NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 1 - GENERAL:

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 1 - GENERAL (Cont.):

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

Basis of preparation

The accompanying unaudited condensed financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of the Company. The information included in this report should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (“SEC”) on March 25, 2024. The year-end balance sheet data was derived from the audited financial statements as of December 31, 2023, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included in this interim report.

Use of Estimates in the Preparation of Financial Statements

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity (including share-based compensation) and the amount of expenses. Actual results could differ from those estimates.

Impact of accounting standards to be applied in future periods

In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The ASU’s amendments are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this pronouncement on our Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under this ASU, public entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU’s amendments are effective for all entities that are subject to Topic 740, Income Taxes, for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this pronouncement on our disclosures.

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

Financial liability to pay 7% fees on the fundings that will be received from exercises of tradable warrants. The financial liability is to be measured at fair market value through profit or loss. The financial liability fair value as of December 31, 2023, and as of June 30, 2024 is $11 in the both periods.

On December 26, 2023, the Company entered into the December Purchase Agreement (Note 1 and Note 5), pursuant to which it issued unregistered warrants, to purchase up to an aggregate of 3,031,250 Ordinary Shares at an exercise of $1.28 per share. The Private Warrants were exercisable immediately upon issuance and will expire three and a half years following their issuance. The Private Warrants include cashless exercise mechanism, according to the terms specified in the agreement. The Private Warrants may create obligation to transfer cash to the investors at fundamental transactions according to fair value of the Black-Scholes model that includes various inputs. Therefore, the Company assesses the Private Warrants as financial liability instruments that are measured at fair value and recognized financial expenses or income through profit and loss.

The Private Warrants fair value as of the issuance date and December 31, 2023, were $1,750 and $1,459 respectively. The warrants fair value as of the June 30, 2024, was $1,998.

The key inputs that were used in the Private Warrants fair value were:

NOTE 4 - RELATED PARTIES

The following transactions arose with related parties:

Transactions and balances with related parties:

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 5 - SHAREHOLDERS’ EQUITY:

A. Share capital:

On April 4, 2023, the Company entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC, as sales agent, pursuant to which the Company could offer and sell, from time to time, through the sales agent, Ordinary Shares pursuant to an At-The-Market facility (“ATM”). During 2023, the Company sold 17,566 Ordinary Shares under the ATM. On October 23, 2023, the Company terminated the Sales Agreement and the associated ATM, effective immediately.

On December 26, 2023, the Company completed the December Offering, whereby the Company sold (i) 1,375,000 Ordinary Shares at a purchase price of $1.28 per share, (ii) December Pre-Funded Warrants, to purchase up to 1,656,250 Ordinary Shares, at a purchase price of $1.28, less $0.001 per December Pre-Funded Warrant, and (iii) Private Warrants, to purchase up to an aggregate of 3,031,250 Ordinary Shares at an exercise of $1.28 per share (Note 3.2).

The December Pre-Funded Warrants were exercised on the same day and the day after the transaction in full in an exercise price of $0.001 per share and the Company issued 1,656,250 additional Ordinary Shares. The aggregate proceeds received by the Company from the December Offering were approximately $3,424, after deducting underwriting discounts and commissions and additional cash offering costs totaled in approximately $454.

The Company issued the placement agent in the December Offering warrants to purchase a number of shares equal to a total of 7.0% of the aggregate number of Ordinary Shares sold in the December Offering, or a warrant to purchase up to 212,188 Ordinary Shares, were issued. The December Placement Agent Warrants were substantially on the same terms as the Private Warrants issued to the investor in the December Offering, except an exercise price of $1.60 per share. The December Placement Agent Warrants were exercisable immediately upon issuance and will expire five years following their issuance.

The Company accounts for the December Placement Agent Warrants as equity-classified instruments (as part of additional paid in capital), based on an assessment of ASC 718. The fair value of the December Placement Agent Warrants on the issuance date was $131. Those cash and non-cash issuance costs were accounted proportionally to issuance expenses and decrease of additional paid in capital, according to the ratio of the liability versus equity in the December Offering.

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 5 - SHAREHOLDERS’ EQUITY (Cont.):

During the year ended December 31, 2023, the Company issued an aggregate amount of 1,226,448 Ordinary Shares in connection with vested RSUs and an additional 37,972 Ordinary Shares in connection with option exercises.

On April 1, 2024, the Company completed its April Offering, whereby the Company sold 1,339,285 Ordinary Shares at a purchase price of $1.232 per share. The aggregate proceeds received by the Company from the April Offering were approximately $1,651.

On May 20, 2024, the Company issued 220,000 Warrants Shares to a service provider, at an exercise price of $2.25 per share. the warrants are immediately exercisable and will be expired following six months from the Initial issuance Date. The Company accounting treatment for those warrants as equity-classified instruments (as part of additional paid in capital), based on an assessment of ASC 718. The fair value of the warrants at the issuance date was $56.

On June 14, 2024, the Company completed its June Offering, whereby the Company sold (i) 941,541 Ordinary Shares at a purchase price of $1.30 per share, and (ii) June Pre-Funded Warrants to purchase up to 1,709,760 Ordinary Shares, at a purchase price of $1.30, less $0.001 per June Pre-Funded Warrant. Each June Pre-Funded Warrant is exercisable for one Ordinary Share at an exercise price of $0.001 per share. The June Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the June Pre-Funded Warrants are exercised in full. As of June 30, 2024 none of the June Pre-Funded warrants were exercised.

The aggregate proceeds received by the Company from the June Offering were approximately $3,102, after deducting underwriting discounts and commissions and additional cash offering costs totaled in approximately $343.

The Company issued the June Placement Agent in the agreement warrants equal to a total of 7.0% of the aggregate number of Ordinary Shares sold in the transaction. A total to 185,591 warrants to purchase up to 185,591 Ordinary Shares were issued. The June Placement Agent Warrants were at an exercise price of $1.56 per share. The June Placement Agent Warrants were exercisable immediately upon issuance and will expire four years following their issuance.

The Company accounting treatment for the June Placement Agent Warrants as equity-classified instruments (as part of additional paid in capital), based on an assessment of ASC 718. The fair value of the June Placement Agent Warrants at the issuance date was $202.

The cash and non-cash issuance costs were recorded against additional paid in capital, due to the classification of the ordinary shares and the June Pre-Funded Warrants as equity in the June Offering.

On June 30, 2024, the Company issued 45,000 ordinary shares to an advisor in connection with consulting service agreement.

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 5 - SHAREHOLDERS’ EQUITY (Cont.):

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 5 - SHAREHOLDERS’ EQUITY (Cont.):

Loss per share has been calculated using the weighted average number of shares in issue during the relevant financial periods, the weighted average number of equity shares in issue and profit for the period as follows:

NOTE 6 - SHARE BASED COMPENSATION:

In December 2019, the Company established a share option plan (the “Plan”). As of June 30, 2023, a total of 505,473 options to purchase Ordinary Shares have been granted to employees, consultants and directors under the Plan, and a total of 3,707,542 RSUs have been granted to employees, consultants and directors under the Plan, of which 2,550,166 RSUs are fully vested as of June 30, 2023.

On January 22, 2024, the Company’s board of directors approved a grant of 320,000 RSUs to employees and a grant of options to purchase 80,000 shares to consultants. The RSUs represents the right to receive Ordinary Shares at a future time, 250,000 of which vest over a period of three years, with a one-year cliff period and 70,000 vesting immediately on the grant date. 10,000 of the options were vested immediately on the grant date, 25,000 option vest over a period of three years and 45,000 option vests over a period of one year and nine months. The RSUs designated to employees were granted under Section 102 of the Israeli Tax Ordinance, which enables the employee to pay a 25% capital gain tax upon exercise.

On February 5, 2024, the Company’s board of directors approved a grant of 2,277,000 RSUs to officers, a grant of options to purchase 30,000 Ordinary Shares and 90,000 RSUs to directors. The RSUs and options represents the right to receive Ordinary Shares at a future time and vest over a period of three years, with a one-year cliff. The RSUs designated to employees and directors were granted under Section 102 of the Israeli Tax Ordinance, which enables the employee to pay a 25% capital gain tax upon exercise.

The fair market value of all granted options was estimated by using the Black-Scholes model, aimed at modelling the value of the Company’s assets over time. The simulation approach was designed to take into account the terms and conditions of the share options, as well as the capital structure of the Company and the volatility of its assets, on the date of grant based on certain assumptions. Those conditions are, among others:

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 6 - SHARE BASED COMPENSATION (Cont.):

The valuation was completed by the company based on the following assumptions:

During the six months ended June 30, 2024, the Company recorded share-based payment expenses in the amount of $972.

The options to services providers and advisers outstanding as of June 30, 2024, as follows:

The RSUs to services providers and advisers outstanding as of June 30, 2024, as follows:

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

The RSUs to employees and directors outstanding as of June 30, 2024, as follows:

NOTE 7 - COMMITMENTS AND CONTINGENCIES:

In September 2019, the Israel Innovation Authority (“IIA”) approved an application that supports upgrading the Company’s manufacturing capabilities for an aggregate budget of NIS 4,880,603 (approximately $1,500,000). The IIA committed to fund 60% of the approved budget. Eventually the project budget concluded in the aggregate amount of NIS 4,623,142 (approximately $1,333) The program is for the period beginning October 2019 through November 2020 and the Company received total funds in the amount of NIS 2,773,885 (approximately $800) from the IIA.

According to the agreements with the IIA, the Company will pay royalties of 3% to 3.5% of future sales up to an amount equal to the accumulated grant received with the annual interest on such royalties the 12-month secured overnight financing rate (“SOFR”) of the Federal Reserve or an alternative rate published by the Bank of Israel plus 0.71513% for grants approved prior to January 1, 2024. For grants approved after January 1, 2024, the annual interest rate is the higher of the 12-month SOFR rate plus 1% or a fixed annual interest rate of 4%. Repayment of the grant is contingent upon the successful completion of the Company’s research and development (“R&D”) programs and generating sales. The Company has no obligation to repay these grants if the R&D programs fail, are unsuccessful or aborted or if no sales are generated. The Company had not generated sales as of June 30, 2024; therefore, no liability was recorded in these unaudited interim condensed Financial Statements. IIA grants are recorded as a reduction of R&D expenses, net. 

During October 2023, the IIA has approved a support of another development project of the Company at an aggregate budget of NIS 3,850,869 (approximately $1,062). The IIA committed to fund 40% of the approved budget.

As of June 30, 2024, the maximum obligation with respect to the grants received from the IIA, contingent upon entitled future sales, is $894. The Company has obligations regarding know-how, technology, or products, not to transfer the information, rights thereon and production rights which derive from the research and development without the IIA Research Committee approval.

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Cont.):

In August 2022, the Company entered into a lease agreement for its facilities in Ra’anana, Israel. The lease agreement is for a period of 69 months commencing September 1, 2021, and the Company began to pay lease and related expenses after completing 3 months of lease. The Company has the option to shorten the period and terminates the lease agreement after completing 45 months of rent by paying an amount of NIS 500,000, (approximately $153). This amount of reimbursement will be deducted monthly in NIS 30,000, (approximately $9) if the Company terminates the agreement after 45 months of rent. The annual lease payment, including management fees, as of June 30, 2024, is approximately NIS 69,000 ($19) per month. As security for the obligations under this lease agreement, the Company provided a bank guarantee in an amount equal to three monthly lease payments plus the Israeli value added tax and an unlimited guarantee according to the terms specified in the contract.

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate based on the information available at the date of determining the present value of the lease payments. The Company’s incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

The Company has various operating leases for vehicles that expire through 2027. Below is a summary of the Company’s operating right-of-use assets and operating lease liabilities as of June 30, 2024:

INSPIRA TECHNOLOGIES OXY B.H.N. LTD.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

(U.S. dollars in thousands)

In the normal course of business, various legal claims and other contingent matters may arise. Management believes that any liability that may arise from such matters would not have a material adverse effect on the Company’s results of operations or financial condition as of and for the six month period ended June 30, 2024.

On December 12, 2021, the Company terminated its employment agreement with Dr. Udi Nussinovitch, one of its founders who served as the Company’s Chief Scientific Officer since March 2018. On February 24, 2022, the Company sued Mr. Nussinovitch for breach good faith and his fiduciary duties as a shareholder and former officer of the Company. On November 9, 2022, the Company received notice of a complaint filed by Mr. Nussinovitch, as well as a complaint filed with the regional labor court in Tel Aviv, Israel on November 8, 2022. Mr. Nussinovitch has alleged certain deficiencies in the Company’s Extraordinary General Meeting of Shareholders held on Friday, December 17, 2021, resulting from his status as a minority shareholder. In addition, with respect to the labor dispute, Mr. Nussinovitch is seeking renumeration and the issuance of Ordinary Shares. A partial hearing was held in the regional labor court on July 19, 2023, and the parties were required by the court to file their positions on a stay of the proceeding pending the decision on the case initiated by the Plaintiff in the District Court.

A pre-trial hearing was held in the district court on January 21, 2024. During the hearing, the court suggested that the parties consider the possibility of resolving the case through an out-of-court arrangement or mediation. The parties agreed to a mediation process.

As of the date of these Financial Statement, the Company believes that the claims will result in no payments by the Company.

NOTE 8 - SUBSEQUENT EVENTS:

In July 2024 the Company received NIS 539,122 (approximately $149,768) from the IIA as a pre-payment of the grant as approved in relation with a development project. The grant creates an obligation with respect to the grants received from the IIA, contingent upon entitled future sales.

As of June 30, 2024, there is no impact on the financial statements.

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