benefit                                                                                                                            |  |                      | (2,397 | ) |                        |  
|Increase in tax benefit resulting from permanent 
    differences                                                                                  |  |                      | 863    |   |                        |  
|Increase (decrease) in taxes on income resulting
    from the computation of deferred taxes at a rate which is different from the theoretical rate |  |                      |        |   |                        |  
|Increase (decrease) in uncertain tax positions
    - net                                                                                           |  |                      |        |   |                        |  
|Decrease in theoretical tax benefit resulting
    from subsidiaries different tax rate                                                             |  |                      | 434    |   |                        |  
|Change in corporate tax rates, see c above                                                                                                         |  |                      |        |   |                        |  
|Change in valuation allowance                                                                                                                      |  |                      | 1,132  |   |                        |  
|                                                                                                                                                   |  | $                    | 32     |   |                        | $



As of June 30, 2012, as well as December
31, 2011, 2010 and 2009, 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.



F-40







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





The changes in the valuation allowance
for the six month period ended June 30, 2012 and years ended December 31, 2011 and 2010 were as follows:



|                                         |  | 6 month period
    ended |       |  | Year ended December 31 |  
|---------------------------------------- |  | ------------------------ | ----- |  | ---------------------- | -
|                                         |  | June 30, 2012            |       |  | 2011                   |  
|                                         |  | ($ in thousands)         |      
|Balance at the beginning of the
    year |  | $                        | 6,918 |  |                        | $
|Changes during the year                  |  |                          | 1,132 |  |                        |  
|Balance at the end of the year           |  | $                        | 8,050 |  |                        | $



| | f. | Accounting for Uncertain Tax position
| | -- | -------------------------------------



Following is a reconciliation of
the total amounts of the Company’s unrecognized tax benefits during the six month period ended June 30, 2012, as well as
the years ended December 31, 2011 and 2010:



|                                                                                                 |  | 6 month period
    ended |   |  | Year ended December 31 |  
|------------------------------------------------------------------------------------------------ |  | ------------------------ | - |  | ---------------------- | -
|                                                                                                 |  | June 30, 2012            |   |  | 2011                   |  
|                                                                                                 |  | ($ in thousands)         |  
|Balance at beginning of period                                                                   |  | $                        | - |  |                        | $
|Increase in unrecognized tax benefits as a result of tax positions taken during the year         |  |                          |   |  |                        |  
|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.         |  |  |  | 2008-2011 | 
|Israel       |  |  |  | 2006-2011 | 
|Germany      |  |  |  | 2008-2011 | 



The Company and its subsidiaries
applied for a change of fiscal year for its tax filings to end in June 30, 2012 in the different territories.



F-41







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| | g. | Deferred income tax:
| | -- | --------------------



|                                              |  | 6 month period ended |        |   | Year ended December 31 |  
|--------------------------------------------- |  | -------------------- | ------ | - | ---------------------- | -
|                                              |  | June 30, 2012        |        |   | 2011                   |  
|                                              |  | ($ in thousands)     |       
|Short-term:                                   |  |                      |        |   |                        |  
|Allowance for doubtful accounts               |  | $                    | 54     |   |                        | $
|Provision for vacation and
    recreation pay |  |                      | 70     |   |                        |  
|                                              |  |                      | 124    |   |                        |  
|Long-term:                                    |  |                      |        |   |                        |  
|R&D expenses                                  |  |                      | 746    |   |                        |  
|Convertible debenture                         |  |                      | (1,251 | ) |                        |  
|Non cash issuance costs                       |  |                      | 89     |   |                        |  
|Share-based compensation                      |  |                      | 693    |   |                        |  
|Carry forward tax losses                      |  |                      | 7,631  |   |                        |  
|Accrued severance pay, net                    |  |                      | 18     |   |                        |  
|                                              |  |                      | 7,926  |   |                        |  
|Less-valuation allowance                      |  |                      | (8,050 | ) |                        |  
|                                              |  | $                    | -      |   |                        | $



F-42







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 - SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION



Balance sheets:



| | a. | Accounts receivable:
| | -- | --------------------



|                                                      |  |                  |       |   | December 31, |  
|----------------------------------------------------- |  | ---------------- | ----- | - | ------------ | -
|                                                      |  | June 30, 2012    |       |   | 2011         |  
|                                                      |  | ($ in thousands) |      
|1) Trade:                                             |  |                  |       |   |              |  
|Open accounts                                         |  | $                | 2,039 |   |              | $
|Allowance for doubtful accounts                       |  |                  | (215  | ) |              |  
|                                                      |  | $                | 1,824 |   |              | $
|2)  Other:                                            |  |                  |       |   |              |  
|Due from government institutions                      |  | $                | 124   |   |              | $
|Advance payments to suppliers                         |  |                  | 118   |   |              |  
|Fund in respect of employee right upon
    retirement |  |                  |       |   |              |  
|Miscellaneous                                         |  |                  | 22    |   |              |  
|                                                      |  | $                | 264   |   |              | $



The changes in “Allowance
for doubtful accounts” during the six month period ended June 30, 2012 and the years ended December 31, 2011 and 2010
are as follows:



|                               |  | 6 month period ended |     |   | Year ended December 31 |  
|------------------------------ |  | -------------------- | --- | - | ---------------------- | -
|                               |  | June 30, 2012        |     |   | 2011                   |  
|                               |  | ($ in thousands)     |    
|Balance at beginning of period |  | $                    | 142 |   |                        | $
|Additions during the period    |  |                      | 78  |   |                        |  
|Exchange rate differences      |  |                      | (5  | ) |                        |  
|Balance at end of period       |  | $                    | 215 |   |                        | $



| | b. | Inventories:
| | -- | ------------



|                           |  |                  |       |  | December 31, |  
|-------------------------- |  | ---------------- | ----- |  | ------------ | -
|                           |  | June 30, 2012    |       |  | 2011         |  
|                           |  | ($ in thousands) |      
|Finished goods             |  | $                | 479   |  |              | $
|Work in process            |  |                  | 1,115 |  |              |  
|Raw materials and supplies |  |                  | 150   |  |              |  
|                           |  | $                | 1,744 |  |              | $



As of June 30, 2012, the Company
recorded a provision for slow moving inventory in the amount of $443 thousand.



| | c. | Inventory on consignment
| | -- | ------------------------



The changes in inventory on consignment
during the six months ended June 30, 2012, as well as the years ended December 31, 2011 and 2010, are as follows:



F-43







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





|                                               |  | 6 month period ended |     |   | Year ended December 31, |  
|---------------------------------------------- |  | -------------------- | --- | - | ----------------------- | -
|                                               |  | June 30, 2012        |     |   | 2011                    |  
|                                               |  | ($ in thousands)     |    
|Balance at beginning of period                 |  | $                    | 110 |   |                         | $
|Costs of revenues deferred during the period   |  |                      | 20  |   |                         |  
|Costs of revenues recognized during the period |  |                      | (67 | ) |                         |  
|Balance at end of period                       |  | $                    | 63  |   |                         | $



As of June 30, 2012, December 31,
2011 and 2010, Inventory on consignment included an amount of $63 thousand, $110 thousand and $371 thousand, respectively, related
to products sales for which product returns could not be reliably estimated, with the remainder relating to products sales for
which returns were reliably estimated.



| | d. | Accounts payable and accruals-other:
| | -- | ------------------------------------



|                                               |  |                  |       |  | December 31, |  
|---------------------------------------------- |  | ---------------- | ----- |  | ------------ | -
|                                               |  | June 30, 2012    |       |  | 2011         |  
|                                               |  | ($ in thousands) |      
|Employees and employee institutions            |  | $                | 438   |  |              | $
|Accrued vacation and recreation pay            |  |                  | 272   |  |              |  
|Accrued clinical trials expenses               |  |                  | 607   |  |              |  
|Provision for sales commissions                |  |                  | 194   |  |              |  
|Accrued expenses                               |  |                  | 1,197 |  |              |  
|Due to government institutions                 |  |                  | 22    |  |              |  
|Liability for employees rights upon retirement |  |                  |       |  |              |  
|Provision for returns                          |  |                  | 139   |  |              |  
|Taxes payable                                  |  |                  | 56    |  |              |  
|                                               |  | $                | 2,925 |  |              | $



| | e. | Deferred revenues
| | -- | -----------------



The changes in deferred revenues
during the six month period ending June 30, 2012, and the years ended December 31, 2011 and 2010 are as follows:



|                                     |  | 6 month period ended |     |   | Year ended December 31 |  
|------------------------------------ |  | -------------------- | --- | - | ---------------------- | -
|                                     |  | June 30, 2012        |     |   | 2011                   |  
|                                     |  | ($ in thousands)     |    
|Balance at beginning of period       |  | $                    | -   |   |                        | $
|Revenue deferred during the period   |  |                      | 25  |   |                        |  
|Revenue recognized during the period |  |                      | (15 | ) |                        |  
|Balance at end of period             |  | $                    | 10  |   |                        | $



F-44







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





Statements of Operation:



| | f. | Financial expenses (income), net:
| | -- | ---------------------------------



|                                                                |  | 6 month period
ended |        |   | Year ended December 31 |  
|--------------------------------------------------------------- |  | -------------------- | ------ | - | ---------------------- | -
|                                                                |  | June 30, 2012        |        |   | 2011                   |  
|                                                                |  | ($ in thousands)     |       
|Bank commissions                                                |  | $                    | 30     |   |                        | $
|Interest income                                                 |  |                      | (9     | ) |                        |  
|Exchange rate differences                                       |  |                      | (40    | ) |                        |  
|Interest expense (including debt issuance costs)                |  |                      | 1,232  |   |                        |  
|Change in fair value of warrants and embedded derivatives       |  |                      | (1,322 | ) |                        |  
|Redemption of beneficial conversion feature of convertible loan |  |                      |        |   |                        |  
|                                                                |  | $                    | (109   | ) |                        | $



F-45







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 13 - ENTITY
WIDE DISCLOSURES



The Company operates in one operating
segment.



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 December 31 |  
|-------- |  | -------------------- | ----- |  | ---------------------- | -
|         |  | June 30, 2012        |       |  | 2011                   |  
|         |  | ($ in thousands)     |      
|         |  |                      |       |  |                        |  
|Russia   |  | $                    | 452   |  |                        | $
|Germany  |  |                      | 285   |  |                        |  
|India    |  |                      | 120   |  |                        |  
|Israel   |  |                      | 60    |  |                        |  
|Italy    |  |                      | 179   |  |                        |  
|Cyprus   |  |                      | 10    |  |                        |  
|Pakistan |  |                      | -     |  |                        |  
|Poland   |  |                      | 140   |  |                        |  
|Other    |  |                      | 825   |  |                        |  
|         |  | $                    | 2,071 |  |                        | $



By principal
customers:



|           |  | 6 month period ended |    |   | Year ended December 31 | 
|---------- |  | -------------------- | -- | - | ---------------------- | 
|           |  | June 30, 2012        |    |   | 2011                   | 
|Customer A |  |                      | 22 | % |                        | 
|Customer B |  |                      | 14 | % |                        | 
|Customer C |  |                      | 6  | % |                        | 
|Customer D |  |                      | 3  | % |                        | 
|Customer E |  |                      | 9  | % |                        | 
|Customer F |  |                      | -  | % |                        | 
|Customer G |  |                      | -  | % |                        | 
|Customer H |  |                      | 7  | % |                        | 



| |  | All tangible long lived assets are located in Israel.
| |  | -----------------------------------------------------



F-46







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14 –
TRANSITION PERIOD COMPARATIVE DATA



|                                                                                                                                                       |  | Six month period ended June 30, |           
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ----------
|                                                                                                                                                       |  | 2012                            |           
|                                                                                                                                                       |  |                                 |           
|                                                                                                                                                       |  | ($ in thousands)                |           
|Operating Data:                                                                                                                                        |  |                                 |           
|Revenues                                                                                                                                               |  | $                               | 2,071     
|Cost of revenues                                                                                                                                       |  |                                 | 1,377     
|Gross Profit                                                                                                                                           |  |                                 | 694       
|Operating expenses:                                                                                                                                    |  |                                 |           
|Research and development                                                                                                                               |  |                                 | 2,607     
|Selling and marketing                                                                                                                                  |  |                                 | 1,246     
|General and administrative (including $1,454 and $99 of share-based compensation for the six month periods ended June 30, 2012 and 2011, respectively) |  |                                 | 3,999     
|Total operating expenses                                                                                                                               |  |                                 | 7,852     
|Loss from operations                                                                                                                                   |  |                                 | (7,158    
|Financial expenses (income), net                                                                                                                       |  |                                 | (109      
|Loss before income taxes                                                                                                                               |  |                                 | (7,049    
|Tax expenses                                                                                                                                           |  |                                 | 32        
|Net loss                                                                                                                                               |  | $                               | (7,081    
|Net loss per share - basic and diluted                                                                                                                 |  | $                               | (0.41     
|                                                                                                                                                       |  |                                 |           
|Weighted average number of ordinary shares used in computing net loss per share - basic and diluted                                                    |  |                                 | 17,044,221
|Cash Flow Data:                                                                                                                                        |  |                                 |           
|Net cash used by operating activities                                                                                                                  |  | $                               | (4,363    
|Net cash used by investing activities                                                                                                                  |  |                                 | (200      
|Net cash provided by financing activities                                                                                                              |  |                                 | 9,753     
|Effect of exchange rate changes on cash and cash equivalents                                                                                           |  |                                 |           
|Net increase in cash and cash equivalents                                                                                                              |  | $                               | 5,190     



NOTE 15 - SUBSEQUENT
EVENTS:



On
August 20, 2012, the Company announced that a multi-center randomized trial of its MGuardTM embolic protection stent demonstrated
a positive outcome in treating patients suffering heart attacks when compared to commercially-approved bare metal or drug-eluting
stents.



On August 1, 2012, the Company’s
board of directors issued a consultant options with certain performance 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.



On August 27, 2012, the Company’s
board of directors issued a member of the immediate family of the CEO options to purchase 60,871 shares of common stock at an
exercise price of $5.80 per share, the closing price of the common stock on the date of grant.



F-47







INSPIREMD, INC.



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





On August 27, 2012, the Company's
board of directors approved the extension of 30,435 options previously granted to a member of the immediate family of the CEO.
Following the extension, the options can be exercised until September 30, 2014.



NOTE 16 - REVERSE STOCK SPLIT:



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. The Company’s authorized common shares were not  affected by
the Reverse Stock Split. All related share and per share data have been retroactively applied to the financial statements and
their related notes for all periods presented.





F-48