As filed with the
Securities and Exchange Commission on April 17, 2024
Registration No. 333-276981
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Dror Ortho-Design, Inc.
(Exact name of registrant as specified in its charter)
Delaware | | 3577 | | 85-0461778 |
(State or other jurisdiction of
incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (IRS Employer
Identification Number) |
Shatner Street 3
Jerusalem, Israel
+972 (0)74-700-6700
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Mr. Eliyahu (Lee) Haddad
Chief Executive Officer
Shatner Street 3
Jerusalem, Israel
+972 (0)74-700-6700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Rick Werner
Alla Digilova
Haynes and Boone, LLP
30 Rockefeller Plaza, 26th Floor
New York, NY 10112
Tel. (212) 659-7300
Fax (212) 884-8234
Approximate date of commencement
of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement for
the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate
by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | Large, accelerated filer | | ☐ | | Accelerated filer | | ☐ |
| | Non-accelerated filer | | ☒ | | Smaller reporting company | | ☒ |
| | | | | | Emerging growth company | | ☐ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall
become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus
is not complete and may be changed. These securities may not be sold until the registration statement filed with the U.S. Securities
and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and does not constitute the
solicitation of offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION,
DATED April 17, 2024
Preliminary Prospectus
DROR
ORTHO-DESIGN, INC.
293,145,818 Shares of Common Stock
1,046,336,224 Shares of Common Stock Underlying
Series A Convertible Preferred Stock
474,999,993 Shares of Common Stock Underlying
Private Placement Warrants
489,834,426 Shares of Common Stock Underlying
Share Exchange Warrants
This prospectus relates to the offer and sale, from time to time, by
the selling securityholders named in this prospectus or their permitted transferees (the “Selling Securityholders”) of 2,304,316,461 shares
of common stock, par value $0.0001 per share (“Common Stock”), of Dror Ortho-Design, Inc., a Delaware corporation (“Dror”
“the Company,” “we”, “us” or “our”), consisting of (A) 293,145,818 shares of Common
Stock, including shares of Common Stock issued to investors in the Private Placement (as defined herein) (the “Private Placement
Shares”) and to former shareholders of Private Dror (as defined herein) in connection with the Share Exchange (as defined herein);
(B) 1,046,336,224 shares of Common Stock (the “Conversion Shares”) issuable upon the conversion of shares of Series A
Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) issued to investors in the Private
Placement and to former shareholders of Private Dror in connection with the Share Exchange; (C) 474,999,993 shares of Common
Stock (the “Private Placement Warrant Shares”) issuable upon exercise of the Private Placement Warrants (as defined herein)
issued to investors in the Private Placement; and (D) 489,834,426 shares of Common Stock (the “Share Exchange Warrant
Shares”) issuable upon exercise of the Share Exchange Warrants (as defined herein) issued to former warrant holders of Private Dror
in connection with the Warrant Exchange (as defined herein).
The shares of Common Stock, including the Private Placement Shares,
the shares of Series A Preferred Stock and the Warrants were issued in reliance upon the exemption from the registration requirements
in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Regulation D promulgated thereunder.
On July 5, 2023, the Company (f/k/a Novint Technologies, Inc.) entered
into a share exchange agreement with the shareholders of Dror Ortho-Design Ltd. (“Private Dror”), pursuant to which the shareholders
of Private Dror agreed to exchange all of their outstanding ordinary shares of Private Dror for shares of the Company’s Common
Stock and Series A Preferred Stock (the “Share Exchange”). On August 14, 2023, the Share Exchange was consummated, and the
Company changed its name to “Dror Ortho-Design, Inc.” Following the Share Exchange, the Company succeeded to the business
of Private Dror as its sole line of business.
In connection with the Share Exchange, pursuant to a Purchase
Agreement (as defined herein), the Company sold shares of Common Stock and Series A Preferred Stock and Private Placement Warrants (as
defined herein) in a private placement (the “Private Placement”) to certain investors (collectively, the “Private Placement
Investors”) in a closing on August 14, 2023, and in a subsequent closing on September 13, 2023.
The holders of Series A Preferred Stock are entitled to any dividends,
on an as-if converted basis, equal to and in the same form as any dividends actually paid on shares of Common Stock, when and if actually
paid. The shares of Series A Preferred Stock are entitled to vote with holders of the Common Stock on all matters that such holders of
Common Stock are entitled to vote upon, in the same manner and with the same effect as the holders of Common Stock, voting together with
the holders of Common Stock as a single class. Each share of Series A Preferred Stock shall entitle the holder thereof to cast that
number of votes per share of Series A Preferred Stock equal to the number of Conversion Shares into which such share of Series A
Preferred Stock is convertible into pursuant to the Certificate of Designation of the Series A Preferred Stock (after giving effect to
any applicable limitation on conversion under such Certificate of Designation).
We are registering the resale of the shares of Common Stock covered
by this prospectus in order to satisfy the requirements of the Registration Rights Agreement, dated August 14, 2023, by and among
the Company and the Private Placement Investors (the “Registration Rights Agreement”). The Selling Securityholders will receive
all of the proceeds from any sales of the shares offered hereby. We will not receive any of the proceeds, but we will incur expenses in
connection with the offering. To the extent the Warrants are exercised for cash, if at all, we will receive the exercise price of the
Warrants. We intend to use those proceeds, if any, for general corporate purposes.
Our registration of the shares of Common Stock covered by this
prospectus does not mean that the Selling Securityholders will offer or sell any of such shares of Common Stock. The Selling Securityholders
named in this prospectus, or their donees, pledgees, transferees or other successors-in-interest, may resell the shares of Common Stock
covered by this prospectus through public or private transactions at a fixed price of $0.011 per share until our common stock is listed
or quoted an existing public trading market, such as OTC Market Group, Inc.’s “OTCQB” or “OTCQX” market,
and thereafter at prevailing market prices or privately negotiated prices. For additional information on the possible methods of sale
that may be used by the Selling Securityholders, you should refer to the section of this prospectus entitled “Plan of Distribution.”
Any shares of Common Stock subject to resale hereunder will have been
issued by us and acquired by the Selling Securityholders prior to any resale of such shares pursuant to this prospectus.
No underwriter or other person has been engaged to facilitate the sale
of the Common Stock in this offering. We will bear all costs, expenses and fees in connection with the registration of the Common Stock.
The Selling Securityholders will bear all commissions and discounts, if any, attributable to their respective sales of the Common Stock.
We will bear all costs, expenses and fees in connection with the registration
of the shares of Common Stock. The Selling Securityholders will bear all commissions and discounts, if any, attributable to their respective
sales of the shares of Common Stock.
Our Common Stock is currently approved for quotation on the OTC
Pink Market under the symbol “DROR.” On April 12, 2024, the last reported sales price for our Common Stock was $0.005
per share.
Investment in our Common Stock involves risk. See “Risk Factors”
beginning on page 6 of this prospectus, in our periodic reports filed from time to time with the Securities and Exchange Commission.
You should carefully read this prospectus before you invest in our Common Stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
The date of this prospectus is .
Table Of Contents
You should rely only on the information contained in this prospectus.
No one has been authorized to provide you with information that is different from that contained in this prospectus. This prospectus is
dated as of the date set forth on the cover hereof. You should not assume that the information contained in this prospectus is accurate
as of any date other than that date.
For investors outside of the United States: We have not done anything
that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is
required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves
about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus outside the United
States.
This document contains references to trademarks and service marks belonging
to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols,
but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under
applicable law, its rights to these trademarks and trade names. Dror does not intend its use or display of other companies’ trade
names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of Dror by, any other companies.
Notwithstanding references thereto in this prospectus, Dror’s
website is not part of and is not incorporated in the prospectus, and you should not consider information found on Dror’s website
to be part of this prospectus.
Frequently Used
Terms
“2021 Plan” means the Dror Ortho-Design Ltd. 2021 Share
Incentive Plan.
“2023 Plan” means the Dror Ortho-Design, Inc. 2023 Long-Term
Incentive Plan.
“Amended Charter” means the Company’s certificate
of incorporation, as amended from time to time.
“Board” means the Company’s Board of Directors.
“Bylaws” means the Company’s Second Amended and Restated
By-Laws.
“Closing” means August 14, 2023, the closing date
of the Private Placement and the Share Exchange.
“Common Stock” means the shares of common stock of Dror
Ortho-Design, Inc., par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified
or changed.
“December 2021 Transaction” means the sale and issuance
by Private Dror, pursuant to a Share Purchase Agreement entered into on December 6, 2021, of a total of 77,873 of Private Dror’s
Preferred A-5 Shares, against an aggregated investment amount of $3,150,000 ($150,000 of which was provided prior to the financing in
the form of a convertible security).
“Dror” means Dror Ortho-Design, Inc. (formerly known as
Novint Technologies, Inc.), a Delaware corporation.
“Exchange Act” means the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
“Novint” means Novint Technologies, Inc., a Delaware corporation
(which was renamed “Dror Ortho-Design, Inc.” in connection with the Share Exchange).
“Private Dror” means Dror Ortho-Design Ltd., a company
incorporated under the laws of the State of Israel, and wholly owned subsidiary of Dror pursuant to the consummation of the Share Exchange.
“Private Placement Shares” means the shares of Common Stock
issued in connection with the Purchase Agreement.
“Private Placement Warrants” means the warrants issued
in connection with the Purchase Agreement.
“Private Placement Warrant Shares” means the shares of
Common Stock issuable upon exercise of the Private Placement Warrants.
“Purchase Agreement” means that certain Securities Purchase
Agreement, by and among Novint and each of the purchasers thereto, dated August 14, 2023.
“Registration Rights Agreement” means that certain Registration
Rights Agreement, by and among Novint and each of the purchaser signatories to the Purchase Agreement, dated August 14, 2023.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
“Series A Preferred Stock” or “Preferred Stock”
means the shares of Series A Convertible Preferred Stock of Dror Ortho-Design, Inc., par value $0.0001 per share, and any other class
of securities into which such securities may hereafter be reclassified or changed.
“Share Exchange” means the transfer of 235,088 ordinary
shares of Private Dror to Dror in exchange for 7,576,999 shares of Series A Convertible Preferred Stock and 106,782,187 shares of Common
Stock pursuant to the Share Exchange Agreement.
“Share Exchange Agreement” means that certain Share Exchange
Agreement, dated July 5, 2023, by and among the Company, Private Dror, and the shareholders of Private Dror, as amended on August 14,
2023.
“Share Exchange Warrants” means the warrants issued pursuant
to the Share Exchange Agreement.
“Share Exchange Warrant Shares” means the shares of Common
Stock issuable upon exercise of the Share Exchange Warrants.
“Warrants” means, collectively, the Share Exchange Warrants
and the Private Placement Warrants.
“Warrant Exchange” means the transfer of Series A-4
Warrants to purchase ordinary shares of Private Dror to Dror in exchange for the Share Exchange Warrants.
“Warrant Shares” means, collectively, the Share Exchange
Warrant Shares and the Private Placement Warrant Shares.
About this Prospectus
This prospectus is part of a registration statement on Form S-1
that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process.
Under this shelf registration process, the Selling Securityholders may, from time to time, sell the securities offered by them described
in this prospectus. We will not receive any proceeds from the sale by such Selling Securityholders of the securities offered by them described
in this prospectus. This prospectus also relates to the issuance by us of the shares of Common Stock issuable upon the exercise of any
Warrants. We will receive proceeds from any exercise of the Warrants for cash.
This prospectus includes important information about us, the securities
being offered and other information you should know before investing in our securities. It is important for you to read and consider all
information contained in this prospectus in making your investment decision. You should also read and consider the information in the
documents to which we have referred you under “Where You Can Find More Information” in this prospectus.
Neither we nor the Selling Securityholders have authorized anyone to
provide you with any information other than that provided in this prospectus. Neither we nor the Selling Securityholders can provide any
assurance as to the reliability of any other information that others may give you. Neither we nor the Selling Securityholders are making
an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date of the applicable document. Since the date of this prospectus our business,
financial condition, results of operations and prospects may have changed.
Unless the context indicates otherwise, references in this prospectus
to the “Company,” “Dror,” “we,” “us,” “our” and similar terms refer to Dror
Ortho-Design, Inc., a Delaware corporation, and any subsidiaries. Note that references in this prospectus to Dror’s development
pipeline may omit certain programs that are not material to Dror individually or in the aggregate.
Cautionary Note
Regarding Forward-Looking Statements
Statements in this prospectus and other written reports made from time
to time by us that are not historical facts, including statements regarding our strategy, future operations, future financial position,
future revenue, projected costs, prospects, plans, objectives of management and expected market growth, constitute so-called “forward-looking
statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words
such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “potential,” “predict,” “project,” “should,” “target,”
“will,” “would,” and other words of similar meaning, although not all forward-looking statements contain these
identifying words. Forward-looking statements are likely to address our estimates of our expenses, ongoing losses, future revenue, capital
requirements and our needs for or ability to obtain additional financing; our ability to retain and recruit key personnel; our
financial performance; our ability to become profitable and generate consistent cash flows to remain profitable; our ability
to fund our working capital requirements; developments and projections relating to our competitors or our industry; and our Platform
(as defined below) and any other products, among other things. You should carefully consider any such statement and should understand
that many factors could cause actual results to differ from our forward-looking statements. Such risks and uncertainties include but are
not limited to the following:
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our operations and financial performance depend on global and regional economic conditions. Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, and weakness in general economic conditions and threats, or actual recessions, could materially affect our business, results of operations, and financial condition; |
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our Company is in the development stage, is not generating revenues and has no operating history in the manufacturing and distribution of orthodontic medical devices or platforms for consumer use; |
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our products and technologies may not be accepted by the intended commercial consumers of our products, which could harm our future financial performance; |
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we expect continued operating losses and cannot be certain of our future profitability; |
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our net revenues will depend primarily on our Platform and any decline in sales or average selling price of our Platform may adversely affect net revenues, gross margin and net income; |
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our Company will face competition from large internationally established aligner companies whose products have been widely accepted; |
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our growth and future success may depend on our ability to enhance our Platform or to develop, obtain regulatory clearance for, successfully introduce, and achieve market acceptance of new products and services; |
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we are subject to operating risks, including excess or constrained capacity and operational inefficiencies, which could adversely affect our results of operations; |
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our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades could disrupt our operations and have a material impact on our business and operating results; |
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complying with regulations enforced by FDA and other regulatory authorities is expensive and time consuming, and failure to comply could result in substantial penalties; |
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we may not receive the necessary authorizations to market our Platform or any future new products, and any failure to timely do so may adversely affect our ability to grow our business; |
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certain modifications to our products may require new 510(k) clearance or other marketing authorizations; |
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ongoing changes in healthcare regulation could negatively affect our revenues, business and financial condition; |
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we are subject to certain federal, state, and foreign fraud and abuse laws, health information privacy and security laws, and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business; |
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our success depends in part on our proprietary technology, and if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmed; |
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the relative lack of U.S. public company experience of our management team may put us at a competitive disadvantage; |
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our Common Stock is not listed on any stock exchange and there is a limited market for shares of our Common Stock. Even if a market for our Common Stock develops, our Common Stock could be subject to wide fluctuations; and |
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other risks and uncertainties outlined in section of this prospectus entitled “Risk Factors” and other risks detailed from time to time in our filings with the SEC or otherwise. |
These factors may include inaccurate assumptions and a broad variety
of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed,
and actual future results may vary materially. Information regarding market and industry statistics contained in this prospectus is included
based on information available to us that we believe is accurate. It is generally based on industry and other publications that are not
produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources and cannot
assure investors of the accuracy or completeness of the data included in this prospectus. Forecasts and other forward-looking information
obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future
market size, revenue and market acceptance of products and services. We do not assume any obligation to update any forward-looking statement.
As a result, investors should not place undue reliance on these forward-looking statements.
These forward-looking statements are based on information available
as of the date of this prospectus and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties.
Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake
any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result
of new information, future events or otherwise, except as may be required under applicable securities laws.
Market And Industry
Data
Certain industry data and market data included in this prospectus
were obtained from independent third-party surveys, market research, publicly available information, reports of governmental agencies
and industry publications and surveys. All of management’s estimates presented herein are based upon management’s review
of independent third-party surveys and industry publications prepared by a number of sources and other publicly available information.
All of the market data used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue
weight to such estimates. We believe that the information from these industry publications and surveys included in this prospectus is
reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including
those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from
those expressed in the estimates made by the independent parties and by us.
Summary Of The
Prospectus
This summary highlights selected information from this prospectus
and may not contain all of the information that is important to you in making an investment decision. Before investing in our securities,
you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus
and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” See also the section entitled “Where You Can Find Additional Information.”
On July 5, 2023, the Company entered into the Share Exchange Agreement
with the shareholders of Private Dror, pursuant to which the shareholders of Private Dror agreed to exchange all of their outstanding
ordinary shares of Private Dror for shares of the Company’s Common Stock and Preferred Stock. On August 14, 2023, the Share
Exchange was consummated and the Company changed its name to “Dror Ortho-Design, Inc.” Following the Share Exchange, the Company
succeeded to the business of Private Dror as its sole line of business. Unless the context indicates otherwise, references in this prospectus
to the “Company,” “Dror,” “we,” “us,” “our” and similar terms refer to Dror
Ortho-Design, Inc. (f/k/a Novint Technologies, Inc.) after the consummation of the Share Exchange. References to “Private Dror”
refer to the predecessor company (now a wholly owned subsidiary of Dror Ortho-Design, Inc.) prior to the consummation of the Share Exchange.
Overview
We have reimagined the way people can correct their smile.
We plan to disrupt the aligner market by offering millions of people
a revolutionary alternative. We believe that people do not need to change their lifestyle to correct their smile as they are required
to do with existing aligner solutions.
Existing aligner solutions generally share the same treatment principles,
which are different from our solution. In most cases, patients seeking to improve their smile need to undergo a 12-to-15 month process
of wearing plastic aligners, which need to be worn the entire day and should only be removed while eating or drinking. Patients are prescribed
a series of 20 to 30 aligners that are intended to forcefully move teeth progressively closer to their intended final position. This process
causes pain every time a new aligner is used and restricts blood circulation, which counterproductively slows down tooth movement. All-day
aligner solutions are also intrusive, as patients need to conduct their lives at work or school wearing the plastic aligners. In addition,
most existing aligner therapies require multiple visits to an orthodontist to monitor the progress of treatment plans through intraoral
scanning, physical examination and patient testimony.
We believe that recent rapid advancements in technology have made
traditional aligner solutions no longer the most effective treatment option for smile correction. Our Company has developed a proprietary
AI-based platform to correct people’s smiles in a discreet and less painful manner (the “Platform”). The Platform uses
only one smart aligner to gently move teeth into their optimum position with pulsating air while the patient is sleeping or at home.
The Company has several patents for the technology used in the Platform and is currently in the process of preparing the prototype for
clearance by the FDA.
Our predecessor first generation Aerodentis System is a Class II medical
device, which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process for movement and alignment
of teeth during orthodontic treatment of malocclusion in April 2020. The Company is preparing to apply for 510(k) clearance for the Platform
as a Class II medical device, which constitutes an updated version of the currently cleared device. Such updated Platform contains new
and/or different components than the original device, which is why a new 510(k) clearance is required prior to marketing the Platform
in the U.S. We have not yet filed a 510(k) submission for the Platform, and it has, thus, not been found by the FDA to be substantially
equivalent to the first generation Aerodentis System.
The Company currently does not generate revenues to fund operations
and anticipates that it will continue to incur significant losses as it continues to develop the Platform. Please refer to “Risk
Factors - We are in the development stage, are not generating revenues and have no operating history in the manufacturing and distribution
of orthodontic medical devices or platforms for consumer use.” for additional information. The Company intends to spend approximately
$2.5 million over the next 18 months on software and hardware development as well as the accompanying regulatory approvals and IP protection
associated with such software and hardware projects.
Share Exchange
As discussed above, on July 5, 2023, the Company entered into the Share
Exchange Agreement with Private Dror and all shareholders of Private Dror. Pursuant to the Share Exchange Agreement, on August 14, 2023,
the shareholders of Private Dror transferred all of their ordinary shares in Private Dror to the Company in exchange for 7,576,999 shares
of Series A Preferred Stock and 106,782,187 shares of Common Stock. As a result of these share exchanges, Private Dror became a wholly
owned subsidiary of the Company.
Private Placement
In connection with the closing of the Share Exchange, pursuant to the
Purchase Agreement, the Company sold (1) Private Placement Shares and shares of Series A Preferred Stock, or a combination thereof, at
an effective purchase price of $0.011 per Private Placement Share or share of Common Stock underlying such shares of Series A Preferred
Stock and (2) Private Placement Warrants to the Private Placement Investors in the Private Placement. The Company received aggregate gross
proceeds of $5,025,000 in connection with the first closing of the Private Placement on August 14, 2023 and an additional $200,000
in connection with a second closing of on September 13, 2023.
Risk Factors
Our business is subject to numerous risks and uncertainties, including
those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary, that represent challenges
that we face in connection with the successful implementation of our strategy and the growth of our business. In particular, the following
considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could cause
a decline in the price of shares of our Common Stock or warrants and result in a loss of all or a portion of your investment:
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Our financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order to continue as a going concern. |
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We conduct our operations in Israel. Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel’s war against them, may affect our operations. |
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Our operations and financial performance depend on global and regional economic conditions. Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, and weakness in general economic conditions and threats, or actual recessions, could materially affect our business, results of operations, and financial condition. |
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The Company is in the development stage, is not generating revenues and has no operating history in the manufacturing and distribution of orthodontic medical devices or platforms for consumer use. |
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Our products and technologies may not be accepted by the intended commercial consumers of our products, which could harm our future financial performance. |
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We expect continued operating losses and cannot be certain of our future profitability. |
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Our net revenues will depend primarily on our Platform and any decline in sales or average selling price of our Platform may adversely affect net revenues, gross margin and net income. |
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The Company will face competition from large internationally established aligner companies whose products have been widely accepted. |
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Our growth and future success may depend on our ability to enhance our Platform or to develop, obtain regulatory clearance for, successfully introduce, and achieve market acceptance of new products and services. |
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We are subject to operating risks, including excess or constrained capacity and operational inefficiencies, which could adversely affect our results of operations. |
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Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades could disrupt our operations and have a material impact on our business and operating results. |
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Complying with regulations enforced by FDA and other regulatory authorities is expensive and time consuming, and failure to comply could result in substantial penalties. |
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We may not receive the necessary authorizations to market our Platform or any future new products, and any failure to timely do so may adversely affect our ability to grow our business. |
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Certain modifications to our products may require new 510(k) clearance or other marketing authorizations. |
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Ongoing changes in healthcare regulation could negatively affect our revenues, business and financial condition. |
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We are subject to certain federal, state, and foreign fraud and abuse laws, health information privacy and security laws, and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business. |
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Our success depends in part on our proprietary technology, and if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmed. |
| ● | The relative lack of U.S. public company experience of our
management team may put us at a competitive disadvantage. |
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Our Common Stock is not listed on any stock exchange and there is a limited market for shares of our Common Stock. Even if a market for our Common Stock develops, our Common Stock could be subject to wide fluctuations. |
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Other risks and uncertainties outlined in section entitled “Risk Factors” and other risks detailed from time to time in our filings with the SEC or otherwise. |
These factors may include inaccurate assumptions and a broad variety
of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed,
and actual future results may vary materially.
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” and accordingly may
provide less public disclosure than larger public companies. As a result, the information that we provide to our stockholders may be different
than you might receive from other public reporting companies in which you hold equity interests.
Corporate Information
The Company was incorporated as Novint Technologies, Inc. in the State
of New Mexico in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging with Novint Technologies,
Inc., a Delaware corporation. On August 14, 2023, the Company changed its name from “Novint Technologies, Inc.” to “Dror
Ortho-Design, Inc.” Following the Share Exchange, the Company succeeded to the business of Private Dror as its sole line of business.
Our principal executive offices are located at Shatner Street 3, Jerusalem,
Israel, and our telephone number is +972 (0)74-700-6700.
Our website address is www.aerodentis.com. Information contained
on our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference
only.
The Offering
Shares of Common Stock Offered by the Selling Securityholders |
|
We are registering the resale by the Selling Securityholders named
in this prospectus, or their permitted transferees, of an aggregate of 2,304,316,461 shares of Common Stock, consisting of:
● 293,145,818
shares of Common Stock issued to investors in the Private Placement and to former shareholders of Private Dror in connection with the
Share Exchange;
● 1,046,336,224
shares of Common Stock issuable upon the conversion of shares of Series A Preferred Stock issued to investors in the Private Placement
and to former shareholders of Private Dror in connection with the Share Exchange;
● 474,999,993
shares of Common Stock issuable upon exercise of the Private Placement Warrants; and
● 489,834,426
shares of Common Stock issuable upon exercise of the Share Exchange Warrants.
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Lock-Up Agreements |
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Certain of our securityholders are subject to certain restrictions on transfer until the termination of applicable lock-up periods. |
Terms of the Offering |
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The Selling Securityholders will determine when and how they will dispose of the securities registered for resale under this prospectus. |
Use of Proceeds |
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We will not receive any proceeds from the sale of the Conversion Shares and Warrant Shares by the Selling Securityholders. However, we will receive proceeds from the exercise of the Warrants if such Warrants are exercised for cash. We currently intend to use such proceeds for general corporate purposes. |
Plan of Distribution |
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The Selling Securityholders named in this prospectus, or their pledgees, donees, transferees, distributees, beneficiaries
or other successors-in-interest, may offer or sell the shares of Common Stock from time to time through public or private transactions
at a fixed price of $0.011 per share until our common stock is listed or quoted an existing public trading market, such as OTC Market
Group, Inc.’s “OTCQB” or “OTCQX” market, and thereafter at prevailing market prices or privately negotiated
prices. The Selling Securityholders may also resell the shares of Common Stock to or through underwriters, broker-dealers or agents,
who may receive compensation in the form of discounts, concessions or commissions. |
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See “Plan of Distribution” beginning on page 107 of this
prospectus for additional information on the methods of sale that may be used by the Selling Securityholders
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Risk Factors |
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Investing in our Common Stock involves significant risks. See “Risk Factors” beginning on page 6 of this prospectus. |
Market for Common Stock |
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Our Common Stock is currently approved for quotation on the OTC Pink Market under the symbol “DROR.” |
Risk Factors
Investing in our securities involves a high degree of risk. Before
you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding
Forward-Looking Statements,” you should carefully consider the risks and uncertainties described below together with all of the
other information contained in this prospectus, including our financial statements and related notes appearing at the end of this prospectus
and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before
deciding to invest in our securities. If any of the events or developments described below were to occur, our business, prospects, operating
results, and financial condition could suffer materially, the price at which our securities are quoted could decline, and you could lose
all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
not presently known to us or that we currently believe to be immaterial may also adversely affect our business.
Risks Related to Our Capital Requirements and Financing
Our financial statements have been prepared on a going concern
basis; we must raise additional capital to fund our operations in order to continue as a going concern.
In its report dated April 1, 2024, Barzily & Co., our independent
registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as we have suffered recurring
losses from operations and have insufficient liquidity to fund our future operations. If we are unable to improve our liquidity position,
we may not be able to continue as a going concern. The accompanying financial statements do not include any adjustments that might result
if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other
than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.
As of December 31, 2023, we had approximately $3.3 million of cash. In order to have sufficient cash to fund our operations in the
future, we will need to raise additional equity or debt capital and cannot provide any assurance that we will be successful in doing so.
If are unable to raise sufficient capital to fund our operations, we may need to delay, reduce or eliminate certain research and development
programs or other operations, sell some or all of our assets or merge with another entity.
Macroeconomic and External Risks
We conduct our operations in Israel. Conditions in Israel, including
the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel’s war against them, may affect our operations.
Because our wholly-owned subsidiary is incorporated under the laws
of the state of Israel, all of our operations are conducted in Israel, and all of our employees and management personnel are located in
Israel, our business and operations are directly affected by economic, political, geopolitical and military conditions in Israel. Since
the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries
and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against
civilian targets in various parts of Israel, which have negatively affected business conditions in Israel.
In October 2023, Hamas terrorists infiltrated Israel’s southern
border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks
on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State
of Israel. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist
organizations commenced in parallel to their continued rocket and terror attacks. Moreover, the clash between Israel and Hezbollah in
Lebanon may escalate in the future into a greater regional conflict.
Any hostilities involving Israel, or the interruption or curtailment
of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and
could make it more difficult for us to raise capital. Parties with whom we may do business have sometimes declined to travel to Israel
during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. The conflict situation in
Israel could cause situations where medical product certifying or auditing bodies could not be able to visit manufacturing facilities
of our subcontractors in Israel in order to review our certifications or clearances, thus possibly leading to temporary suspensions or
even cancellations of our product clearances or certifications. The conflict situation in Israel could also result in parties with whom
we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements
pursuant to force majeure provisions in such agreements.
There have been travel advisories imposed as related to travel to Israel,
and restriction on travel, or delays and disruptions as related to imports and exports may be imposed in the future. An inability to receive
supplies and materials, shortages of materials or difficulties in procuring our materials, among others, may adversely impact our ability
to commercialize and manufacture our product candidates and products in a timely manner. This could cause a number of delays and/or issues
for our operations, including delay of the review of our product candidates by regulatory agencies, which in turn would have a material
adverse impact on our ability to commercialize our product candidates.
The Israel Defense Force (the “IDF”), the national military
of Israel, is a conscripted military service, subject to certain exceptions. Several employees of our vendors are subject to military
service in the IDF and have been and may be called to serve. It is possible that there will be further military reserve duty call-ups
in the future, which may affect our business due to a shortage of skilled labor and loss of institutional knowledge, and necessary mitigation
measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, for example, which
may have unintended negative effects and adversely impact our results of operations, liquidity or cash flows.
It is currently not possible to predict the duration or severity of
the ongoing conflict or its effects on our business, operations and financial conditions. The ongoing conflict is rapidly evolving and
developing, and could disrupt our business and operations, interrupt our sources and availability of supply and hamper our ability to
raise additional funds or sell our securities, among others.
Service of process upon and enforcing a United States or
U.S. judgment against us and our current executive officers and directors, or asserting U.S. securities law claims in Israel, may be
difficult.
We are incorporated under the laws of the State of Delaware, however
our principal place of business is in Jerusalem, Israel. Service of process upon us and upon our directors and officers and any Israeli
experts named herein, all of whom reside outside of the United States, may be difficult from within the United States. Furthermore, because
a majority of our assets and all of our directors, officers and such Israeli experts are located outside of the United States, any judgment
obtained in the United States against us or any of them may be difficult to collect within the United States and may not be enforced
by an Israeli court.
It may be difficult to assert U.S. securities laws claims in original
actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the
basis that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear
a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. There is little binding case law in Israel addressing
these matters. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact, which can be a time-consuming
and costly process. Certain matters of procedure may also be governed by Israeli law. As a result of the difficulty associated with enforcing
a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.
Our operations and financial performance depend on global and
regional economic conditions. Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, and weakness
in general economic conditions and threats, or actual recessions, could materially affect our business, results of operations, and financial
condition.
Macroeconomic conditions impact consumer confidence and discretionary
spending, which could adversely affect demand for any products we bring to market. Consumer spending habits are affected by, among other
things, inflation, fluctuations in currency exchange rates, weakness in general economic conditions, threats or actual recessions, pandemics,
wars and military actions, levels of employment, wages, debt obligations, discretionary income, interest rates, volatility in capital,
and consumer confidence and perceptions of current and future economic conditions. Changes and uncertainty can, among other things, reduce
or shift spending away from elective treatments and procedures, drive patients to purchase orthodontic treatments that may cost less than
our treatment options, result in a decrease in the number of overall orthodontic and dental case starts, reduce patient traffic in dentists’
offices or reduce demand for dental services generally. Further, decreased demand for dental services can cause dentists and labs to postpone
investments in capital equipment, such as intraoral scanners and CAD/CAM equipment and software. The recent declines in, or uncertain
economic outlooks for, the U.S., European and certain other international economies has and may continue to adversely affect consumer
and dental practice spending. The increase in the cost of fuel and energy, food and other essential items along with climbing interest
rates could reduce consumers’ disposable income, resulting in less discretionary spending for products like ours. Decreases in disposable
income and discretionary spending or change in consumer confidence and spending habits may adversely affect our revenues and operating
results.
Inflation continues to adversely impact spending and trade activities
and we are unable to predict the impacts of higher inflation on global and regional economies. Higher inflation has also increased domestic
and international shipping costs, raw material prices, and labor rates, which could adversely impact the costs of producing, procuring
and shipping any products we bring to market. If similar trends continue once we begin marketing our Platform, our ability to recover
these cost increases through price increases may have limited effectiveness, resulting in downward pressure on our operating results.
Attempts to offset cost increases with price increases could reduce sales, increase customer dissatisfaction or otherwise harm our reputation.
Further, we are unable to predict the impact of efforts by central banks and federal, state and local governments to combat elevated
levels of inflation. If their efforts to reduce inflation are too aggressive, they may lead to a recession. Alternatively, if they are
insufficient or are not sustained long enough to lower inflation to more acceptable levels, consumer spending may be adversely impacted
for a prolonged period of time. Any of these events could materially affect our business and operating results.
Our business could be impacted by major public health issues,
including pandemics such as the spread of COVID-19.
Major public health issues, including pandemics such as the spread
of COVID-19, could in the future materially affect our business due to their impact on the global economy and regional economies, demand
for consumer products, the imposition or removal of public safety measures. Public health concerns may also limit the movement of products
between regions, disrupt or delay supply chains and sales and distribution channels, resulting in interruptions of the supply of products.
COVID-19 has created significant, widespread and unprecedented volatility,
uncertainty, and economic instability, disrupting broad aspects of global and regional economies. Many of these effects continue to varying
degree as variants of COVID-19 and outbreaks globally or regionally continue to harm recovering consumer confidence. As a result of outbreaks
of COVID-19 and its variants, consumer demand and doctor availability has been inconsistent and difficult to predict. The effects of the
pandemic continue to linger and evolve and we cannot predict future direct and ancillary impacts on our business or results of operations,
although they may be material to our business as well as economic activity generally.
Our business could be impacted by political events, trade and
other international disputes, war, and terrorism, including the military conflict between Russia and Ukraine.
Political events, trade and other international disputes, war, and
terrorism could harm or disrupt international commerce and the global economy and could have a material effect on our business as well
as our potential customers, suppliers, contract manufacturers, distributors, and other business partners.
Political events, trade and other international disputes, wars, and
terrorism can lead to unexpected tariffs or trade restrictions, which could adversely impact our business. Tariffs could increase the
cost of our products and the components and raw materials to make them. Once we begin marketing our products, these increased costs could
adversely impact our gross margin and make our products less competitive or reduce demand. Countries could also adopt other measures,
such as controls on imports or exports of goods, technology or data, that could adversely impact our operations and supply chain and limit
our ability to offer products and services. These measures could require us to take various actions, including changing suppliers or restructuring
business relationships. Complying with new or changed trade restrictions is expensive, time-consuming and disruptive to our operations.
Such restrictions can be announced with little or no advance notice and we may be unable to effectively mitigate the adverse impacts of
such measures. If disputes and conflicts escalate in the future, actions by governments in response could be significantly more severe
and restrictive and could materially affect our business.
Political unrest, threats, tensions, actions and responses to any social,
economic, business, geopolitical, military, terrorism, or acts of war involving key commercial, development or manufacturing markets such
as China, Mexico, Israel, Europe, or other countries could materially impact any international operations we undertake. For example, our
employees in Israel could be obligated to perform annual reserve duty in the Israeli military and be called for additional active duty
under emergency circumstances. If any of these events or conditions occur, the impact on us, our employees and potential customers is
uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence disrupts our
product development, data or information exchange, payroll or banking operations, product or materials shipping by us or our suppliers
and other unanticipated business disruptions, interruptions and limitations in telecommunication services or critical systems or applications
reliant on a stable and uninterrupted communications infrastructure.
U.S. and global markets are experiencing volatility and disruption
following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022,
a full-scale military invasion of Ukraine by Russian troops was reported. In response to the military conflict, the United States and
other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia,
including certain Russian citizens and enterprises, and the continuation of the conflict may trigger additional economic and other sanctions.
The potential impacts of the conflict and related sanctions could include supply chain and logistics disruptions, macro financial impacts
resulting from the exclusion of Russian financial institutions from the global banking system, volatility in foreign exchange rates and
interest rates, inflationary pressures on raw materials and energy and heightened cybersecurity threats. We have no way to predict the
progress or outcome of the conflict in Ukraine or the reactions by governments, businesses or consumers. A prolonged conflict, intensified
military activities or more extensive sanctions impacting the region and the resulting economic impact could have a material effect on
our business, results of operations, financial condition, liquidity, growth prospects and business outlook.
Our operations may be impacted by natural disasters, which may
become more frequent or severe as a result of climate change and may adversely impact our business and operating results as well as those
of our potential customers and suppliers.
Natural disasters can impact us and our potential customers, as well
as suppliers critical to our operations. Natural disasters include earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and
other extreme weather conditions that can cause deaths, injuries, and critical health crises, power outages, restrictions and shortages
of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other ramifications.
Climate change is likely to increase both the frequency and severity of natural disasters and, consequently, risks to our business and
operations.
We anticipate that our digital dental modeling and certain of our customer-facing
operations will primarily be processed in our facilities located in Israel. Similarly, a significant portion of our research and development
activities is located in Israel. If there is a natural disaster in the region, our employees could be impacted, our research could be
lost, and our ability to create treatment plans, respond to customer inquiries or manufacture and ship our aligners or intraoral scanners
could be compromised, which could result in our future customers experiencing significant product and services delays.
The effects of climate change on regional and global economies could
change the supply, demand or availability of sources of energy or other resources material to our products and operations and affect the
availability or cost of natural resources and goods and services on which we and our suppliers rely.
Business and Industry Risks
We are in the development stage, are not generating revenues
and have no operating history as a manufacturer and distributor of orthodontic medical devices or platforms for consumer use.
We are in the development stage and face all of the risks and uncertainties
associated with a new and unproven business. Our future is based on an unproven business plan with no historical facts to support projections
and assumptions. We were founded in 2005 and have no operating history as a manufacturer and distributor of orthodontic medical devices
or platforms to the consumer public. We are not currently generating revenues and do not expect to generate revenue until we have successfully
completed the development and testing of our Platform. Investors should understand that an investment in a start-up business is significantly
riskier than an investment in a business with any significant operating history. There can be no assurance that we will ever achieve revenues
or profitability. Our operations are subject to all of the risks inherent in the establishment of a new business enterprise. The likelihood
of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in
connection with the formation of a pre-revenue business. Our lack of a significant and relevant operating history makes it difficult to
manage operations and predict future operating results.
Our products and technologies may not be accepted by the intended
commercial consumers of our products, which could harm our future financial performance.
There can be no assurance that our Platform will achieve wide acceptance
by intended consumers and/or market acceptance generally. The degree of market acceptance for our Platform will also depend upon a number
of factors, including the receipt and timing of regulatory approvals, if any, and the establishment and demonstration of the ability of
our proposed device to provide the level of confidence and independence in an efficient manner and at a reasonable cost. Our failure to
develop a commercial product to compete successfully with existing orthodontic treatments could delay, limit, or prevent market acceptance.
There can be no assurance that the public will believe that our Platform is necessary or that the dental industry will actively pursue
our product. Long-term market acceptance of our Platform will depend, in part, on the capabilities, operating features and price of our
products and technologies as compared to those of other available products and services. As a result, there can be no assurance that our
Platform will be able to achieve market penetration, revenue growth or profitability.
We expect continued operating losses and cannot be certain of
our future profitability.
We have incurred net operating losses since inception. For the years
ended December 31, 2023 and 2022, we incurred net losses of $3.5 million and $1.7 million, respectively. From inception through the
present, we have spent significant funds in organizational and start up activities, to recruit key managers and employees, to develop
our Platform, and for research and development.
We expect to continue incurring net operating losses in the foreseeable
future as we increase expenditures for the development and marketing of the Platform. The time required for us to become profitable is
uncertain, and there can be no assurance that we will achieve profitability on a sustained basis, if at all. As a result of our limited
operating history, we have neither internal nor industry-based historical financial data for any significant period of time upon which
to project revenues or base planned operating expenses. We expect that our results of operations may also fluctuate significantly in the
future as a result of a variety of factors, including: the ability to enter into resale agreements with dental professionals, the ability
to effectively market to the public, the ease of use of the Platform by consumers and dental professionals, intense competition from existing
and new companies, retain and motivate qualified personnel, specific economic conditions in the aligner/consumer orthodontic market, general
economic conditions; and other factors.
We may be unable to raise additional capital, which could harm
our ability to compete.
We expect to expend significant capital to establish our brand, build
manufacturing infrastructure, and develop both product and process technology. These initiatives may require us to raise additional capital
over the next few years. We may consume available resources more rapidly than anticipated and we may not be able to raise additional funds
when needed or on acceptable terms. If we raise additional funds through further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges
superior to those of holders of our Common Stock.
In connection with the Private Placement, we granted the Private Placement
Investors a right to participate in future financings, until the second anniversary of the closing of the Private Placement, that involve
the issuance of our Common Stock or Common Stock equivalents for cash consideration. Further, the Securities Purchase Agreement entered
into in connection with the Private Placement contains “most favored nation” provisions, which may require future amendments
to the terms of the Private Placement to give Private Placement Investors the benefit of more favorable terms governing certain future
issuances of our Common Stock or Common Stock equivalents. Such participation right and “most favored nation” provisions may
restrict our ability to secure future financings unless the Private Placement Investors waive their right to participate, the persons
providing such financing accept the participation of the Private Placement Investors or the Private Placement Investors waive their rights
under “most favored nation” provisions, respectively. If we are unable to obtain adequate financing or financing on terms
satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities,
challenges, or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition, and
prospects could be materially adversely affected.
We will depend on the acceptance of teledentistry and a demand
for correcting tooth alignment.
Continued and widespread market acceptance of teledentistry by consumers
is critical to our future success. Delivery of our Platform via a teledentistry model will represent a change from traditional orthodontic
treatment, which requires in person visits, and consumers may be reluctant to accept this model or may not find it preferable to traditional
treatment. In addition, consumers may not respond to our direct marketing campaigns, or we may be unsuccessful in reaching our target
audience, particularly in foreign jurisdictions where our advertising may be more heavily regulated. If consumers prove unwilling to adopt
our teledentistry model as rapidly or in the numbers that we anticipate, our operating results could be materially harmed.
Consumer spending habits are affected by, among other things, prevailing
economic conditions, inflationary factors, levels of employment, salaries and wage rates, consumer confidence, and consumer perception
of economic conditions. In many markets, dental and orthodontic reimbursement is largely out of pocket for the consumer and, as result,
utilization rates can vary significantly depending on economic growth. A general slowdown in the U.S. economy and certain international
economies may result in, among other things, a decrease in the number of overall orthodontic case starts, a reduction in consumer spending
on elective or higher value procedures, or a reduction in demand for dental and orthodontic services generally, each of which would have
an adverse effect on our sales, if any, and operating results. Inflation and weakness in the global economy result in a challenging environment
for selling dental and orthodontic technologies. If there is a reduction in consumer demand for orthodontic treatment generally, or if
consumers choose to use a competitive product rather than our Platform for any reason, our business, results of operations, and financial
condition could be materially harmed.
Adverse changes in, or interpretations of, laws, rules, and regulations
governing remote healthcare and the practice of dentistry could have a material adverse effect on our business.
Our current business model is dependent, in part, on current laws,
rules, and regulations governing remote healthcare and the practice of dentistry. If changes in laws, rules, regulations, or their interpretations
are inconsistent with our current business model, we would need to adapt our business model accordingly, and our operations in certain
jurisdictions may be disrupted, which could have a material adverse effect on our business, results of operations, and financial condition.
Our net revenues will depend primarily on our Platform and any
decline in sales or average selling price of our Platform may adversely affect net revenues, gross margin and net income.
Our net revenues will be largely dependent on sales of our Platform,
making widespread acceptance of our Platform by dental professionals and consumers critical to our future success. Our operating results
could be harmed if:
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dental professionals experience a reduction in consumer demand for orthodontic services; |
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consumers are unwilling to adopt system treatment offered by our Platform as rapidly or in the volumes we anticipate and at the prices offered; |
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dental professionals choose to continue using wires and brackets or competitive products rather than our Platform or the rates at which they utilize our Platform fail to increase or increase as rapidly as anticipated after we commence sales; or |
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if the average selling price of our products declines after we commence sales. |
The average selling prices of our Platform could be influenced by numerous
factors, including the type and timing of products sold and foreign exchange rates.
Our average selling prices for our Platform may be adversely affected
in the future after we commence sales if:
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we introduce new or change existing promotions, general or volume-based discount programs, product or services bundles, or consumer rebate programs; |
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participation in any promotions or programs unexpectedly increases or decreases or drives demand in unexpected and material ways; |
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our geographic, channel, or product mix shifts to lower priced products or to products that have a higher percentage of deferred revenue; |
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we decrease prices on one or more products or services in response to increasing competitive pricing pressures; |
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we introduce new or change existing products or services, or modify how we market or sell any of our new or existing products or services; or |
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estimates used in the calculation of deferred revenue differ from actual average selling prices. |
If our average selling prices decline after we commence sales, our
net revenues, gross margin and net income may be adversely affected.
We will face competition from large internationally established
aligner companies whose products have been widely accepted.
The dental industry is in a period of immense and rapid digital transformation
involving products, technologies, distribution channels and business models. Once we commence marketing our Platform, we will face competition
in the market for our Platform from the clear aligners market, and we expect competition from existing competitors and new companies that
may enter the market or introduce new technologies in the future.
We expect to compete with a handful of large aligner companies including
Align Technologies, SmileDirectClub, Dentsply Sirona, 3M™ Clarity™ Aligners, and Straumann Group. We expect some additional
competition from other teledentistry solutions, and from new entrants into the orthodontic supply or clear aligner markets. Some of these
competitors may have greater resources as well as the ability to leverage existing channels in the dental market to compete directly with
us. In addition, we may also face future competition from companies that introduce new technologies. We may be unable to compete with
these competitors, and one or more of these competitors may render our technology obsolete or economically unattractive.
Our business model depends on being able to reach consumers to
raise brand awareness and encourage downloading our smartphone application, which may not prove successful or may become less effective
or more costly to maintain in the long term.
There is no assurance our campaigns will achieve the returns on advertising
spend desired, increase brand or product awareness sufficiently or generate goodwill and positive reputational goals. Moreover, should
any entity or individual endorsing us or our products take actions, make or publish statements in support of, or lend support to events
or causes which may be perceived by a portion of society negatively, our sponsorships or support of these entities or individuals may
be questioned, boycotts of our products announced, and our reputation may be harmed, any of which could have a material effect on our
gross margin and business overall.
In addition, various countries prohibit certain types of marketing
activities. For example, some countries restrict direct to consumer advertising of medical devices. We could run afoul of restrictions
and be ordered to stop certain marketing activities. Moreover, competitors do not always follow these restrictions, creating an unfair
advantage and making it more difficult and costly for us to compete.
Future sales of our Platform may depend on our customers’
ability to obtain reimbursement from third-party payors, such as insurance carriers.
Future sales of our Platform may depend on our customers’ ability
to obtain reimbursement from third-party payors, such as insurance carriers. Where such insurance or third-party reimbursement becomes
available in the future, any reduction in insurance or other third-party payor reimbursement for our Platform may cause negative price
pressure, which would reduce our revenues. Without a corresponding reduction in the cost to produce such products, the result would be
a reduction in our overall gross profit. Similarly, any increase in the cost of such products would reduce our overall gross profit unless
there was a corresponding increase in third-party payor reimbursement. We face additional risks associated with obtaining and maintaining
coverage and securing reimbursement from foreign health care payment systems on a timely basis or at all. Failure by our patients to obtain
or maintain coverage or to secure adequate reimbursement for our treatment by third-party payors could have an adverse effect on our business,
results of operations, and financial condition.
Our growth and future success may depend on our ability to enhance
our Platform or to develop, obtain regulatory clearance for, successfully introduce, and achieve market acceptance of new products and
services.
We intend to continually improve and enhance our Platform and/or develop
and introduce new products and services in order to maintain or increase our sales. The success of new or enhanced products and services
may depend on a number of factors, including anticipating and effectively addressing consumer preferences and demand, the success of our
sales and marketing efforts, innovation and timely and successful research and development, obtaining necessary regulatory clearances,
anticipating and responding to competing products and technological innovations, adequately protecting our intellectual property rights,
effective forecasting and management of product demand, effective management of manufacturing and supply costs, and the quality of our
products. There can be no assurance that we will be able to successfully develop and introduce new or enhanced products and services.
Even if new or enhanced products and services are successfully introduced, they may not rapidly gain market share and acceptance.
The development of new products and services in the dental and orthodontic
industry can be complex and costly. We could experience delays in the development and introduction of new and enhanced products and services,
including delays in obtaining any necessary regulatory clearances. Unanticipated problems in developing products and services could also
divert substantial research and development resources, which may impair our ability to develop new products and services and enhancements
of existing products and services, and could substantially increase our costs. If new or enhanced product and service introductions are
delayed or not successful, we may not be able to achieve an acceptable return, if any, on our research and development efforts, and our
business may be adversely affected. Even if we successfully innovate and develop new or enhanced products and services, we may incur substantial
costs in doing so and our profitability may suffer.
Any failure in our ability to successfully develop, introduce, or achieve
market acceptance of new or enhanced products and services, or any problems in the design or quality of any products or services we develop,
could have a material adverse effect on our business, results of operations, and financial condition.
Operational Risks
Business disruptions could seriously harm our financial condition.
The occurrence of any material or prolonged business disruptions, whether
internal or at key suppliers, could harm our business and results of operations, result in material losses, seriously harm our development
efforts and future revenues, profitability and financial condition, adversely affect our competitive position, increase our costs and
expenses, and require substantial expenditures and recovery time in order to fully resume operations.
When business disruptions occur, they may, individually or in the aggregate,
affect our ability to continue critical research and development and could cause production delays or limitations, create adverse effects
on distributors, disrupt supply chains, result in shipping and distribution disruptions and reduce the availability of or access to one
or more facilities.
We are subject to operating risks, including excess or constrained
capacity and operational inefficiencies, which could adversely affect our results of operations.
We are subject to operating risks, including excess or constrained
capacity and pressure on our internal systems, personnel and suppliers. In order to manage current and anticipated future operations effectively,
we must continually implement and improve our operational, financial and management information systems, hire, train, motivate, manage
and retain employees, and ensure our suppliers remain diverse and capable of meeting growing demand for the systems, raw materials, parts
and components essential to the manufacture and delivery of our products. We may be unable to balance near-term efforts to meet existing
demand with future customer demand, including adding personnel, creating scalable, secure and robust systems and operations, and automating
processes needed for long term efficiencies. Any such failure could have a material impact on our business, operations and prospects.
Our products and information technology systems are critical
to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades could disrupt
our operations and have a material impact on our business and operating results.
We rely on the efficient, uninterrupted and secure operation of our
IT systems and are dependent on key third-party software embedded in our products and IT systems as well as third-party hosted IT systems
to support our operations. All software and IT systems are vulnerable to damage, cyber attacks or interruption from a variety of sources.
To effectively manage and improve our operations, our IT systems and applications require an ongoing commitment of significant expenditures
and resources to maintain, protect, upgrade, enhance and restore existing systems and develop new systems to keep pace with continuing
changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cyber threats, and
changing consumer preferences. Failure to adequately protect and maintain the integrity of our products and IT systems may result in a
material effect on our financial position, results of operations and cash flows.
We plan to continuously upgrade and issue new releases of our products
and customer-facing software applications, upon which customer-facing, manufacturing and treatment planning operations depend. Software
applications and products containing software frequently contain errors or defects, especially when first introduced or when new versions
are released. Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach
end of life, and as a consequence, may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions
that may be irreparable or difficult to repair. The discovery of a defect, error or security vulnerability in our products, software applications
or IT systems, incompatibility with future customers’ computer operating systems and hardware configurations with a new release
or upgraded version or the failure of our products or primary IT systems may cause adverse consequences, including: delay or loss of revenues,
significant remediation costs, delay in market acceptance, loss of data, disclosure of financial, health or other personal information
of any customers or patients, product recalls, damage to our reputation, or increased service costs, any of which could have a material
effect on our business, financial condition or results of our operations and the operations of our potential customers or our business
partners.
Our success depends on key executive personnel, vendors, and
relationships with key dental professionals and organizations.
Our success depends on the expertise and experience of our key personnel,
including our CEO, CTO and top management. If we lose the services of any of these key personnel, our business and prospects could be
materially and adversely affected. In addition, since the research and development of the Platform is mainly performed by outsourced third
party vendors, although we could transfer the materials to other vendors, an interruption of service could materially and adversely affect
us.
Our success depends largely on the talents and efforts of our personnel,
and if we are unable to attract, motivate, train or retain our personnel, it may be more difficult to grow effectively and pursue our
strategic priorities, and could materially effect on our results of operations. In addition, our market acceptance and success are dependent
on attracting key orthodontists, dentists and dental organization to work in conjunction with us to educate the consumer market on our
Platform.
There is no assurance that we will be able to attract and retain relationships
with these key dental professionals to validate our Platform. The orthodontics industry is inundated with new products and services which
demand the attention of practitioners, who do not have adequate time or motivation to explore new treatments for their patients or business
opportunities of their practices.
Additionally, facilitating seamless leadership transitions for key
positions is a critical factor in sustaining the culture and maintaining the success of our organization. If our succession planning efforts
are not effective, it could adversely impact our business. We continue to assess the key personnel that we believe are essential to our
long-term success, as future organizational changes could also cause our employee attrition rate to increase. If we fail to effectively
manage any organizational or strategic changes, our financial condition, results of operations, and reputation, as well as our ability
to successfully attract, motivate and retain key employees, could be harmed.
Legal, Regulatory and Compliance Risks
Complying with regulations enforced by FDA and other regulatory
authorities is expensive and time consuming, and failure to comply could result in substantial penalties.
Our products (including the currently cleared version, as well as the
next generation Platform for which we have not yet submitted the requisite 510(k) application to FDA) are considered medical devices and,
accordingly, are subject to rigorous regulation by government agencies in the U.S. and other countries in which we intend to sell our
products. Compliance with these rigorous regulations will affect capital expenditures, earnings and our competitive position. These regulations
vary from country to country but cover, among other things, the following activities with respect to medical devices:
| ● | design, development and manufacturing; |
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testing, labeling, content and language of instructions for use and storage; |
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product storage and safety; |
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marketing, sales and distribution; |
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pre-market clearance and approval; |
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record keeping procedures; |
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advertising and promotion; |
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recalls and field safety corrective actions; |
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post-market surveillance; |
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post-market approval studies; and |
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product import and export. |
The regulations to which we are subject are complex. Regulatory changes
could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs, or lower than anticipated
sales. Our failure to comply with applicable regulatory requirements could result in enforcement action by FDA or state agencies, which
may include any of the following sanctions:
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warning letters, fines, injunctions, consent decrees, and civil penalties; |
| ● | repair, replacement, refunds, recall, or seizure of our products; |
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operating restrictions or partial suspension or total shutdown of production; |
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refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or modifications to existing products; |
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withdrawing clearance or pre-market approvals that have already been granted; and |
If any of these events were to occur, they could harm our business.
We may not receive the necessary authorizations to market our
Platform or any future new products, and any failure to timely do so may adversely affect our ability to grow our business.
Before we can sell a new medical device in the U.S., or market a new
use of, new claim for, or significant modification to a legally marketed device, we must first obtain either FDA 510(k) clearance or approval,
unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the applicant must submit a premarket notification
to FDA under Section 510(k) of the FD&C Act, and FDA must determine that a proposed device is “substantially equivalent”
to a legally-marketed “predicate” device. To be “substantially equivalent,” the proposed device must have the
same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different
technological characteristics, not raise different questions of safety or effectiveness than the predicate device, and be as safe and
as effective as the predicate device. The 510(k) clearance process can be expensive and uncertain and can take from three to 12 months,
but may last significantly longer. Clinical data may be required in connection with an application for 510(k) clearance. Furthermore,
even if we are granted regulatory clearances or approvals, they may include limitations on the indications for use or intended uses of
the device, which may limit the market for the device.
Our first generation Aerodentis System is a Class II medical device,
which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process for movement and alignment of teeth
during orthodontic treatment of malocclusion in April 2020. We are preparing to apply for 510(k) clearance for the updated version of
the currently cleared device. Such updated Platform contains new and/or different components than the original device, which is why a
new 510(k) clearance is required prior to marketing the Platform in the U.S. We have not yet filed a 510(k) submission for the Platform,
and it has, thus, not been found by the FDA to be substantially equivalent to the first generation Aerodentis System.
FDA can delay, limit, or deny 510(k) clearance, or other approval or
reclassification, of a device for many reasons, including:
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we may be unable to demonstrate to FDA’s satisfaction that the products or modifications are substantially equivalent to a proposed predicate device or safe and effective for their intended uses; |
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we may be unable to demonstrate that the clinical and other benefits of the device outweigh the risks; and |
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the applicable regulatory authority may identify deficiencies in our submissions or in the facilities or processes of our third party contract manufacturers. |
Any delay or failure to obtain necessary regulatory clearances or approvals
could harm our business. Once cleared for marketing in the U.S., if ever, to the extent we decide to market the Platform for any additional
indications for use and/or make any material modifications to any element of the device and/or the manufacturing or distribution thereof
in the future, an additional 510(k) submission, and FDA clearance thereof, will be required.
In addition, FDA may change its policies, adopt additional regulations,
revise existing regulations, or take other actions, or Congress may enact different or additional statutory requirements, which may prevent
or delay clearance of our future products under development or impact our ability to modify our currently marketed products on a timely
basis. Such policy, statutory, or regulatory changes could impose additional requirements upon us that could delay our ability to obtain
new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current marketing authorizations.
We received our European CE mark and ISO/MDSAP certification in 2019.
In light of our ISO/MDSAP certification, we believe that we are in substantial compliance with applicable E.U. regulations. We will also
need to obtain regulatory approval in other foreign jurisdictions in which we plan to market and sell our products. The time required
to obtain registrations or approvals, if required by other countries, may be longer than that required for FDA clearance, and requirements
for such registrations, clearances, or approvals may significantly differ from FDA requirements. If we modify our products, we may need
to apply for additional regulatory approvals before we are permitted to sell the modified product. In addition, we may not continue to
meet the quality and safety standards required to maintain the authorizations that we have received. If we are unable to maintain our
authorizations in a particular country, we will no longer be able to sell the applicable product in that country.
Failure to comply with these rules, regulations, self-regulatory codes,
circulars, and orders could result in significant civil and criminal penalties and costs and could have a material adverse impact on our
business. Also, these regulations may be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that
could require us to make changes in our operations or incur substantial defense and settlement expenses. Even unsuccessful challenges
by regulatory authorities or private relators could result in reputational harm and the incurring of substantial costs. In addition, many
of these laws are vague or indefinite and have not been interpreted by the courts and have been subject to frequent modification and varied
interpretation by prosecutorial and regulatory authorities, increasing compliance risks.
Certain modifications to our products may require new 510(k)
clearance or other marketing authorizations.
Once a medical device is permitted to be legally marketed in the U.S.
pursuant to a 510(k) clearance, a manufacturer may be required to notify FDA of certain modifications to the device. Manufacturers determine
in the first instance whether a change to a product requires a new premarket submission, but FDA may review any manufacturer’s decision.
While our first generation Aerodentis System has received 510(k) clearance
in 2020, we are preparing to apply for 510(k) clearance for the updated components of our Platform, which must, then, be found by the
FDA to be substantially equivalent to the Aerodentis System and, thus, may not be lawfully marketed in the U.S. until FDA make a substantial
equivalence determination and issues the requisite 510(k) clearance for the updated Platform. Although the development of our Platform
has been carefully monitored and documented by professionals who are experienced in the FDA clearance process, there is no assurance that
the FDA will agree that our Platform is substantially equivalent to the Aerodentis System and allow our Platform to be marketed in the
United States. The FDA may determine that the device is not substantially equivalent and require a PMA or, more likely, a de novo
reclassification, and/or require further information, such as additional test data, including data from clinical studies, before it is
able to make a determination regarding substantial equivalence. By requesting additional information, the FDA can delay market introduction
of our Platform. Delays in receipt of or failure to receive any necessary 510(k) clearance, de novo classification, or PMA, or the imposition
of stringent restrictions for our Platform could have a material adverse effect on our business, results of operations and financial condition.
In the future, we may make other modifications to our products, including
our Platform, and determine, based on our review of the applicable FDA regulations and guidance, that in certain instances new 510(k)
clearances or other premarket submissions are not required. If FDA disagrees with our determinations, we may be subject to a wide range
of enforcement actions, including, for example, a warning letter, among other consequences, after which we will likely have to cease marketing
the applicable modified product and/or to recall distributed units of such modified product until we obtain the requisite clearance or
approval.
Our products must be manufactured in accordance with federal,
state, and international regulations, and we could be forced to recall our products or terminate production and/or face other regulatory
enforcement actions if we fail to comply with these regulations.
The methods used in, and the facilities used for, the manufacture of
our products must comply with FDA’s Quality System Regulation which is a complex regulatory scheme that covers the procedures and
documentation of, among other requirements, the design, testing, validation, verification, complaint handling, production, process controls,
quality assurance, labeling, supplier evaluation, packaging, handling, storage, distribution, installation, servicing, and shipping of
medical devices. Furthermore, we are required to verify that our suppliers maintain facilities, procedures, and operations that comply
with our quality standards and applicable regulatory requirements. FDA enforces the Quality System Regulation through, among other oversight
methods, periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of
contractors, suppliers, or contract manufacturing organizations. Our products are also subject to similar state regulations as well as
similar laws and regulations of foreign countries. Our failure to comply with the Quality System Regulation or similar requirements could
result in enforcement actions, sanctions, recalls, detentions, seizures, or similar market actions with respect to our products, among
other potential consequences. If any of these or other events occur, there could be a negative impact on the supply of our products, our
reputation could be harmed, we could be exposed to product liability claims, and we could lose customers and suffer reduced revenue and
increased costs.
Ongoing changes in healthcare regulation could negatively affect
our revenues, business and financial condition.
There have been several proposed changes in the United States at the
federal and state level for comprehensive reforms regarding the payment for, the availability of and reimbursement for healthcare services.
These proposals have ranged from fundamentally changing federal and state healthcare reimbursement programs, including providing comprehensive
healthcare coverage to the public under government-funded programs, to minor modifications to existing programs. One example, among countless
others, is the Patient Protection and Affordable Care (the “Affordable Care Act”) which was the most significant Federal healthcare
reform law enacted in the U.S. in recent history. The Affordable Care Act has undergone substantial challenges and changes since its enactment
in 2010, and numerous other federal healthcare reform legislation, executive orders, and judicial rulings have been implemented in the
years since, most of which have been or are aimed at lowering healthcare costs in the U.S. To the extent any such reform measures or any
future initiatives reduce reimbursement or coverage eligibility or amount(s) for our Platform and/or any future products we may market
in the U.S. (if any), our business may be adversely affected.
Healthcare reform initiatives will continue to be proposed and may
reduce healthcare related funding in an effort. It is impossible to predict the ultimate content and timing of any healthcare reform legislation
and its resulting impact on us. If significant reforms are made to the healthcare system in the United States, or in other jurisdictions,
those reforms may increase our costs or otherwise negatively effect on our business, results of operations, and financial condition.
On April 5, 2017, the European Parliament passed the Medical Devices
Regulation (Regulation 2017/745), which repeals and replaces the E.U. Medical Device Directive and became effective on May 26, 2021. The
Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory
framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The new regulations,
among other things:
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strengthen the rules on placing devices on the market and reinforce surveillance once they are available; |
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establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; |
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improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; |
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set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the European Union; and |
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strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market. |
These modifications may have an effect on the way we conduct our business
in the EEA.
Any change in the laws or regulations that govern the clearance and
approval processes relating to our current, planned and future products could make it more difficult and costly to obtain clearance or
approval for new products or to produce, market and distribute existing products. Significant delays in receiving clearance or approval
or the failure to receive clearance or approval for our new products would have an adverse effect on our ability to expand our business.
Our products may cause or contribute to adverse medical events
that we are required to report to FDA and other governmental authorities, and if we fail to do so, we would be subject to sanctions that
could harm our reputation, business, results of operations, and financial condition. The discovery of serious safety issues with our products,
or a recall of our products either voluntarily or at the direction of FDA or another governmental authority, could have a negative impact
on us.
We are required to timely file various reports with FDA, including
reports required by the medical device reporting regulations which require us to report to FDA when we receive or become aware of information
that reasonably suggests that one of our products may have caused or contributed to a death or serious injury or malfunctioned in a way
that, if the malfunction were to recur to the device or a similar device that we market, could cause or contribute to a death or serious
injury. If we fail to comply with our reporting obligations, FDA or other governmental authorities could take action, including warning
letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device
clearance, seizure of our products, or delay in clearance of future products. FDA and certain foreign regulatory bodies have the authority
to require the recall of commercialized products under certain circumstances.
A government-mandated or voluntary recall by us could occur as a result
of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging
defects, or other deficiencies, or failures to comply with applicable regulations. If we do not adequately address problems associated
with our devices, we may face additional regulatory requirements or enforcement action, including required new marketing authorizations,
FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal proceedings.
We may initiate voluntary withdrawals, removals, or corrections for
our products in the future that we determine do not require notification of FDA. If FDA disagrees with our determinations, it could require
us to report those actions and we may be subject to enforcement action. A future recall announcement or other corrective action could
harm our financial results and reputation, potentially lead to product liability claims against us, require the dedication of our time
and capital, and negatively affect our sales.
In addition, FDA’s and other regulatory authorities’ policies
may change, and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of our product
candidates. For example, in November 2018, FDA announced that it plans to develop proposals to drive manufacturers utilizing the 510(k)
pathway toward the use of newer predicates. It is unclear the extent to which any proposals, if adopted, could impose additional regulatory
requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability
to maintain our current clearances.
We also cannot predict the likelihood, nature, or extent of government
regulation that may arise from future legislation or administrative or executive action, either in the U.S. or abroad. For example, the
Trump Administration previously enacted several executive actions that could impose significant burdens on, or otherwise materially delay,
FDA’s ability to engage in routine regulatory and oversight activities. It is difficult to predict how these executive actions and
executive actions that may be taken under the Biden Administration may affect FDA’s ability to exercise its regulatory authority.
If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal
course, our business may be negatively impacted.
Changes in internet regulations could adversely affect our business.
Laws, rules, and regulations governing internet communications, advertising,
and e-commerce are dynamic, and the extent of future government regulation is uncertain. Federal and state regulations govern various
aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic
communications, marketing and advertising, user privacy and data security, search engines, and internet tracking technologies. Future
taxation on the use of the internet or e-commerce transactions could also be imposed. Existing or future regulation or taxation could
increase our operating expenses and expose us to significant liabilities.
Disruptions at the FDA, other agencies or notified bodies caused
by funding shortages or global health concerns could hinder their ability to hire, retain, or deploy key leadership and other personnel,
or otherwise prevent new or modified products from being developed, cleared or approved, or commercialized in a timely manner, or at all,
which could negatively impact our business.
The ability of the FDA, other agencies and notified bodies to review
and authorize or certify for marketing new products can be affected by a variety of factors, including government budget and funding levels,
statutory, regulatory and policy changes, agency’s or notified body’s ability to hire and retain key personnel and accept
the payment of user fees, and other events that may otherwise affect the agency’s or notified body’s ability to perform routine
functions. Average review times at the FDA and other agencies and notified bodies have fluctuated in recent years as a result. In addition,
government funding of other government agencies that fund research and development activities is subject to the political process, which
is inherently fluid and unpredictable. Disruptions at the FDA, other agencies and notified bodies may also slow the time necessary for
new medical devices or modifications to be reviewed and/or cleared, approved or certified by necessary agencies or notified bodies, which
would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain
regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the global COVID-19 pandemic, the FDA postponed
most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has since resumed standard inspection
operations of domestic facilities where feasible, the FDA has continued to monitor and implement changes to its inspectional activities
to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic, and any resurgence
of the virus or emergence of new variants may lead to further inspectional delays. Regulatory authorities outside the United States may
adopt similar policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns
continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities,
it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions,
which could have a material adverse effect on our business.
In the E.U., notified bodies must be officially designated to certify
products and services in accordance with the MDR. While several notified bodies have been designated the COVID-19 pandemic has significantly
slowed down their designation process and the current designated notified bodies are facing a large amount of requests with the new regulation
as a consequence of which review times have lengthened although a new regulation amending the E.U. MDR was recently adopted in March 2023,
extending existing transitional provisions. This situation could significantly impact the ability of notified bodies to timely review
and process our regulatory submissions, which could have a material adverse effect on our business in the E.U. and the EEA (which consists
of the 27 E.U. member states plus Norway, Liechtenstein and Iceland).
The misuse or off-label use of our Platform may harm our reputation
in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by
regulatory bodies, particularly if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
Our first generation Aerodentis System is a Class II medical device
was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process for movement and alignment of teeth during
orthodontic treatment of malocclusion in April 2020. We are preparing to apply for 510(k) clearance for the Platform. If and when our
Platform receives 510(k) clearance, it will be cleared for marketing by the FDA only for movement and alignment of teeth during orthodontic
treatment of malocclusion. We, thus, will not be able to promote it for any other indications for use or make any promotional claims that
are inconsistent with, or outside the scope of, such FDA clearance (often referred to as “off-label uses”). However, the assessment
of whether a given claim is or is not consistent with a given FDA clearance or approval can often be subjective, and we cannot guarantee
that FDA will always agree with our position regarding a particular claim or that all of our employees, representatives, and agents will
abide by our marketing policies. If FDA determines that we have promoted any product without the requisite clearance or approval and/or
for an off-label or unapproved use, it could take any number of enforcement actions against us, including (among others), issuing untitled
or warning letters and/or pursuing an injunction, seizure, civil fine and/or criminal penalties. It is also possible that other federal,
state or foreign enforcement authorities might take action under other regulatory authority, such as laws prohibiting false claims for
reimbursement, any of which would have a material adverse effect on our business, financial condition, and/or business as a whole.
Additionally, we must have competent and reliable scientific evidence
or, where applicable, other adequate substantiation for each reasonable interpretation of every promotional claim we make. In particular,
comparative or superiority claims generally require adequate, well controlled, head-to-head clinical studies, comparing the product to
the applicable competing products. To the extent we make any claims, or are otherwise held responsible for third-party claims about any
product we may market in the United States, without the requisite clinical substantiation, we could be subject to enforcement action by
FDA and/or the Federal Trade Commission (the “FTC”), as well as a competitor challenge via the National Advertising Division
(the “NAD”) of the Better Business Bureau. Our plans to utilize social media as a primary promotional tool for our device(s)
increases the applicable enforcement risk, as it makes it easier for our employees, affiliates, and any third parties with which we may
have a relationship and/or arrangement under which we are deemed responsible for such party’s claims about our product(s) to disseminate
promotional claims about our product(s) that may be inconsistent with applicable regulations governing device promotions. Further, consumers
can bring private false-advertising lawsuits, including class actions, against us for any material misrepresentations and/or deceptive
or unsubstantiated claims (among other similar causes of action) in our promotional materials or other advertising. Any of the foregoing
could have a material adverse effect on our business.
Laws and Regulations Governing Healthcare, including Health Information
Privacy and Security Laws
We are subject to certain federal, state, and foreign fraud and
abuse laws, health information privacy and security laws, and transparency laws, which, if violated, could subject us to substantial penalties.
Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond
to, and thus could harm our business.
There are numerous U.S. federal and state, as well as foreign, laws
pertaining to healthcare fraud and abuse, including anti-kickback, false claims, and physician transparency laws. Efforts to ensure that
our business arrangements with third parties will comply with applicable healthcare laws and regulations involve substantial costs. Our
business practices and relationships with providers and patients are subject to scrutiny under these laws. We may also be subject to patient
information privacy and security regulation by both the federal government and the states and foreign jurisdictions in which we conduct
our business. The healthcare laws and regulations that may affect our ability to operate include:
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the federal healthcare Medicare and Medicaid Patient Protection Act of 1987 (the “Anti-Kickback Statute”), which prohibits, among other things, persons, and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arrange for or recommend a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a specific intent to violate. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Although there are a number of statutory exceptions and regulatory safe harbors to the federal healthcare Anti-Kickback Statute protecting certain common business arrangements and activities from prosecution or regulatory sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or recommend medical device products, including discounts, or engaging individuals as speakers, consultants, or advisors, may be subject to scrutiny if they do not fit squarely within an exception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti- kickback liability. Moreover, there are no safe harbors for many common practices, such as reimbursement support programs, educational or research grants, or charitable donations; |
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the federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal government funds, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. Private individuals, commonly known as “whistleblowers,” can bring civil False Claims Act qui tam actions, on behalf of the government and such individuals and may share in amounts paid by the entity to the government in recovery or settlement. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and serious mandatory penalties for each false or fraudulent claim or statement. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the federal civil False Claims Act. Many pharmaceutical and medical device manufacturers have been investigated and have reached substantial settlements under the federal civil False Claims Act in connection with alleged off-label promotion of their products and allegedly providing free products to customers with the expectation that the customers would bill federal health care programs for the product. In addition, manufacturers can be held liable under the federal civil False Claims Act even when they do not submit claims directly to government payers if they are deemed to “cause” the submission of false or fraudulent claims. There are also criminal penalties, including imprisonment and criminal fines, for making or presenting false, fictitious or fraudulent claims to the federal government; |
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Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statements or representations, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; |
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the federal Physician Payments Sunshine Act under the Affordable Care Act which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations, as well as ownership and investment interests held by physicians and their immediate family members. Since January 2022, applicable manufacturers are also required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives; |
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HIPAA, as amended by Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, which imposes privacy, security, and breach reporting obligations with respect to Protected Health Information (“PHI”), upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, and their respective business associates that perform services on their behalf that involve PHI. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make HIPAA compliance as well as civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; and |
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analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers or patients; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions that may be more stringent than those in the United States (such as the E.U., which adopted the GDPR, which became effective in May 2018); state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers. |
These laws and regulations, among other things, constrain our business,
marketing, and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with
physicians or other potential purchasers of our products. We have also entered into consulting agreements with physicians, which are subject
to these laws. Further, while we do not submit claims and our future customers will make the ultimate decision on how to submit claims,
we may provide reimbursement guidance and support regarding our products. Due to the breadth of these laws, the narrowness of statutory
exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some
of our current or future practices might be challenged under one or more of these laws.
To enforce compliance with healthcare regulatory laws, certain enforcement
bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to
a number of investigations, prosecutions, convictions and settlements in the healthcare industry. For example, U.S. federal and state
regulatory and enforcement agencies continue to actively investigate violations of healthcare laws and regulations, including pursuing
novel theories of liability under these laws. These government agencies recently have increased regulatory scrutiny and enforcement activity
with respect to manufacturer reimbursement support activities and patient support programs, including bringing criminal charges or civil
enforcement actions under the federal healthcare Anti-Kickback statute, federal civil False Claims Act, the health care fraud statute,
and HIPAA privacy provisions. Responding to investigations can be time and resource consuming and can divert management’s attention
from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Even an unsuccessful challenge or investigation into our practices could cause adverse publicity, and be costly to respond to.
If our operations are found to be in violation of any of the healthcare
laws or regulations described above or any other healthcare regulations that apply to us, we may be subject to administrative, civil and
criminal penalties, damages, fines, disgorgement, substantial monetary penalties, exclusion from participation in government healthcare
programs, such as Medicare and Medicaid, imprisonment, additional reporting obligations, and oversight if we become subject to a corporate
integrity agreement or other agreement to resolve allegations of non-compliance with these laws, reputational harm, and the curtailment
or restructuring of our operations.
Since our Platform will utilize cloud-based information systems
and the exchange of information between patents and doctors, we will be subject to numerous U.S. federal and state laws and regulations
related to the privacy and security of personally identifiable information, including health information.
Among other data-privacy and/or confidentiality laws to which we may
be subject, HIPAA establishes privacy and security standards that limit the use and disclosure of PHI and require covered entities and
business associates to implement administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability
of individually identifiable health information in electronic form, among other requirements.
Violations of HIPAA may result in civil and criminal penalties. We
must also comply with HIPAA’s breach notification rule which requires notification to affected individuals and the Secretary of
Health and Human Services (“HHS”), and in certain cases to media outlets, in the case of a breach of unsecured PHI. The regulations
also require business associates of covered entities to notify the covered entity of breaches by the business associate.
State attorneys general also have the right to prosecute HIPAA violations
committed against residents of their states, and HIPAA standards have been used as the basis for the duty of care in state civil suits,
such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance
audits of HIPAA covered entities and their business associates for compliance.
Many states also have laws that protect the privacy and security of
sensitive and personal information, including health information. These laws may be similar to or even more protective than HIPAA and
other federal privacy laws. For example, the laws of the State of California are more restrictive than HIPAA. Where state laws are more
protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. California passed the California Consumer
Privacy Act or CCPA on June 28, 2018, which went into effect January 1, 2020. On November 3, 2020, the California Privacy Rights Act of
2020 (“CPRA”), which amends the CCPA and adds new privacy protections that became effective on January 1, 2023, was enacted
through a ballot initiative. While information we maintain that is covered by HIPAA may be exempt from the CCPA, other records and information
we maintain on our patients may be subject to the CCPA. In certain cases, it may be necessary to modify our planned operations and procedures
to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but also
some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused. In addition,
state and federal privacy laws subject to frequent change.
In addition to HIPAA and state health information privacy laws, we
may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security practices and deceptive
statements about privacy and security, laws that place specific requirements on certain types of activities, such as data security and
texting, and laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach.
Foreign data protection, privacy, and other laws and regulations are
often more restrictive than those in the U.S. The E.U., for example, traditionally has imposed stricter obligations under its laws and
regulations relating to privacy, data protection and consumer protection than the U.S. In May 2018, the GDPR governing data practices
and privacy in the E.U., became effective and replaced the data protection laws of the individual member states. GDPR requires companies
to meet stringent requirements regarding the handling of personal data of individuals in the E.U. These more stringent requirements include
expanded disclosures to inform members about how we may use their personal data, increased controls on profiling members, and increased
rights for members to access, control and delete their personal data. In addition, there are mandatory data breach notification requirements.
The law also includes significant penalties for non-compliance, which may result in monetary penalties of up to 20 million Euros or 4%
of a company’s worldwide turnover, whichever is higher. GDPR and other similar regulations require companies to give specific types
of notice and informed consent is required for the placement of a cookie or similar technologies on a user’s device for online tracking
for behavioral advertising and other purposes and for direct electronic marketing, and the GDPR also imposes additional conditions in
order to satisfy such consent, such as a prohibition on pre-checked consents. It remains unclear how the U.K. data protection laws or
regulations will develop in the medium to longer term and how data transfer to the U.K. from the E.U. will be regulated. Outside of the
E.U., there are many other countries with data protection laws, and new countries are adopting data protection legislation with increasing
frequency.
Many of these laws may require consent from individuals for the use
of data for various purposes, including marketing, which may reduce our ability to market our products.
There is no harmonized approach to these laws and regulations globally.
Consequently, we increase our risk of non-compliance with applicable foreign data protection laws and regulations when we expand internationally.
We may need to change and limit the way we use personal information in operating our business and may have difficulty maintaining a single
operating model that is compliant. Compliance with such laws and regulations will result in additional costs and may necessitate changes
to our business practices and divergent operating models, limit the effectiveness of our marketing activities, adversely affect our business,
results of operations, and financial condition, and subject us to additional liabilities.
Our business could be adversely affected by professional and
legal challenges to our business model or by new state actions restricting our ability to provide our products and services in certain
states.
Since the success of our business will be dependent on the widespread
adaptation of our Platform as a valid method for smile correction, many patients across multiple geographies will be needed to use our
Platform and provide positive feedback and results. This will expose us to legal risk of patients or dental practitioners who may have
a negative experience with our Platform to file lawsuits claiming damages or other claims. Although we will seek insurance coverage for
such legal actions, there is no assurance that the amount of coverage will be sufficient to cover these claims. In addition, such legal
actions from consumers and dental professionals may result in material and adverse effects on our ability to continue to conduct business
due to negative press.
A number of dental and orthodontic professionals believe that aligners
are appropriate for only a limited percentage of their patients and may believe that our Platform is even less appropriate than traditional
aligners. National and state dental associations have issued statements discouraging use of orthodontics using a teledentistry platform.
Increased market acceptance of remote treatment may depend, in part, upon the recommendations of dental and orthodontic professionals
and associations, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics, and price compared to
competing products. Furthermore, our ability to conduct business in each state is dependent, in part, upon that particular state’s
treatment of remote healthcare and that state dental board’s regulation of the practice of dentistry.
Security breaches, data breaches, cyber attacks, other cybersecurity
incidents or the failure to comply with privacy, security and data protection laws could materially impact our operations, patient care
could suffer, we could be liable for damages, and our business, operations and reputation could be harmed.
We expect to retain confidential customer personal and financial, patient
health information and our own proprietary information and data essential to our business operations. We will rely upon the effective
operation of our IT systems, and those of our service providers, vendors, and other third parties to safeguard the information and data.
Additionally, our success may be dependent on the success of healthcare providers, many of whom are comprised of individual or small operations
with limited IT experience and inadequate or untested security protocols, in managing data privacy and data security requirements. It
is critical that the facilities, infrastructure and IT systems on which we depend to run our business and the products we develop remain
secure and be perceived by the marketplace and our potential customers to be secure. Despite the implementation of security features in
our products and security measures in our IT systems, we and our service providers, vendors, and other third parties may become subject
to physical break-ins, computer viruses or other malicious code, unauthorized or fraudulent access, programming errors or other technical
malfunctions, hacking or phishing attacks, malware, ransomware, employee error or malfeasance, cyber attacks, and other breaches of IT
systems or similar disruptive actions, including by organized groups and nation-state actors. For example, we may experience cybersecurity
incidents and unauthorized internal employee exfiltration of company information.
Further, the frequency of third-party cyber-attacks has increased over
the last several years. The military conflict in Ukraine may cause nation-state actors or hackers sympathetic to either side of the conflict
to carry out cyber-attacks to achieve their goals, which may include espionage, information gathering operations, monetary gain, ransomware,
disruption, and destruction. Significant service disruptions, breaches in our infrastructure and IT systems or other cybersecurity incidents
could expose us to litigation or regulatory investigations, impair our reputation and competitive position, be distracting to our management,
and require significant time and resources to address. Affected parties or regulatory agencies could initiate legal or regulatory action
against us, which could prevent us from resolving the issues quickly or force us to resolve them in unanticipated ways, cause us to incur
significant expense and liability, or result in judicial or governmental orders forcing us to cease operations or modify our business
practices in ways that could materially limit or restrict the products and services we provide. Concerns over our privacy practices could
adversely affect others’ perception of us and deter potential customers, patients and partners from using our products. In addition,
patient care could suffer, and we could be liable if our products or IT systems fail to deliver accurate and complete information in a
timely manner. We have internal monitoring and detection systems as well as cybersecurity and other forms of insurance coverage related
to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal
advice. However, damages and claims arising from such incidents may not be covered or may exceed the amount of any coverage and do not
cover the time and effort we may incur investigating and responding to any incidents, which may be material. The costs to eliminate, mitigate
or recover from security problems and cyber attacks and incidents could be material and depending on the nature and extent of the problem
and the networks or products impacted, may result in network or systems interruptions, decreased product sales, or data loss that may
have a material impact on our operations, net revenues and operating results.
Our business will expose us to potential liability for the quality
and safety of our products and services, how we advertise and market those products and services and how and to whom we sell them, and
we may incur substantial expenses or be found liable for substantial damages or penalties if we are subject to claims or litigation.
Our products and services involve an inherent risk of claims concerning
their design, manufacture, safety and performance, how they are marketed and advertised in a complex framework of highly regulated domestic
and international laws and regulations, how we package, bundle or sell them to potential customers, who may be private individuals or
companies or public entities such as hospitals and clinics, and how we train and support doctors, their staffs and patients who administer
or use our products. Moreover, consumer products and services are routinely subject to claims of false, deceptive or misleading advertising,
consumer fraud and unfair business practices. Additionally, we may be held liable if any product we develop or manufacture or services
we offer or perform causes injury or is otherwise found unhealthy. If our products are safe but they are promoted for off-label usage,
we may be investigated, fined or have our products or services enjoined or approvals rescinded or we may be required to defend ourselves
in litigation. Although we maintain insurance for product liability, business practices and other types of activities we make or offer,
coverage may not be available on acceptable terms, if at all, and may be insufficient for actual liabilities. Any claim for product liability,
sales, advertising and business practices, regardless of its merit or eventual outcome, could result in material legal defense costs and
damage our reputation, increase our expenses and divert management’s attention.
Increased focus on current and anticipated environmental, social
and governance (“ESG”) laws and increased scrutiny of our ESG policies and practices may materially increase our costs, expose
us to potential liability, adversely impact our reputation, employee retention, willingness of potential customers and suppliers to do
business with us and willingness of investors to invest in us.
Our operations are subject to a variety of existing local, regional
and global ESG laws and regulations, and we will likely be required to comply with new, broader, more complex and more costly laws and
regulations that focus on ESG matters. Our compliance obligations will likely span all aspects of our business and operations, including
product design and development, materials sourcing and other procurement activities, product packaging, product safety, energy and natural
resources usage, facilities design and utilization, recycling and collection, transportation, disposal activities and workers’ rights.
Environmental regulations related to greenhouse gases are expected
to have an increasingly larger impact on our or our suppliers’ energy sources. Many U.S. and foreign regulators have enacted or
are considering enacting new or additional disclosure requirements or limits on the emissions of greenhouse gases, including, but not
limited to, carbon dioxide and methane, from power generation units using fossil fuels. The effects of greenhouse gas emission limits
on power generation are subject to significant uncertainties, including the timing of any new requirements, levels of emissions reductions
and the scope and types of emissions regulated. These limits may have the effect of increasing our costs and those of our suppliers and
could result in manufacturing, transportation and supply chain disruptions and delays if clean energy alternatives are not readily available
in adequate amounts when required. Moreover, alternative energy sources, coupled with reduced investments in traditional energy sources
and infrastructure, may fail to provide the predictable, reliable, and consistent energy that we, our suppliers and other businesses need
for operations.
Meeting our obligations under existing ESG laws, rules, or regulations
is already costly to us and our suppliers, and we expect those costs to increase as new laws are enacted, possibly materially. Additionally,
we expect regulators to perform investigations, inspections and periodically audit our compliance with these laws and regulations, and
we cannot provide assurance that our efforts or operations will be compliant. If we fail to comply with any requirements, we could be
subject to significant penalties or liabilities and we may be required to implement new and materially more costly processes and procedures
to come into compliance. Further these laws are subject to unpredictable changes. Even if we successfully comply with these laws and regulations,
our suppliers may fail to comply. We may also suffer financial and reputational harm if future customers require, and we are unable to
deliver, certification that our products are conflict free. In all of these situations, our future customers may stop purchasing products
from us, and may take legal action against us, which could harm our reputation, revenues and results of operations.
Investor advocacy groups, institutional investors, investment funds,
proxy advisory services, stockholders, and consumers are also increasingly focused on corporate ESG practices. Additionally, public interest
and legislative pressure related to public companies’ ESG practices continues to grow. If our ESG practices fail to meet investor
or other industry stakeholders’ evolving expectations and standards, including environmental stewardship, support for local communities,
board of director and employee diversity, human capital management, employee health and safety practices, product quality, supply chain
management, corporate governance and transparency and employing ESG strategies in our operations, our brand, reputation and employee retention
may be negatively impacted, potential customers and suppliers may be unwilling to do business with us and investors may be unwilling to
invest in us. In addition, as we work to align our ESG practices with industry standards, we have expanded and will likely continue to
expand our disclosures in these areas. We also expect to incur additional costs and require additional resources to monitor, report, and
comply with our various ESG practices. If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our
ESG efforts or practices accurately, or satisfy the disclosure and other expectations of stakeholders, our reputation, business, financial
performance, growth, and stock price may be adversely impacted.
We are subject to consumer protection laws that regulate our
marketing practices and prohibit unfair or deceptive acts or practices. Our actual or perceived failure to comply with such obligations
could harm our business, and changes in such regulations or laws could require us to modify our products, marketing or advertising efforts.
In connection with the marketing or advertisement of our products and
services, we could be the target of claims relating to false, misleading, deceptive, or otherwise noncompliant advertising or marketing
practices, including under the auspices of the FTC and state consumer protection statutes. If we rely on third parties to provide any
marketing and advertising of our products and services, we could be liable for, or face reputational harm as a result of, their marketing
practices if, for example, they fail to comply with applicable statutory and regulatory requirements.
If we are found to have breached any consumer protection, advertising,
unfair competition, or other laws or regulations, we may be subject to enforcement actions that require us to change our marketing and
business practices in a manner which may negatively impact us. This could also result in litigation, fines, penalties, and adverse publicity
that could cause reputational harm and loss of patient trust, which could have an adverse effect on our business.
We will be subject to a number of risks related to the credit
card and debit card payments we plan to accept.
We plan to accept payments through credit and debit card transactions.
For credit and debit card payments, we will be required to pay interchange and other fees, which may increase over time. An increase in
those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could harm our business,
results of operations, and financial condition.
If we or our future processing vendors fail to maintain adequate systems
for the authorization and processing of credit and debit card transactions, it could cause one or more of the major credit card companies
to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not
charge our patients’ credit or debit cards on a timely basis or at all, our business, revenue, results of operations, and financial
condition could be harmed.
The payment methods that we will offer can also subject us to potential
fraud and theft by criminals, who are becoming increasingly more sophisticated in exploiting weaknesses that may exist in the payment
systems. If we fail to comply with applicable rules or requirements for the payment methods we will accept, or if payment-related data
is compromised due to a breach, we may be liable for significant costs incurred by payment card issuing banks and other third parties
or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In
addition, our patients could lose confidence in certain payment types, which may result in a shift to other payment types or potential
changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions,
we may face civil liability, diminished public perception of our security measures, and significantly higher card-related costs, each
of which could harm our business, results of operations, and financial condition.
We will also be subject to payment card association operating rules,
certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult
for us to comply. We will be required to comply with payment card industry security standards. Failing to comply with those standards
may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment
processors. Any failure to comply fully also may subject us to fines, penalties, damages, and civil liability, and may result in the loss
of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper
use of our payment systems or the theft, loss, or misuse of data pertaining to credit and debit cards, card holders, and transactions.
If we are unable to maintain our chargeback rate or refund rates at
acceptable levels, our future processing vendor may increase our transaction fees or terminate its relationship with us. Any increases
in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our products
and services to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly
impair our ability to operate our business.
We face risks related to our future international sales, including
the need to obtain necessary foreign regulatory clearance or approvals.
Sales of our products outside the U.S. will subject us to foreign regulatory
requirements that vary widely from country to country. We received our European CE mark and ISO/MDSAP certification in 2019. In light
of our ISO/MDSAP certification, we believe that we are in substantial compliance with applicable E.U. regulations.
We will also need to obtain regulatory approval in other foreign jurisdictions
in which we plan to market and sell our products. The time required to obtain clearances or approvals required by other countries may
be longer than that required for FDA clearance or approval, and requirements for such approvals may differ from FDA requirements. We may
be unable to obtain regulatory approvals and may also incur significant costs in attempting to obtain foreign regulatory approvals or
maintain those we already have. If we experience delays in receipt of approvals to market our products in new jurisdictions, or if we
fail to receive these approvals, we may be unable to market our products in international markets in a timely manner, if at all, which
could materially impact our international expansion and adversely affect our business as a whole. In addition, we anticipate that regulations
in certain foreign countries may challenge our teledentistry model. Some international regulations may also limit the availability of
our Platform to patients in certain jurisdictions without our first obtaining a license or engaging a third party to provide such financing,
or limit the financing options we can offer our patients. If any of these risks were to materialize, they could limit our expected international
growth and profitability.
Intellectual Property Risks
Our success depends in part on our proprietary technology, and
if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmed.
Our success will depend in part on our ability to maintain existing
intellectual property and to obtain and maintain further intellectual property protection for our products and services, both in the U.S.
and in other countries. We intend to protect our intellectual property rights through a combination of patent, trademark, copyright, and
trade secret laws, as well as third-party confidentiality and assignment agreements. Our inability to do so could harm our competitive
position.
We rely on our portfolio of issued and pending patent applications
in the U.S. and other countries to protect a large part of our intellectual property and our competitive position; however, our currently
pending or future patent filings may not result in the issuance of patents. While we generally apply for patents in those countries where
we intend to make, have made, use, or sell patented products, we may not accurately predict all of the countries where patent protection
will ultimately be desirable. If we fail to timely file for a patent, we may be precluded from doing so at a later date.
Patent rights are territorial, and patent protection extends only to
those countries where we have issued patents. Filing, prosecuting and defending patents on our products and product candidates in all
countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries
outside the United States could be less extensive than those in the United States. Many countries do not protect intellectual property
to the same extent as the U.S. or Europe, and their litigation processes differ. Competitors may successfully challenge or avoid our patents,
or manufacture products in countries where we have not applied for patent protection. Changes in the patent laws in the U.S. or other
countries may diminish the value of our patent rights. As a result of these and other factors, the scope, validity, enforceability, and
commercial value of our patent rights are uncertain and unpredictable.
Furthermore, the issuance of a patent, while presumed valid and enforceable,
is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive
advantages against competitors with similar products. Any patents issued to us may be challenged, invalidated, held unenforceable, circumvented,
or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition,
any protection afforded by foreign patents may be more limited than that provided under U.S. patent and intellectual property laws. There
can be no assurance that any of our patents, any patents licensed to us, or any patents which we may be issued in the future, will provide
us with a competitive advantage or afford us protection against infringement by others, or that the patents will not be successfully challenged
or circumvented by third parties, including our competitors. Further, there can be no assurance that we will have adequate resources to
enforce our patents. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection
for more effective technologies, designs or methods.
Our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover,
it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product,
particularly in litigation in countries other than the U.S. that do not provide an extensive discovery procedure. Any litigation to enforce
or defend our patent rights, if any, even if we were to prevail, could be costly and time-consuming and would divert the attention of
our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or
other remedies awarded if we were to prevail may not be commercially meaningful.
We also may seek to rely on protection of copyright, trade secrets,
know how, and confidential and proprietary information. We generally enter into confidentiality and non-compete agreements with our employees,
consultants, and collaborative partners upon their commencement of a relationship with us. However, these agreements may not provide meaningful
protection against the unauthorized use or disclosure of our trade secrets or other confidential information, and adequate remedies may
not exist if unauthorized use or disclosure were to occur. The exposure of our trade secrets and other proprietary information would impair
our competitive advantages and could have a material adverse effect on our operating results, financial condition, and future growth prospects.
In particular, a failure to protect our proprietary rights might allow competitors to copy our technology, which could adversely affect
our pricing and market share. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets
by consultants, vendors, former employees and current employees. Further, other parties may independently develop substantially equivalent
know-how and technology.
While we currently do not own any registered trademarks, we intend
to rely on both registered and common law rights for our trademarks in the future. There can be no assurance that our future trademark
applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks.
In the event that our trademarks are successfully challenged, we could be forced to rebrand our products and services, which could result
in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, there can be
no assurance that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
Litigation, interferences, oppositions, re-exams, inter partes reviews,
post grant reviews, or other proceedings are, have been, and may in the future be necessary in some instances to determine the validity
and scope of certain of our proprietary rights, and in other instances to determine the validity, scope, or non-infringement of certain
proprietary rights claimed by third parties to be pertinent to the manufacture, use, or sale of our products or provision of our services.
These types of proceedings are unpredictable and may be protracted, expensive, and distracting to management. The outcome of such proceedings
could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market
our products and provide our services, require us to seek a license for the infringed product or technology, or result in the assessment
of significant monetary damages. An unfavorable ruling could include monetary damages or, in cases where injunctive relief is sought,
an injunction prohibiting us from selling our products or providing our services. Any of these results from litigation could adversely
affect our business, financial condition, and results of operations.
If we infringe or violate the patents or proprietary rights of
other parties or are subject to an intellectual property infringement or misappropriation claim, our ability to grow our business may
be severely limited.
Our commercial success also depends upon our ability, and the ability
of any third party with which we may partner, to develop, manufacture, market and sell our products, if approved, and use our patent-protected
technologies without infringing the patents of third parties. Extensive litigation over patents and other intellectual property rights
is common in the dental and orthodontic industry.
We may not have identified all patents, published applications or published
literature that affect our business either by blocking our ability to commercialize our products, by preventing the patentability of one
or more aspects of our products, or by covering the same or similar technologies that may affect our ability to market our products. For
example, we may not have conducted a patent clearance search sufficient to identify potentially obstructing third party patent rights.
Moreover, patent applications in the United States 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, or the USPTO, for the entire time prior to issuance
as a U.S. patent. Patent applications filed in countries outside of the United States 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.
We cannot be certain that we were the first to invent, or the first to file, patent applications covering our products. We also may not
know if our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent
the technology that is the subject of our patent applications. Competitors may have filed patent applications or received patents and
may obtain additional patents and proprietary rights that block or compete with our patents.
We may therefore in the future be the subject of patent or other litigation.
From time to time, we may in the future receive letters from third parties drawing our attention to their patent rights. While we do not
believe that we infringe upon any valid and enforceable rights that have been brought to our attention, and we take necessary steps to
ensure that we do not infringe on the rights of others, there may be other more pertinent rights of which we are presently unaware. The
defense and prosecution of intellectual property suits, interference proceedings, and related legal and administrative proceedings could
result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination
of any litigation or interference proceeding to which we may become a party could subject us to significant liabilities. An adverse determination
of this nature could also put our patents at risk of being invalidated or interpreted narrowly or require us to seek licenses from third
parties. Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially adversely
affected. Intellectual property litigation or claims could force us to cease developing, selling or otherwise commercializing one or more
of our products; to pay substantial damages for past use of the asserted intellectual property; and redesign, or rename in the case of
trademark claims, our product(s) to avoid such third party rights, which may not be possible or which could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition
and prospects.
Our failure to secure trademark registrations could adversely
affect our ability to market our products and operate our business.
Any future trademark applications in the United States and any other
jurisdictions where we may file may not be allowed registration, and we may not be able to maintain or enforce our registered trademarks.
During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections,
we may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third parties are given
an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings
may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings.
Failure to secure such trademark registrations in the United States and in foreign jurisdictions could adversely affect our ability to
market our products and our business.
We may be subject to claims that our employees have wrongfully
used or disclosed alleged trade secrets of their former employers.
As is common in the medical device industry, we may employ individuals
who were previously employed at other companies similar to ours, including our competitors or potential competitors. We may become subject
to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against
these claims, litigation could result in substantial costs and be a distraction to management.
Obtaining and maintaining patent protection depends on compliance
with various procedures and other requirements, and our patent protection could be reduced or eliminated in case of non-compliance with
these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other
governmental fees on patents and/or applications will be due to the relevant patent agencies in several stages over the lifetime of the
patents and /or applications. The relevant patent agencies require compliance with a number of procedural, documentary, fee payment and
other provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by
other means in accordance with the applicable rules. However, there are situations in which the failure to comply with the relevant requirements
can result in the abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in
the relevant jurisdiction. In such an event, our competitors might be able to use our technologies and know-how which could have a material
adverse effect on our business, prospects, financial condition and results of operation.
Patent terms may be inadequate to protect our competitive position
on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance
fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various
extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our products
are obtained, once the patent life has expired for a product, we may be open to competition from competitive products. Given the amount
of time required for the development, testing and regulatory review of new products, patents protecting such products might expire before
or shortly after such products are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude
others from commercializing products similar or identical to ours.
Risks Related Our Securities
The relative lack of U.S. public company experience of our management
team may put us at a competitive disadvantage.
Our management team lacks U.S. public company experience and is generally
unfamiliar with the requirements of the U.S. securities laws and U.S. Generally Accepted Accounting Principles (“GAAP”), which
could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”). The individuals who now constitute our senior management team have never had responsibility for managing a publicly traded
company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior
management may not be able to implement programs and policies in an effective and timely manner that adequately responds to such increased
legal, regulatory compliance and reporting requirements. Our failure to comply with all applicable requirements could lead to the imposition
of fines and penalties and distract our management from attending to the growth of our business.
Our Common Stock is not listed on any stock exchange and there
is a limited market for shares of our Common Stock. Even if a market for our Common Stock develops, our Common Stock could be subject
to wide fluctuations.
Our Common Stock is not listed on any stock exchange. Although our
Common Stock is quoted on the OTC Pink Market operated by the OTC Markets Group Inc., there is a limited public market for shares of our
Common Stock, and limited trades of our Common Stock have taken place on the OTC Pink Market. Even if the shares of our Common Stock may
in the future trade greater volume on the OTC Pink Market, the liquidity of our Common Stock and the price at which our Common Stock is
quoted are expected to be more limited than if such securities were quoted or listed on a national exchange. No assurances can be given
that an active public trading market for our Common Stock will develop or be sustained. Trading volume may be limited by the fact that
many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in
over the counter stocks and certain major brokerage firms restrict their brokers from recommending over the counter stocks because they
are considered speculative, volatile and thinly traded. Lack of liquidity will limit the price at which stockholders may be able to sell
our Common Stock.
Even if our Common Stock will in the future trade more actively on
the OTC Pink Market, the price at which such Common Stock is quoted could be subject to wide fluctuations, in response to quarterly variations
in our operating results, announcements by us or others, developments affecting us, and other events or factors. In addition, the stock
market has experienced extreme price and volume fluctuations in recent years. These fluctuations have had a substantial effect on the
market prices for many companies, often unrelated to the operating performance of such companies, and may adversely affect the market
prices of the securities. Such risks could have an adverse effect on our Common Stock’s future liquidity.
We cannot assure you that our Common Stock will become eligible
for listing or quotation on any exchange and the failure to do so may adversely affect your ability to dispose of our Common Stock in
a timely fashion.
In order for our Common Stock to become eligible for listing or quotation
on any exchange, reverse merger companies must have had their securities traded on an over-the-counter market for at least one year, maintained
a certain minimum closing price for not less than 30 of the most recent 60 days prior to the filing of an initial listing application
and prior to listing, and timely filed with the SEC all required reports since consummation of the reverse merger, including one annual
report containing audited consolidated financial statements for a full fiscal year commencing after the date of filing of the Current
Report on Form 8-K which discloses the reverse merger. We may not be able to meet all of the filing requirements above and may not be
able to satisfy the initial standards for listing or quotation on any exchange in the foreseeable future or at all. Even if we are able
to become listed or quoted on an exchange, we may not be able to maintain a listing of the Common Stock on such stock exchange.
As a result of the Share Exchange, we became a company that is
subject to the reporting requirements of federal securities laws, which can be expensive and may divert resources from other projects,
thus impairing our ability to grow.
As a result of the Share Exchange, we became a public reporting company
and, accordingly, subject to the information and reporting requirements of the Exchange Act, and other federal securities laws, including
compliance with the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information
with the SEC (including reporting of the Share Exchange) and furnishing audited reports to stockholders will cause our expenses to be
higher than they would have been if we remained privately held and did not consummate the Share Exchange.
Public company compliance may make it more difficult for us to
attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently implemented by the
SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations
to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that
these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in
the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same
or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors
or as executive officers.
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”. Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms
to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will, in the future, want to conduct any
secondary offerings on our behalf.
Our stock price may be volatile.
The price at which our Common Stock is quoted for sale is likely to
be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including
the following:
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changes in our industry; |
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competitive pricing pressures; |
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our ability to obtain working capital financing; |
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additions or departures of key personnel; |
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the price at which our Common Stock is quoted for sale; |
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sales of our Common Stock; |
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our ability to execute our business plan; |
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operating results that fall below expectations; |
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loss of any strategic relationship; |
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regulatory developments; |
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economic and other external factors; and |
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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 materially and adversely affect the price at which our Common Stock is quoted for sale.
Our securities are restricted securities with limited transferability.
Our securities should be considered a long-term, illiquid investment.
Our Common Stock has not been registered under the Securities Act, and cannot be sold without registration under the Securities Act or
any exemption from registration. In addition, our Common Stock is not registered under any state securities laws that would permit its
transfer. Because of these restrictions, a stockholder will likely find it difficult to liquidate an investment in our Common Stock.
We are subject to penny stock rules which will make the shares
of our Common Stock more difficult to sell.
We are subject to the SEC’s “penny stock” rules since
our shares of Common Stock trade below $5.00 per share. 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 SEC 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.
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. As long as 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.
FINRA sales practice requirements may also limit a stockholder’s
ability to buy and sell our stock.
In addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to
a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending
speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules,
FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.
The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit
your ability to buy and sell our stock and have an adverse effect on the market for our shares.
We do not anticipate paying any cash dividends.
We presently do not anticipate that we will pay any dividends on any
of our capital stock in the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings,
if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our board
of directors. We presently intend to retain all earnings, if any, to implement our business plan; accordingly, we do not anticipate the
declaration of any dividends in the foreseeable future.
Our shares of Common Stock are very thinly traded, and the price
may not reflect our value and there can be no assurance that there will be an active market for our shares of Common Stock in the future.
Our shares of Common Stock are thinly traded. Due to the illiquidity,
the price at which our Common Stock is quoted for sale 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. Investors may not be able to liquidate their
investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may
be highly volatile. Because there may be a low price for our shares of Common Stock, many brokerage firms may not be willing to effect
transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our Common Stock,
the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further,
many lending institutions will not permit the use of such shares of Common Stock as collateral for a loans.
We may apply the proceeds of the Private Placement to uses that
ultimately do not improve our operating results or increase the price of our Common Stock.
We intend to use the net proceeds from the Private Placement. However,
our management has broad discretion in how we actually use these proceeds. These proceeds could be applied in ways that do not ultimately
improve our operating results or otherwise increase the value of our Common Stock.
We may need additional financing which may not be available on
acceptable terms, which may in turn dilute your investment in us.
Our future capital requirements will depend on many factors including
but not limited to: market acceptance of our services; competitive pressure on the price of our products; the extent to which we invest
in new locations, develop new relationships with producers of polymers and chemicals as well as consumers of polymers and chemicals; and
the response of competitors to our products. We believe that the existing cash balances, including the net proceeds from the Private Placement,
and funds generated from operations will provide us with sufficient funds to finance our operations for the foreseeable future. To the
extent that our current funds, together with existing resources, are insufficient to fund our activities over the long-term, we may need
to raise additional funds through equity or debt financing or from other sources.
Subject to the lock-up provisions of the Securities Purchase Agreement
and other documents related to the Share Exchange and the Private Placement, as part of any future financing, we are generally not restricted
from issuing additional securities, including shares of Common Stock, securities that are convertible into or exchangeable for, or that
represent the right to receive, Common Stock or substantially similar securities. In particular, we may conduct one or more additional
offerings following the closing of the Private Placement and may seek waiver of the lock-up provisions of the Securities Purchase Agreement
and other documents related to the Share Exchange and the Private Placement to conduct such offerings. The sale of additional equity or
convertible debt may result in additional dilution to our stockholders and such securities may have rights, preferences or privileges
senior to those of the Common Stock. To the extent that we rely upon debt financing, we will incur the obligation to repay the funds borrowed
with interest and may become subject to covenants and restrictions that restrict operating flexibility. No assurance can be given that
additional equity or debt financing will be available or that, if available, it can be obtained on terms favorable to us or our stockholders.
Failure to obtain necessary financing could have a material adverse effect on our business, financial condition and results of operations.
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.
Anti-takeover provisions under Delaware corporate law may make
it difficult for our stockholders to replace or remove our board of directors and could deter or delay third parties from acquiring our
Company, which may be beneficial to our stockholders.
We are subject to the anti-takeover provisions of the Delaware General
Corporation Law (“DGCL”), including Section 203 of the DGCL. Under these provisions, if anyone becomes an “interested
stockholder,” we may not enter into a “business combination” with that person for three (3) years without special approval,
which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section
203 of the DGCL, “interested stockholder” means, generally, someone owning fifteen percent (15%) or more of our outstanding
voting stock or an affiliate of ours that owned fifteen percent (15%) or more of our outstanding voting stock during the past three (3)
years, subject to certain exceptions as described in Section 203 of the DGCL.
Future sales of significant amounts of our Common Stock may depress
our stock price.
Future issuances of our Common Stock or securities convertible into,
or exercisable or exchangeable for, our Common Stock, or the expiration of lock-up provisions that restrict the issuance of new Common
Stock or the trading of outstanding Common Stock, could cause the price at which our Common Stock is quoted for sale to decline. We cannot
predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up provisions, on the price of our
Common Stock. In all events, future issuances of our Common Stock would result in the dilution of your holdings. In addition, the perception
that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups
expire, could adversely affect the price at which our Common Stock is quoted for sale.
The Securities Purchase Agreement entered into in connection with the
Private Placement contains provisions that prevent us, subject to certain exceptions, from offering additional shares of capital stock
for up to eighteen (18) months after the closing of the Private Placement, subject to the approval of the Lead Investor. Further, in connection
with the Share Exchange, Private Dror shareholders are subject to the lock-up provisions contained in the Share Exchange Agreement. These
lock-up provisions may be waived pursuant to the terms of Securities Purchase Agreement and the Share Exchange Agreement, as applicable.
If these restrictions on future offerings and lock-up restrictions are waived, additional shares of our Common Stock may become available
for sale or resale, subject to applicable law, including without notice, which could reduce the price at which our Common Stock is quoted
for sale.
Further, a significant percentage of our outstanding Common Stock is
currently owned by a small number of stockholders. These stockholders may sell in the future large amounts of our stock over relatively
short periods of time. Sales of substantial amounts of our stock by existing stockholders may adversely affect the price at which our
stock is quoted for sale by creating the perception of difficulties or problems with our business that may depress our stock price.
Financial, Tax and Accounting Risks
If our goodwill or long-lived assets become impaired, we may
be required to record a material charge to earnings.
Under GAAP, we review our goodwill and long-lived asset group for impairment
when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill must be tested for
impairment at least annually. The qualitative and quantitative analysis used to test goodwill are dependent upon various assumptions and
reflect management’s best estimates. Changes in certain assumptions, including revenue growth rates, discount rates, earnings multiples
and future cash flows may cause a change in circumstances indicating that the carrying value of goodwill or the asset group may be impaired
and assessing these assumptions and predicting and forecasting future events can be difficult. Goodwill and purchased assets require periodic
fair value assessments to determine if they have become impaired. Consequently, we may be required to record a material charge to earnings
in the financial statements during the period in which any impairment of goodwill or long-lived asset group is determined.
Changes in, or interpretations of, accounting rules and regulations,
could result in unfavorable accounting charges.
We prepare our consolidated financial statements in conformity with
GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting
policies. A change in these policies or in the way these policies are interpreted by us or regulators could have a material effect on
our reported results and may even retroactively affect previously reported financial statements.
We are required to annually assess our internal control over
financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports
and adversely affect our stock price.
We are required to furnish in each of our annual reports on Form 10-K
a report by our management regarding the effectiveness of our internal control over financial reporting that includes, among other things,
an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement
as to whether our internal control over financial reporting is effective. Our internal controls may become inadequate because of changes
in personnel, updates and upgrades to existing software, failure to maintain accurate books and records, changes in accounting standards
or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting
with the existing policies or procedures may become ineffective. Establishing, testing and maintaining an effective system of internal
control over financial reporting requires significant resources and time commitments on the part of our management and our finance staff,
may require additional staffing and infrastructure investments and increases our costs of doing business. If we are unable to assert that
our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on
the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial
reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and
completeness of our financial reports in the future, which could have an adverse effect on our stock price.
Our effective tax rate may vary significantly from period to
period.
We operate globally and are subject to taxes in the U.S. and foreign
countries. Various internal and external factors may affect our future effective tax rate. These factors include changes in the global
economic environment, changes in our legal entity structure or activities performed within our entities, changes in our business operations,
changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations of existing tax laws
or regulations, changes in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that
have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation,
settlement of income tax audits and non-deductible goodwill impairments.
Our effective tax rate is also dependent in part on forecasts of full
year results which can vary materially. Furthermore, we may continue to experience significant variation in our effective tax rate related
to excess tax benefits on stock-based compensation, particularly in the first quarter of each year when the majority of our equity awards
vest.
New tax laws and practices, changes to existing tax laws and
practices, or disputes regarding the positions we take regarding tax laws, could negatively affect our provision for income taxes as well
as our ongoing operations.
We are subject to tax laws both within and outside of the U.S. requiring
significant judgment in determining our worldwide provision for income taxes. Changes in tax laws or changes to how those laws are applied
to our business in practice, could affect the amount of tax to which we are subject and the manner in which we operate. Additionally,
the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”)
project has resulted in considerable new reporting obligations worldwide as OECD member countries have implemented its guidance. The OECD
continues to publish guidance pursuant to the BEPS and other projects which, if adopted by member countries, may affect our tax positions
in many of the countries in which we do business.
Moreover, the application of indirect taxes (such as sales and use
tax (“SUT”), value-added tax (“VAT”), goods and services tax (“GST”), and other indirect taxes) to
our operations is complex and evolving. U.S. states, local and foreign taxing jurisdictions have differing rules and regulations governing
differing types of taxes, and these rules and regulations are subject to varying interpretations and exemptions that may change over time.
We collect and remit SUT, VAT, GST and other taxes in many jurisdictions and we are routinely subject to audits. We are also routinely
subject to audits regarding our tax reporting and remissions by local and national government, and we may also be subject to audits in
U.S. states, local and foreign jurisdictions for which we have not accrued tax liabilities. The positions we take regarding taxes as well
as the amounts we collect or remit may be challenged and we may be liable for failing to collect or remit all or any portion of taxes
deemed owed or the taxes could exceed our estimates. One or more U.S. states or countries may seek to impose incremental or new sales,
use, or other tax collection obligations on us or may determine that such taxes should have but have not been paid by us. If we dispute
rulings or positions taken by tax authorities, we may incur expenses and expend significant time and effort to defend our positions, which
may be costly.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”)
was enacted. It contains numerous new U.S. federal tax law provisions, including a corporate alternative minimum tax on adjusted financial
statement income and an excise tax on corporate stock repurchases, effective after December 31, 2022. We continue to evaluate the IRA’s
impact to our business, which may be material.
The application of existing, new, or future tax laws, and results of
audits, whether in the U.S. or internationally, could harm our business. Furthermore, there have been and will continue to be substantial
ongoing costs associated with complying with the various tax requirements and defending our positions in the numerous markets in which
we conduct or will conduct business.
Use Of Proceeds
All of the shares of Common Stock offered by the Selling Securityholders
pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the
proceeds from these sales. We will pay certain expenses associated with the registration of the securities as described in the “Plan
of Distribution” section in this prospectus.
We will receive up to an aggregate of approximately $31,839,535.83
from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from
the exercise of the Warrants for general corporate purposes. We will have broad discretion over the use of proceeds from the exercise
of the Warrants. There is no assurance that the holders of the Warrants will elect to exercise any or all of such Warrants. We believe
the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is
dependent upon the price at which our Common Stock is quoted for sale.
Determination Of
Offering Price
The Selling Securityholders will determine at what price they may
sell the securities offered by this prospectus, and such sales may be made at a fixed price of $0.011 per share until our Common Stock
is listed or quoted on an existing public trading market, such as OTC Market Group, Inc.’s “OTCQB” or “OTCQX”
market, and thereafter at prevailing market prices or privately negotiated prices. For more information, see “Plan of Distribution.”
Market for Our
Common Stock And Dividends
Market Information
Our Common Stock is currently approved for quotation on the OTC Pink
Market under the symbol DROR. As soon as practicable, and assuming we satisfy all necessary initial listing requirements, we intend to
apply to have our Common Stock listed for trading on The Nasdaq Stock Market, although we cannot be certain that any such application
will be approved.
The following table sets forth the high and low sale prices for our
Common Stock for the periods indicated as reported by OTC. The high and low prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Quarter Ended | |
High | | |
Low | |
December 31, 2023 | |
$ | 0.03 | | |
$ | 0.0093 | |
September 30, 2023 | |
$ | 0.0474 | | |
$ | 0.01 | |
June 30, 2023 | |
$ | 0.038 | | |
$ | 0.0102 | |
March 31, 2023 | |
$ | 0.04475 | | |
$ | 0.0085 | |
December 31, 2022 | |
$ | 0.0275 | | |
$ | 0.009 | |
September 30, 2022 | |
$ | 0.054 | | |
$ | 0.0211 | |
June 30, 2022 | |
$ | 0.074 | | |
$ | 0.036 | |
March 31, 2022 | |
$ | 0.1326 | | |
$ | 0.035 | |
December 31, 2021 | |
$ | 0.1349 | | |
$ | 0.0811 | |
September 30, 2021 | |
$ | 0.15 | | |
$ | 0.0801 | |
June 30, 2021 | |
$ | 0.34 | | |
$ | 0.107 | |
March 30, 2021 | |
$ | 0.58 | | |
$ | 0.0475 | |
Stockholders of Record
As of April 15, 2024, there were 209 stockholders of record
holding 495,454,546 shares of common stock.
Dividend Policy
We have not paid any cash dividends on shares of our Common Stock to
date. It is the present intention of our board of directors to retain future earnings for the development, operation, and expansion of
our business, and our board of directors does not anticipate declaring or paying any cash dividends for the foreseeable future. The payment
of dividends is within the discretion of our board of directors and will be contingent upon our future revenues and earnings, as well
as our capital requirements and general financial condition, and we can give no assurances that we will ever have excess funds available
to pay dividends.
Management’s
Discussion And Analysis Of
Financial Condition And Results Of Operations
The following discussion and analysis of the results of operations
and financial condition of Dror Ortho-Design, Inc. (the “Company”) as of the years ended December 31, 2023 and 2022 should
be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this prospectus.
Our historical results do not necessarily reflect what our historical financial position and results of operations would have been had
we been a stand-alone public company during the periods presented. In addition, our historical results are not necessarily indicative
of the results to be expected for any future period.
In addition to historical consolidated financial information, the
following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include
those discussed below and elsewhere in this prospectus, particularly in the sections titled “Risk Factors” and “Cautionary
Note Regarding Forward-Looking Statements” in this prospectus.
Unless the context otherwise requires, references in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” to “Dror,” “we”, “us”,
“our”, and the “Company” are intended to refer to (i) following the Share Exchange (as defined below), the
business and operations of Dror Ortho-Design, Inc. and its consolidated subsidiaries, and (ii) prior to the Share Exchange, Dror Ortho-Design
Ltd. (the predecessor entity and currently wholly owned subsidiary of Dror Ortho-Design, Inc.).
Overview
We were incorporated as Novint Technologies, Inc. in the State of New
Mexico in April 1999. On February 26, 2002, we changed our state of incorporation to Delaware by merging with Novint Technologies, Inc.,
a Delaware corporation. On July 5, 2023, we entered into a share exchange agreement with the shareholders of Dror Ortho-Design Ltd. (“Private
Dror”), pursuant to which the shareholders of Private Dror agreed to exchange all of their outstanding ordinary shares Private Dror
for shares of our common stock and convertible preferred stock (the “Share Exchange”). On August 14, 2023 the Share Exchange
was consummated and we changed our name to “Dror Ortho-Design, Inc.”
Following the Share Exchange, we succeeded to the business of Private
Dror as our sole line of business. The Share Exchange is being accounted for as a recapitalization, with Private Dror deemed to be the
accounting acquirer and the Company the acquired company. Accordingly, Private Dror’s historical financial statements for periods
prior to the consummation of the Share Exchange have become those of the Company. Operations reported for periods prior to the Share Exchange
are those of Private Dror.
Our Company
We have reimagined the way people can correct their smile.
We plan to disrupt the aligner market by offering millions of people
a revolutionary alternative. We believe that people do not need to change their lifestyle to correct their smile as they are required
to do with existing aligner solutions.
Existing aligner solutions generally share the same treatment principles,
which are different from our solution. In most cases, patients seeking to improve their smile need to undergo a 12-to-15 month process
of wearing plastic aligners, which need to be worn the entire day and should only be removed while eating or drinking. Patients are prescribed
a series of 20 to 30 aligners that are intended to forcefully move teeth progressively closer to their intended final position. This process
causes pain every time a new aligner is used and restricts blood circulation, which counterproductively slows down tooth movement. All-day
aligner solutions are also intrusive, as patients need to conduct their lives at work or school wearing the plastic aligners. In addition,
most existing aligner therapies require multiple visits to an orthodontist to monitor the progress of treatment plans through intraoral
scanning, physical examination and patient testimony.
We believe that recent rapid advancements in technology have made traditional
aligner solutions no longer the most effective treatment option for smile correction. Our Company has developed a proprietary AI-based
platform to correct people’s smiles in a discreet and less painful manner (the “Platform”). The Platform uses only one
smart aligner to gently move teeth into their optimum position with pulsating air while the patient is sleeping or at home.
We are involved in the research and development of an orthodontic
alignment platform. We have several patents for the technology used in the Platform and are currently in the process of preparing the
Platform for clearance by the FDA.
Our predecessor first generation Aerodentis System is a Class II medical
device, which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process for movement and alignment
of teeth during orthodontic treatment of malocclusion in April 2020. The Company is preparing to apply for 510(k) clearance for the Platform
as a Class II medical device, which constitutes an updated version of the currently cleared device. Such updated Platform contains new
and/or different components than the original device, which is why a new 510(k) clearance is required prior to marketing the Platform
in the U.S. We have not yet filed a 510(k) submission for the Platform, and it has, thus, not been found by the FDA to be substantially
equivalent to the first generation Aerodentis System.
The Company currently does not generate revenues to fund operations
and anticipates that it will continue to incur significant losses as it continues to develop the Platform. Please refer to “Risk
Factors - We are in the development stage, are not generating revenues and have no operating history in the manufacturing and distribution
of orthodontic medical devices or platforms for consumer use.” for additional information. The Company intends to spend approximately
$2.5 million over the next 18 months on software and hardware development as well as the accompanying regulatory approvals and IP protection
associated with such software and hardware projects.
Share Exchange
As discussed above, on July 5, 2023, we entered into a Share Exchange
Agreement (as amended by that certain Amendment to Share Exchange Agreement, dated August 14, 2023, the “Share Exchange Agreement”)
with Private Dror and all shareholders of Private Dror. Pursuant to the Share Exchange Agreement, on August 14, 2023, the shareholders
of Private Dror transferred all of their ordinary shares in Private Dror to us in exchange for 7,576,999 newly issued shares of our Series
A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), and 106,782,187 shares of our
common stock, par value $0.0001 per share (the “Common Stock”). As a result of these share exchanges, Private Dror became
our wholly owned subsidiary.
Pursuant to the terms and conditions of the Share Exchange Agreement:
| ● | The shareholders of Private Dror transferred 235,088 ordinary
shares of Private Dror to us in exchange for 7,576,999 shares of Series A Convertible Preferred Stock and 106,782,187 shares of Common
Stock (the “Share Exchange”). |
| ● | In connection with the Share Exchange, the Company assumed
all of Private Dror’s obligations under Private Dror’s outstanding share options. |
| ● | All outstanding Series A-4 Warrants to purchase Private Dror’s
ordinary shares were assumed by the Company and converted into Share Exchange Warrants (as defined below). |
| ● | Simultaneously with the Share Exchange, the board of directors
and certain officers of the Company resigned, and a new board of directors, comprised of Private Dror’s legacy board of directors,
and new officers were appointed for the Company. The Company’s new board of directors consists of Eliyahu (Lee) Haddad, Chaim Hurvitz,
Moshe Shvets, Chaim Ravad and Yehuda Englander. In addition, immediately following the Share Exchange, Mr. Haddad was appointed as the
Company’s chief executive officer, Mr. Shvets as Chief Technology Officer, and Mr. Hurvitz as chairman of the board of directors. |
Private Placement
In connection with the closing of the Share Exchange, pursuant to the
Purchase Agreement, the Company sold (1) the Private Placement Shares and shares of Series A Preferred Stock, or a combination thereof,
at an effective purchase price of $0.011 per Private Placement Share or share of Common Stock underlying such shares of Series A Preferred
Stock and (2) Private Placement Warrants to the Private Placement Investors in connection with the Private Placement. The Company
received aggregate gross proceeds of $5,025,000 in connection with the first closing of the Private Placement on August 14, 2023
and an additional $200,000 in connection with a second closing of on September 13, 2023.
The Company and the Private Placement Investors also entered into the
Registration Rights Agreement, pursuant to which the Company agreed to register, among other registrable securities (as further described
in the Registration Rights Agreement), on Form S-1 (or, if the Company is then eligible, on Form S-3) with the SEC: (i) the Private Placement
Shares, (ii) Conversion Shares issuable in connection with the Purchase Agreement, (iii) the shares of Common Stock underlying the Private
Placement Warrants issued to the Private Placement Investors, and (iv) the shares of Common Stock and Conversion Shares underlying the
shares of Series A Preferred Stock issued to the investors in the December 2021 Transaction in connection with the Share Exchange.
Results of Operations
We have experienced net losses and negative cash flows from operations
since our inception. As of December 31, 2023, we had cash of approximately $3.3 million, positive working capital of $3.2 million,
an accumulated deficit of approximately $13.7 million and used cash in operations during the twelve months ended December 31, 2023
of approximately $2.4 million. The Company does not currently have sufficient available liquidity to fund its operations for at least
the next 12 months. Such factors raise substantial doubt about our ability to sustain operations for at least one year from the issuance
of the audited financial statements included in the registration statement of which this prospectus forms a part. The accompanying financial
statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities
that might be necessary should we be unable to continue as a going concern.
In response to these conditions and events, we are evaluating various
financing strategies to obtain sufficient additional liquidity to meet our operating and capital requirements for the next twelve months
following the date of the audited financial statements included in the registration statement of which this prospectus forms a part. The
potential sources of financing that we are evaluating include one or any combination of secured or unsecured debt, convertible debt and
equity in both public and private offerings. We also plan to finance near-term operations with our cash on hand, as well as by exploring
additional ways to raise capital. There is no assurance we will manage to raise additional capital or otherwise increase cash flows, if
required. The sources of financing described above that could be available to us and the timing and probability of obtaining sufficient
capital depend, in part, on our further developing and commercializing the Platform and on future capital market conditions. If our current
assumptions regarding the pace of such development are incorrect, or if there are any other changes or differences in our current assumptions
that negatively impact our financing strategy, we may have to reduce expenditures or significantly delay, scale back or discontinue the
development or commercialization of the Platform.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
The following table sets forth the results of operations of the Company
years ended December 31, 2023 and 2022:
| |
Years Ended December 31, | | |
Change | | |
Change | |
| |
2023 | | |
2022 | | |
$ | | |
% | |
Research and development | |
$ | 1,004,443 | | |
$ | 850,680 | | |
$ | 153,763 | | |
| 18 | % |
General and administrative | |
$ | 1,120,426 | | |
$ | 814,653 | | |
$ | 305,773 | | |
| 38 | % |
Share-based compensation | |
$ | 2,253,793 | | |
$ | 19,908 | | |
$ | 2,233,885 | | |
| 11,221 | % |
Financial (income) expenses, net | |
$ | 90,147 | | |
$ | 1,742 | | |
$ | 88,405 | | |
| 5,075 | % |
Gain on retirement of royalty accrual | |
$ | 720,632 | | |
| - | | |
$ | 720,632 | | |
| 100 | % |
Research and Development Expenses
Research and development expenses were $1,004,443 for the year ended
December 31, 2023, compared to $850,860 for the year ended December 31, 2022. The increase in research and development expenses of $153,763
or 18%, was primarily due to increased outsourced consulting activities relating to the development of our new product and an increase
in salaries.
General and Administrative Expenses
General and administrative expenses were $1,120,426 for the year ended
December 31, 2023, compared to $814,653 for the year ended December 31, 2022. The increase in general and administrative expenses of $305,773
or 38%, was primarily due to an increase in professional fees relating to public company compliance following the Share Exchange as well
as an increase in salaries and related expenses during the year ended December 31, 2023.
Share-based Compensation Expenses
Share-based compensation expenses were $2,253,793 for the year ended
December 31, 2023, compared to $19,908 for the year ended December 31, 2022. The increase in general and administrative expenses of $2,233,885
or 11221%, was primarily due to the modification of the outstanding stock options as part of the Share Exchange.
Financial (Income) Expenses, Net
Financial income was $90,147 for the year ended December 31, 2023,
compared to $1,742 of income for the year ended December 31, 2022. The increase in financial income, net of $88,405 or 5075%, was primarily
due to exchange rate differences resulting from the translation of NIS based assets and liabilities to US dollars.
Gain on retirement of royalty accrual
Gain on retirement of royalty accrual was $720,632 for the year ended
December 31, 2023, which resulted from the retirement of outstanding royalty accrual due to the expiration of the relevant Statute of
Limitations. There was not retirement of royalty accrual for the year ended December 31, 2022.
Liquidity and Capital Resources
Sources of Liquidity
We do not have revenues to fund operations. We anticipate that we will
continue to incur significant losses as we continue to develop our product. Historically, our primary source of cash has been proceeds
from the sale of equity instruments. We raised $5.225 million through a private placement sale of shares to new investors concurrent with
the Share Exchange. We intend to spend approximately $2.5 million over the next 18 months on software and hardware development as well
as the accompanying regulatory approvals and IP protection associated with such software and hardware projects.
We will need to raise additional capital to fund operating losses and
grow our operations. There can be no assurance however that we will be able to raise additional capital when needed, or at terms deemed
acceptable, if at all. Such factors raise substantial doubt about our ability to sustain operations for at least one year from the issuance
of the audited financial statements included in this prospectus. The accompanying financial statements do not include any adjustments
related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should
we be unable to continue as a going concern. For additional information, see the section above titled “MD&A—Going Concern.”
Private Placement
See the section above titled “MD&A—Our Company—Private
Placement.”
Cash Flows for the Years Ended December 31, 2023 and 2022
| |
Years Ended December 31, | |
| |
2023 | | |
2022 | |
Cash provided (used) in | |
| | |
| |
Operating activities | |
$ | (2,362,386 | ) | |
$ | (1,517,178 | ) |
Investing activities | |
| 17,966 | | |
| — | |
Financing activities | |
| 4,653,204 | | |
| — | |
Net increase (decrease) in cash and cash equivalents | |
$ | 2,308,784 | | |
$ | (1,517,178 | ) |
Cash Used in Operating Activities
Net cash used in operating activities was $2,362,386 for the year ended
December 31, 2023 as compared to $1,517,178 for the year ended December 31, 2022. The amount for the year ended December 31, 2023 primarily
consisted of a net loss of $3,567,883 offset by non-cash charges of $1,533,831 (including: Share-based compensation expense of $2,253,793,
gain on retirement of royalty accrual of $720,632 and depreciation expense of $670), and a decrease in operating assets and liabilities
excluding cash of $328,334. The amount for the year ended December 31, 2022 primarily consisted of a net loss of $1,683,499, partially
offset by non-cash charges of $20,578 (including: Share-based compensation expense of $ 19,908 and depreciation of $670), and a decrease
in operating assets and liabilities excluding cash of $145,743.
Cash Provided by Investing Activities
During the year ended December 31, 2023, net cash provided by investing
activities was $17,966 relating to the cash received in the Share Exchange. During the year ended December 31, 2022, there was no cash
provided by or used in investing activities.
Cash Provided by Financing Activities
During the year ended December 31, 2023, net cash provided by financing
activities was $4,653,204 relating to the net proceeds from the private placement raise. During the year ended December 31, 2022, there
was no cash provided by or used in financing activities.
Effects of Inflation
Management does not believe that inflation has had a material impact
on our business, sales, or operating results during the periods presented.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements or financing
activities with special-purpose entities.
Critical Accounting Policies and Use of Estimates
The SEC defined a company’s critical accounting policies as the
ones that are most important to the portrayal of the company’s financial condition and results of operations and which require the
company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently
uncertain.
Based on this definition, we have identified the critical accounting
policies and judgments addressed below. We also have other key accounting policies that are significant to understanding our results.
Research and Development
We expense all research and development costs as they are incurred.
Research and development includes expenditures in connection with in-house research and development salaries and staff costs, consulting
fees, as well as proprietary products and technology.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.
Actual results could vary from those estimates. Management utilizes various other estimates, including but not limited to accrued royalties,
estimated lives of long-lived assets, the valuation of stock-based compensation, the valuation allowance for deferred tax assets and other
contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the
changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period
that they are determined to be necessary.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-07—Compensation—Stock
Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards. The measurement
objective in Topic 718 for share-based awards is fair value based, and the current price input is measured at fair value. This input is
used in determining an award’s fair value. The practical expedient in this Update allows a non-public entity to determine the current
price of a share underlying an equity classified share-based award using the reasonable application of a reasonable valuation method.
The practical expedient in this Update is effective prospectively for all qualifying awards granted or modified during fiscal years beginning
after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application, including application
in an interim period, is permitted for financial statements that have not yet been issued or made available for issuance as of October
25, 2021. The implementation of this standard did not have a material effect on our financial statements.
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Business
Overview
We have reimagined the way people can correct their smile.
We plan to disrupt the aligner market by offering millions of people
a revolutionary alternative. We believe that people do not need to change their lifestyle to correct their smile as they are required
to do with existing aligner solutions.
Existing aligner solutions generally share the same treatment principles,
which are different from our solution. In most cases, patients seeking to improve their smile need to undergo a 12-to-15 month process
of wearing plastic aligners, which need to be worn the entire day and should only be removed while eating or drinking. Patients are prescribed
a series of 20 to 30 aligners that are intended to forcefully move teeth progressively closer to their intended final position. This process
causes pain every time a new aligner is used and restricts blood circulation, which counterproductively slows down tooth movement. All-day
aligner solutions are also intrusive, as patients need to conduct their lives at work or school wearing the plastic aligners. In addition,
most existing aligner therapies require multiple visits to an orthodontist to monitor the progress of treatment plans through intraoral
scanning, physical examination and patient testimony.
We believe that recent rapid advancements in technology have made
traditional aligner solutions no longer the most effective treatment option for smile correction. Our Company has developed a proprietary
AI-based platform to correct people’s smiles in a discreet and less painful manner (the “Platform”). The Platform uses
only one smart aligner to gently move teeth into their optimum position with pulsating air while the patient is sleeping or at home.
The Company has several patents for the technology used in the Platform and is currently in the process of preparing the prototype for
clearance by the FDA.
Our predecessor first generation Aerodentis System is a Class II medical
device, which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process for movement and alignment
of teeth during orthodontic treatment of malocclusion in April 2020. The Company is preparing to apply for 510(k) clearance for the Platform
as a Class II medical device, which constitutes an updated version of the currently cleared device. Such updated Platform contains new
and/or different components than the original device, which is why a new 510(k) clearance is required prior to marketing the Platform
in the U.S. We have not yet filed a 510(k) submission for the Platform, and it has, thus, not been found by the FDA to be substantially
equivalent to the first generation Aerodentis System.
The Company currently does not generate revenues to fund operations
and anticipates that it will continue to incur significant losses as it continues to develop the Platform. Please refer to “Risk
Factors - We are in the development stage, are not generating revenues and have no operating history in the manufacturing and distribution
of orthodontic medical devices or platforms for consumer use.” for additional information. The Company intends to spend approximately
$2.5 million over the next 18 months on software and hardware development as well as the accompanying regulatory approvals and IP protection
associated with such software and hardware projects.
Our Product
The First Generation Aerodentis System
Our Company was founded in 2005 with the goal of offering millions
of people a chance to correct their smile in a more discreet and less painful manner. The first generation of our product underwent ten
years of development by a team of twelve orthodontists, engineers, industrial designers and dental technicians. This team developed a
new clinically-proven method for correcting Class 1 and Class 2 malocclusion using pulsating air. The team discovered that using pulsating
air improved blood circulation in the gums, which is essential to tooth movement. This first-generation product (the “Aerodentis
System”) was composed of a base control unit that contained a pump and motor that would deliver pulses of air to a micro balloon
that was part of a mouthpiece to be used by the patient to deliver the treatment. The use of pulsating air is the base patented technology
that distinguishes our Aerodentis System from clear aligner therapies, which are designed to move teeth using continuous resistant force
delivered by the aligner, which impairs blood flow.
Pictured: Base control unit, containing
micro-pump and controls, attached to the smart aligner. The smart aligner is composed of an outer mouthpiece structure, which is shaped
based on the final position of the teeth for a perfect smile. Behind the outer mouthpiece structure is a micro balloon that is attached
to the base control unit with a fine and flexible microtube. The balloon delivers pulsating air by inflating and deflating. Behind the
balloon is the “push structure,” which provides the balloon with a surface to push against as it gently moves the teeth.
In January 2013, the Aerodentis System composed of the base control
unit and custom mouthpiece received the European CE Mark. In 2020, it received FDA clearance via the 510(k) process as a Class II medical
device, with broad indication for use “in movement and alignment of teeth during orthodontic treatment of malocclusion.” Clinical
trials demonstrated that Aerodentis System was suitable for adults and pediatric patients with Class 1 and Class 2 malocclusion, including
crowding, proclination and retroclination. Further, clinical trials have demonstrated that the effectiveness of Aerodentis System was
consistent with the results achieved by the Invisalign clear aligners solution provided by Align Technology, Inc.
Pictured: Close up of smart aligner with
(1) outer structure formed based on the final tooth position desired for a perfect smile and (2) micro balloon inserted between the outer
structure and the inner structure to support the balloon’s expansion.
The Platform
Building on the Aerodentis System, we have developed a prototype
of the Platform, our next generation, comprehensive enhanced solution to Class 1 and Class 2 malocclusion for which we intend to submit
a 510(k) application for marketing in the U.S., as the Platform is beyond the scope of our current FDA clearance. The prototype of the
Platform was developed over the course of eighteen months and is intended to advance the proven clinical features of the Aerodentis System
while incorporating recent developments in artificial intelligence utilized in our Aerodentis AI Cloud (as defined below) component of
the Platform, secure wireless and Internet communications with Internet of Things (“IoT”) devices used in our Smart Aligner
System component of the Platform and advanced imaging and 3D printing technologies. “IoT devices” refers to pieces of hardware,
such as sensors, actuators, gadgets, appliances, or machines, that are programmed for certain applications and can transmit data over
the internet or other networks.
Our Platform is comprised of three primary components:
|
● |
the Aerodentis smartphone application; |
|
● |
our AI-based cloud service (“Aerodentis AI Cloud”), which is used to perform analytics and manage patient treatment plans; and |
|
● |
the smart aligner system used by the patient, which consists of: (i) a base control unit containing the pump and the IoT components and (ii) a smart aligner containing the micro-balloon that gently pushes teeth into their intended final position using pulsating air (the “Smart Aligner System”). |
The following provides a more detailed description of each of the components
of our Platform:
Aerodentis Smartphone Application
Our freely downloadable Aerodentis smartphone application will allow
potential patients to make a video of their smile and teeth and upload the video to the Aerodentis AI Cloud. This 2D video will be converted
into a 3D model using our proprietary patent-pending AI based image analysis technology. The underlying algorithms will then perform an
initial analysis to determine if the patient can potentially benefit from our solution. This complex analysis will be performed in minutes
and will deliver a “Go/No Go” response. Once a patient begins treatment, they will use the smartphone application to provide
their dental professional with ongoing remote monitoring of their treatment progress. The smartphone application can be used to upload
additional teeth videos showing progress and to transmit data from the Smart Aligner System (described below), including the amount of
time the patient used the Smart Aligner System and the pressure and pulse levels administered.
Aerodentis AI Cloud
The Aerodentis AI Cloud will be used to analyze data uploaded by patients
and to facilitate communication between patients and dental professionals. If the analysis performed on the initial video upload from
the Aerodentis smartphone application delivers a “Go” result, the patient will be invited to have an intraoral scan performed
by a dental professional from our network of participating providers. The results of this intraoral scan will be uploaded to the Aerodentis
AI Cloud by the dental professional, and the Aerodentis AI Cloud will use a machine learning algorithm to compare the scan with the initial
model generated from the patient’s initial video upload. The machine learning algorithm is designed to learn with every scan how
to improve the accuracy of the 3D images it generates from smartphone videos. We believe that the Platform’s image analysis of smartphone
videos will eventually approach the level of accuracy observed in intraoral scans. If we achieve this, we will be in a position to be
able provide highly accurate image analysis of teeth that can be used throughout the dental industry since it would allow for smartphones
to essentially replace the need for intraoral scans for certain cases. This would dramatically increase the efficiency and treatment delivery
cycle in the dental industry and result in a potentially material economic benefit to our Company in the future.
The Aerodentis AI Cloud will also be used for ongoing analysis of patient
data and management of a patient’s treatment plan throughout the treatment. A dental professional will use our Platform to develop
a customized treatment plan, including any interproximal reduction necessary before treatment begins, based on the Smart Aligner System.
As a patient uploads progress videos from their smartphone, the Platform will compare tooth positions in previous videos to current positions.
A dental professional will be able to use this data to remotely monitor the treatment progress and modify the treatment plan remotely
as needed.
Smart Aligner System
The Platform’s Smart Aligner System features a newer, more advanced
version of our first generation Aerodentis System, featuring completely redesigned micropump and motor mechanisms. The redesign has significantly
increased the pump’s pressure capacity, efficiency, and durability. In addition, the base control unit of Smart Aligner System is
now IoT-enabled to allow external secure communication with the device using Wi-Fi and Bluetooth. The device will thus be able to communicate
with the patient’s smartphone as well as the Aerodentis AI Cloud and the designated dental professional, subject to FDA clearance.
The clear aligner of a patient’s Smart Aligner System will be
created using 3D printing based on various 3D images of the patient’s teeth that are collected and analyzed in the Aerodentis AI
Cloud. This will represent a significant development in our industry since, today, aligners are not printed but produced using a thermoforming
process. Other companies have implemented 3D printing to produce the aligner models but not the actual aligners. Although using 3D printing
is a superior method for production due to its level of precision and customizability, it has not been implemented in the production of
aligners in the traditional aligner market because it would be financially prohibitive to do so, since traditional aligner solutions would
need to print multiple aligners for each patient. Since our solution requires only one smart aligner to be produced for each patient,
we will be able to take advantage of this cost-effective production method that will also have economies of scale.
Market Opportunity
Malocclusion is one of the most prevalent clinical dental conditions
in the world, affecting approximately 60% to 75% of the global population.1
It is estimated that there are approximately 500 million people globally with malocclusion who could benefit from straightening
their teeth.2 However, most people afflicted
by malocclusion do not seek orthodontic treatment due to a number of reasons, including negative perceptions of metal braces, affordability
of treatment, and accessibility to doctors in certain markets and geographies. Annually, only approximately 21 million or 4.2% of the
affected individuals elect treatment by orthodontists.3
Today, most orthodontic patients continue to have their malocclusions treated with the use of traditional corrective methods
such as metal arch wires and brackets, referred to as braces, augmented with elastics, metal expanders, headgear or functional appliances,
and other ancillary devices as needed. Upon completion of a patient’s treatment, their dental professional may recommend the patient
use a retainer appliance to preserve the benefits of their treatments.
According to a 2022 study conducted by Precedent Research (“Precedence
Research 2022 Study”), the global clear aligners market size was estimated at $6.29 billion in 2022 and is expected to surpass around
$46.3 billion by 2030, expanding at a compound annual growth rate (CAGR) of 28.34% during the period 2022 to 2030.4
| 1 | See Alhammadi, Maged Sultan, et al. “Global distribution
of malocclusion traits: A systematic review.” Dental press journal of orthodontics 23 (2018): 40-e1. |
| 2 | Fortune Business Insight. The global clear aligners market is
projected to grow from $3.80 billion in 2023 to $17.27 billion by 2030, at a CAGR of 24.2% during the forecast period, 2023-2030 (June
2023), available at https://www.fortunebusinessinsights.com/industry-reports/clear-aligners-market-101377. |
| 3 | Medi-Tech Insights. Global Orthodontic Supplies Market Report
2027 – Improving Oral Health Care, available at https://meditechinsights.com/global-orthodontic-supplies-market/. |
| 4 | Precedence Research. Clear Aligners Market (By Age: Adults,
Teenagers; By Type: At-home aligners/Direct-to-consumer (DTC) Aligners, In-office Aligners; By Product: Hard Type, Medium Type, Soft
Type; By Material Type: Polyurethane, Plastic Polyethylene Terephthalate Glycol, Poly-vinyl Chloride; By Distribution Channel: Direct
Sales, Laboratories, Others; By End-User: Hospitals, Standalone Practices, Group Practices, Others) - Global Industry Analysis, Size,
Share, Growth, Trends, Regional Outlook, and Forecast 2022-2030 (October 2022), available at https://www.precedenceresearch.com/clear-aligners-market. |
Source: Precedence Research Study, 2022
Our Platform seeks to address this large and underserved global market
by offering a discreet, less intrusive and less painful treatment alternative to available clear aligners and traditional orthodontic
treatments. Our Platform is optimized to correct malocclusions that relate to the “social six,” which are the front upper
six and lower six teeth. We believe that at least 30% of those who currently seek treatment, or 6.6 million people, could benefit from
using Aerodentis to correct their smiles. According to the Precedence Research 2022 Study, by 2028, the market for clear aligners will
surpass 22 million people, which is our total addressable market.
Source: Precedence Research Study, 2022
Our total addressable market also stands to benefit from the recent
trend toward dentists, rather than orthodontists, delivering orthodontic care through clear aligners. In order for a smile correction
solution to work properly, a treatment plan and monitoring needs to be executed by a dental professional, such as dentists and orthodontists.
Since the Aerodentis Platform provides the necessary information to develop and administer a treatment plan using our solution, it may
be used by dentists as well as orthodontists, which expands our target distribution channel to cover both orthodontists and dentists.
According to a 2019 Journal of Family Medicine and Primary Care article, approximately 36% of dentists were already performing orthodontic
procedures such as the malocclusion corrections.5
This is an indication of an ongoing trend of dentists assuming more orthodontic treatment offerings in their practices. We believe that
the ease of use of our Platform will also facilitate eventually selling our solution directly to the consumer in qualified cases with
remote dental professional involvement.
Business Model
Our business model is focused on engaging the customer throughout their
smile correction journey and beyond. Our solution provides an innovative, proprietary end-to-end platform that spans all stages of customer
engagement, from initial acquisition to treatment and ongoing maintenance-all with minimal need for office visits and lifestyle inconvenience.
Customer Initiated Dentist-Controlled Treatment
Unlike other solutions in the market, such as traditional clear aligners,
we believe our Platform will provide greater access and interaction with the customers and allow customers to feel more involved in their
own treatment process. We hope to engage the power of social media and other digital outlets to initiate initial demand for our Platform
by the customers.
| 5 | See Jayaprakash, Poonam K., et al. “A survey on orthodontic
services provided by general dental practitioners.” Journal of family medicine and primary care 8.7 (2019): 2490-2495. |
Customer Engagement – Value Creation
Our Platform is designed to have a high level of engagement with customers,
if cleared for marketing in the U.S., as users will be able to scan their teeth with any smartphone and see how our solution can improve
their smile. We intend to engage the customer from their first interest in correcting their smile and guide them throughout our convenient
process.
Network of Dental Professionals
If cleared by FDA, the Platform will generally function via the following
process: if the customer can benefit from our Platform, based on the severity of their tooth alignment and malocclusions, they will be
referred to a dental professional in our network for an intraoral scan. Once the results of the scan are uploaded to our Aerodentis AI
Cloud, a remote dental professional will develop a treatment plan for that patient using our Platform. If the patient requires any tooth
preparation before initiating treatment with the smart aligner, the patient will again be referred to a dental professional in our network.
The Company currently does not have any written agreements or arrangements with any dental professionals governing provision of orthodontic
services using our Platform.
Monetization – Value Capture
We intend to generate revenues by:
|
● |
reselling our solution through a professional dental network; |
|
● |
providing ongoing monitoring and treatment plans for those who have completed their smile correction and may require smile maintenance throughout their life; and |
|
● |
eventually selling directly to the consumer in qualified cases with remote dental professional involvement. |
Sales and Marketing
We intend to market our Platform in Israel, the European Union (the
“E.U.”), United Kingdom, United States, and Canada, subject to each country’s requisite regulatory authorization. We
intend to utilize social media to promote our Platform to our targeted audience. The Platform has a potentially viral social media message
that we hope will drive demand by placing user-generated content on all major social medial platforms. Our marketing strategy themes and
promotional messages will emphasize the ease and convenience offered by our Platform as compared to other available treatments.
Research and Development
We have a research and development team with software development,
medical device development, dental/orthodontic, data science and other innovation focused backgrounds. Our current research and development
efforts are primarily focused on enhancing the Platform and developing software and processes to enable the manufacture of our smart aligner
systems in volume as well as productizing the prototype through the development of UI/UX and system integration with existing patent systems.
As of April 2024, our outsourced software development team is
composed of eight professionals with years of experience in artificial intelligence development, data science, application and software
engineering. Members of the team come from the elite intelligence units of the Israeli Defense Force and have a breadth of experience
in computer vision, imaging and targeting systems development. Our software development team is headed by Yossi Avni, who has 25 years
of experience in developing advanced artificial intelligence applications, behavioral biometrics, behavioral profiling and advanced security
systems and holds over 100 patents in these areas.
Our hardware and systems development team is composed of six professionals
with years of experience in FDA-compliant medical device development. They are a part of Aran Research Development Prototypes Ltd. (“Aran”),
a leading Israeli product design and development firm and our third-party hardware development partner. Aran is ISO 13485 certified and
maintains a ISO 7 cleanroom for testing and assembly. Aran also has manufacturing facilities and a full suite of 3D printing capabilities,
which are compliant with FDA guidelines. Our hardware and systems development team is headed by Avi Kayton, a skilled development manager
and systems engineer with 16 years of experience, including extensive experience in medical device companies.
Intellectual Property
We have three issued U.S. patents, four pending U.S. patents and numerous
global patent applications. These patents and applications cover critical aspects of our Platform, including the movement of teeth using
pulsating air, our diagnostic process, Platform technology, and 3D printing. Our issued U.S. patents 7819661, 10806376, and 10820965 expire
in 2030, 2040, and 2040 respectively. We currently do not own any trademarks.
We intend to continue to pursue further intellectual property protection
through U.S. and non-U.S. patent applications, trademark applications, and non-disclosure and non-compete agreements. We also intend to
seek to protect our software, documentation and other written materials under trade secret and copyright laws. There can be no assurance
that patents will be issued as a result of any patent application or that patents that have been issued to us or may issue in the future
will be found to be valid and enforceable and sufficient to protect our technology or products.
Seasonality
Our business is generally not seasonal. However, we may experience
moderate sales fluctuations, at certain periods of the year, such as January, due to renewed consumer focus on health improvement and
aesthetics.
Competition
The dental industry is in a period of immense and rapid digital transformation
involving products, technologies, distribution channels and business models. We face competition in the market for our Platform from the
clear aligners market and we expect competition from existing competitors and new companies that may enter the market or introduce new
technologies in the future. We compete with several well-established companies both in the traditional orthodontic industry and the direct-to-consumer
clear aligner industry, including Align Technologies, Smile Direct Club, Dentsply Sirona (Byte), 3M Clarity Aligners, and Straumann Group.
Although these companies offer clear aligner solutions, and thus do not use technologies similar to the Platform, we expect that potential
patients will view clear aligner products as alternatives to the Platform. For this reason, we view any company in the clear aligners
market as a potential competitor.
We believe that the principal competitive factors in the market for
orthodontic appliances include:
| ● | price and financing options; |
| ● | aesthetic appeal of the treatment method; |
| ● | comfort associated with the treatment method; |
| ● | duration and effectiveness of treatment; |
|
● |
orthodontist chair time. |
We believe that our Platform will compare favorably with respect to
each of these factors.
Government Regulation
Our products (including the currently cleared version, as well as the
next generation Platform for which we have not yet submitted the requisite 510(k) application to FDA) are considered medical devices,
and, accordingly, are subject to rigorous regulation by government agencies in the United States and other countries in which we intend
to sell our products. These regulations vary from country to country but cover, among other things, the following activities with respect
to medical devices:
| ● | design, development and manufacturing; |
| ● | testing, labeling, content and language of instructions for
use and storage; |
| ● | product storage and safety; |
| ● | marketing, sales and distribution; |
| ● | pre-market clearance and approval; |
| ● | record keeping procedures; |
| ● | advertising and promotion; |
| ● | recalls and field safety corrective actions; |
| ● | post-market surveillance; |
| ● | post-market approval studies; and |
| ● | product import and export. |
FDA Regulation
In the U.S., numerous laws and regulations govern the processes by
which medical devices are developed, manufactured, brought to market and marketed. These include the Federal Food, Drug, and Cosmetic
Act (“FD&C Act”) and its implementing regulations issued by FDA, among others. Unless an exemption applies, each medical
device commercially distributed in the United States requires FDA clearance of a 510(k) premarket notification (“510(k) clearance”),
granting of a de novo request, or approval of an application for premarket approval (“PMA”). In general, under the
FD&C Act, medical devices are classified in one of three classes on the basis of the controls necessary to reasonably assure their
safety and effectiveness. A medical device’s classification determines the level of FDA review and approval to which the device
is subject before it can be marketed to consumers:
| ● | Class I devices, the lowest-risk FDA device classification,
include devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to FDA’s
medical device general controls, including labeling, establishment registration, device product listing, adverse event reporting, and,
for some products, adherence to good manufacturing practices through FDA’s Quality System Regulations. |
| ● | Class II devices, moderate-risk devices, also require compliance
with general controls and in some cases, special controls as deemed necessary by FDA to ensure the safety and effectiveness of the device.
These special controls may include performance standards, particular labeling requirements, or post-market surveillance obligations.
While most Class I devices are exempt from the 510(k) premarket notification requirement, typically a Class II device also requires pre-market
review and 510(k) clearance as well as adherence to the Quality System Regulations/good manufacturing practices for devices. |
| ● | Class III devices, high-risk devices that are often implantable
or life-sustaining, also require compliance with the medical device general controls and Quality System Regulations, and generally must
be approved by FDA before entering the market through a PMA application. Approved PMAs can include post-approval conditions and post-market
surveillance requirements, analogous to some of the special controls that may be imposed on Class II devices. |
Our manufacturing quality system is required to be in compliance with
the Quality System Regulations enforced by FDA and similar regulations enforced by other worldwide regulatory authorities. FDA’s
Quality System Regulations require manufacturers to follow stringent design, testing, process control, documentation, and other quality
assurance procedures.
Our first generation Aerodentis System is a Class II medical device,
which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process for movement and alignment of teeth
during orthodontic treatment of malocclusion in April 2020. We are preparing to apply for 510(k) clearance for the updated version of
the currently cleared device. Such updated Platform contains new and/or different components than the original device, which is why a
new 510(k) clearance is required prior to marketing the Platform in the U.S. We have not yet filed a 510(k) submission for the Platform,
and it has, thus, not been found by the FDA to be substantially equivalent to the first generation Aerodentis System. The manufacture,
marketing and distribution of the Aerodentis System, as well as our next-generation Platform once cleared by FDA, if ever, is subject
to continuing regulation and enforcement by FDA and other government authorities, which includes routine FDA inspections of our facilities
to determine compliance with facility registration requirements, product listing requirements, medical device reporting regulations, and
Quality System Regulations, among others. If FDA finds that we have failed to comply with Quality System Regulations or other legal or
regulatory requirements, it or other government agencies may institute a wide variety of enforcement actions against us, ranging from
Warning Letters to more severe sanctions, including but not limited to financial penalties, withdrawal of 510(k) clearances already granted,
and criminal prosecution. We have passed our International Organization for Standardization (“ISO”) and Medical Device Single
Audit Program (“MDSAP”) certification process and have added the U.S. to our ISO/MDSAP certification in 2019.
The 510(k) Process
Under the 510(k) process, the manufacturer must submit to FDA a premarket
notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior
to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, and for which a PMA is not required, a device
that has been reclassified from Class III to Class II or Class I, or another commercially available device that was cleared through the
510(k) process. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device,
and either have the same technological characteristics as the predicate device or have different technological characteristics and not
raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial
equivalence.
After a 510(k) premarket notification is submitted, FDA determines
whether to accept it for substantive review. If it lacks necessary information for substantive review, FDA will refuse to accept the 510(k)
notification. If it is accepted for filing, FDA begins a substantive review. By statute, FDA is required to complete its review of a 510(k)
notification within 90 days of receiving the 510(k) notification. As a practical matter, clearance often takes longer, and clearance is
never assured. FDA may require further information, including clinical data, to make a determination regarding substantial equivalence,
which may significantly prolong the review process. If FDA agrees that the device is substantially equivalent to a predicate device currently
on the market, it will grant 510(k) clearance to commercially market the device.
Post-Market Regulation
After a device is cleared or approved for marketing, numerous and extensive
regulatory requirements may continue to apply. These include but are not limited to:
| ● | annual and updated establishment registration and device
listing with FDA; |
| ● | Quality System Regulation requirements, which require manufacturers
to follow stringent quality assurance procedures during all aspects of the design and manufacturing process; |
| ● | restrictions on sale, distribution, or use of a device; |
| ● | labeling, advertising, promotion, and marketing regulations,
which require that promotion is truthful, not misleading, and provide adequate directions for use and that all claims are substantiated,
and also prohibit the promotion of products for unapproved or “off-label” uses (i.e., indications that are inconsistent with
or beyond the scope of the applicable FDA approval or clearance) and impose other restrictions on labeling; |
| ● | clearance or approval of product modifications to legally
marketed devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use; |
| ● | medical device reporting regulations, which require that
a manufacturer report to FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned
and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury if the malfunction
were to recur; |
| ● | correction, removal, and recall reporting regulations, and
FDA’s recall authority; |
| ● | complying with the federal law and regulations requiring
Unique Device Identifiers on devices; and |
|
● |
post-market surveillance activities and regulations, which apply when deemed by FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
FDA has broad regulatory compliance and enforcement powers. If FDA
determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions,
which may result in any of the following sanctions:
|
● |
warning letters, untitled letters, fines, injunctions, consent decrees, and civil penalties; |
| ● | recalls, withdrawals, or administrative detention, or seizure
of our products; |
| ● | operating restrictions or partial suspension or total shutdown
of production; |
| ● | refusing or delaying requests for 510(k) marketing clearance
or PMA approvals of new products or modified products; |
| ● | withdrawing 510(k) clearances or PMA approvals that have
already been granted; |
| ● | refusal to grant export or import approvals for our products;
or |
International Regulation
Many countries throughout the world have established regulatory frameworks
for marketing and commercialization of medical devices. As a designer, manufacturer, and marketer of medical devices, we are obligated
to comply with the respective frameworks of these countries to obtain and maintain access to these global markets. The frameworks often
define requirements for marketing authorizations which vary by country. Failure to obtain appropriate marketing authorization and to meet
all local requirements, including specific quality and safety standards in any country in which we currently market our products, could
cause commercial disruption and/or subject us to sanctions and fines. Delays in receipt of, or a failure to receive, such marketing authorizations,
or the loss of any previously received authorizations, could have a material adverse effect on our business, financial condition and results
of operations.
There is currently no premarket government review of medical devices
in the European Economic Area (“EEA”). However, all medical devices placed on the market in the EEA must meet the relevant
essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices, or the Medical Devices Directive. The most
fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise
the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances
intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various
standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical
electrical equipment, and product standards for certain types of medical devices. There are also harmonized standards relating to design
and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements
as a practical matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption
that the device satisfies that essential requirement.
On April 5, 2017, the European Parliament passed the Medical Devices
Regulation (Regulation 2017/745), which repeals and replaces the E.U. Medical Device Directive and became effective on May 26, 2021. The
Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory
framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The new regulations,
among other things:
| ● | strengthen the rules on placing devices on the market and
reinforce surveillance once they are available; |
| ● | establish explicit provisions on manufacturers’ responsibilities
for the follow-up of the quality, performance, and safety of devices placed on the market; |
| ● | improve the traceability of medical devices throughout the
supply chain to the end-user or patient through a unique identification number; |
| ● | set up a central database to provide patients, healthcare
professionals, and the public with comprehensive information on products available in the E.U.; and |
|
● |
strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market. |
We received our European CE mark and ISO/MDSAP certification in 2019.
In light of our ISO/MDSAP certification, we believe that we are in substantial compliance with applicable E.U. regulations and do not
anticipate having to make any material expenditures as a result of E.U. or other currently applicable regulatory requirements. Under Medical
Devices Regulation, manufacturing facilities are subject to periodic inspections by regulatory authorities and must comply with device
safety and effectiveness requirements as set forth therein. To that end, we have implemented controls and procedures intended to ensure
that our Access Dental Lab Quality System meets FDA’s and ISO requirements. We passed our audit to renew our ISO/MDSAP certification
in April 2023.
Quality System Regulations
Our manufacturing quality system is required to be in compliance with
the Quality System Regulations enforced by FDA and similar regulations enforced by other worldwide regulatory authorities. FDA’s
Quality System Regulations require manufacturers to follow stringent design, testing, process control, documentation, and other quality
assurance procedures. If FDA finds that we have failed to comply with Quality System Regulations or other legal or regulatory requirements,
it or other government agencies may institute a wide variety of enforcement actions against us, ranging from Warning Letters to more severe
sanctions, including but not limited to financial penalties, withdrawal of 510(k) clearances already granted, and criminal prosecution.
In addition, under Canadian regulation, manufacturing facilities are subject to periodic inspections by regulatory authorities and must
comply with device safety and effectiveness requirements as required by the Medical Devices Regulation.
State Professional Regulation
Our ability to conduct business in each state is dependent in part
upon that particular state’s treatment of remote healthcare delivery under such state’s laws, rules and policies governing
the practice of dentistry, which are subject to changing political, regulatory and other influences. Orthodontists and dentists who provide
professional services to a patient via teledentistry must, in most instances, hold a valid license to practice or to provide treatment
in the state in which the patient is located. In addition, certain states require an orthodontist or dentist providing telehealth services
to be physically located in the same state as the patient. Failure to comply with these laws and regulations can give rise to civil or
criminal penalties.
Other U.S. Federal and State Laws
We are also subject to various laws inside and outside the U.S. concerning
our relationships with healthcare professionals and government officials, price reporting and regulation, the promotion, sales and marketing
of our products and services, the importation and exportation of our products, reimbursement for our products and services, the operation
of our facilities, and the distribution of our products. Initiatives sponsored by government agencies, legislative bodies, and the private
sector regarding these matters, including efforts to limit the growth of healthcare expenses generally, are ongoing in markets where we
do business. It is not possible to predict at this time the long-term impact of such cost containment and other measures on our future
business.
We intend to enter into contracts with orthodontists, dentists, or
professional corporations to deliver our products and services to their patients. Such contractual relationships will be subject to various
state laws that prohibit the practice of dentistry by lay entities or persons and are intended to prevent unlicensed persons from interfering
with or influencing the orthodontist’s or dentist’s professional judgment. In addition, laws in various states also generally
prohibit the sharing of professional services income with nonprofessional or business interests. Activities other than those directly
related to the delivery of healthcare may be considered an element of the practice of dentistry in many states. Under the corporate practice
of dentistry restrictions of certain states, non-clinical decisions and activities may implicate the restrictions on the corporate practice
of dentistry. We will continually monitor state requirements as to what constitutes the practice of dentistry and take steps to ensure
that the orthodontists and dentists who utilize our services and teledentistry platform handle all clinical aspects of their patients’
care to ensure we do not violate those laws and regulations.
As a participant in the health care industry we are subject to extensive
and frequently changing regulation under many other laws administered by governmental entities at the federal, state, and local levels,
some of which are, and others of which may be, applicable to our business. Laws regulating medical device manufacturers and health care
providers cover a broad array of subjects.
Several states have fraud and abuse and consumer protection laws that
apply to healthcare items or services reimbursed by any third-party payor, including commercial insurers, not just those reimbursed by
a federally funded healthcare program, or apply regardless of payor. The scope of these laws and the interpretations of them vary from
state to state and are enforced by state courts and regulatory authorities, each with broad discretion. A determination of liability under
such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Health Information Privacy and Security Laws
There are numerous U.S. federal and state laws and regulations related
to the privacy and security of PII, including health information. Among others, the federal Health Insurance Portability and Accountability
Act of 1996, as amended by HITECH, and their implementing regulations, which we collectively refer to as HIPAA, establish privacy and
security standards that limit the use and disclosure of PHI and require covered entities and business associates to implement administrative,
physical, and technical safeguards to ensure the confidentiality, integrity, and availability of individually identifiable health information
in electronic form, among other requirements.
Violations of HIPAA may result in civil and criminal penalties. We
must also comply with HIPAA’s breach notification rule which requires notification to affected individuals and HHS, and in certain
cases to media outlets, in the case of a breach of unsecured PHI. The regulations also require business associates of covered entities
to notify the covered entity of breaches by the business associate.
State attorneys general also have the right to prosecute HIPAA violations
committed against residents of their states, and HIPAA standards have been used as the basis for the duty of care in state civil suits,
such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance
audits of HIPAA covered entities and their business associates for compliance.
Many states also have laws that protect the privacy and security of
sensitive and personal information, including health information. These laws may be similar to or even more protective than HIPAA and
other federal privacy laws. For example, the laws of the State of California, are more restrictive than HIPAA. Where state laws are more
protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. California passed the California Consumer
Privacy Act or CCPA on June 28, 2018, which went into effect January 1, 2020. On November 3, 2020, the California Privacy Rights Act of
2020 (“CPRA”), which amends the CCPA and adds new privacy protections that became effective on January 1, 2023, was enacted
through a ballot initiative. While information we maintain that is covered by HIPAA may be exempt from the CCPA, other records and information
we maintain on our patients may be subject to the CCPA. In certain cases, it may be necessary to modify our planned operations and procedures
to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but also
some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused. In addition,
state and federal privacy laws subject to frequent change.
In addition to HIPAA and state health information privacy laws, we
may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security practices and deceptive
statements about privacy and security, laws that place specific requirements on certain types of activities, such as data security and
texting, and laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach.
Foreign data protection, privacy, and other laws and regulations are
often more restrictive than those in the U.S. The E.U., for example, traditionally has imposed stricter obligations under its laws and
regulations relating to privacy, data protection and consumer protection than the U.S. In May 2018, the General Data Protection Regulation
(the “GDPR”), which governs data practices and privacy in the E.U., became effective and replaced the data protection laws
of the individual member states. GDPR requires companies to meet stringent requirements regarding the handling of personal data of individuals
in the E.U. These more stringent requirements include expanded disclosures to inform members about how we may use their personal data,
increased controls on profiling members, and increased rights for members to access, control and delete their personal data. In addition,
there are mandatory data breach notification requirements. The law also includes significant penalties for non-compliance, which may
result in monetary penalties of up to 20 million Euros or 4% of a company’s worldwide turnover, whichever is higher. GDPR and other
similar regulations require companies to give specific types of notice and informed consent is required for the placement of a cookie
or similar technologies on a user’s device for online tracking for behavioral advertising and other purposes and for direct electronic
marketing, and the GDPR also imposes additional conditions in order to satisfy such consent, such as a prohibition on pre-checked consents.
It remains unclear how the U.K. data protection laws or regulations will develop in the medium to longer term and how data transfer to
the U.K. from the E.U. will be regulated. Outside of the E.U., there are many other countries with data protection laws, and new countries
are adopting data protection legislation with increasing frequency.
Many of these laws may require consent from individuals for the use
of data for various purposes, including marketing, which may reduce our ability to market our products.
There is no harmonized approach to these laws and regulations globally.
Consequently, we increase our risk of non-compliance with applicable foreign data protection laws and regulations when we expand internationally.
We may need to change and limit the way we use personal information in operating our business and may have difficulty maintaining a single
operating model that is compliant. Compliance with such laws and regulations will result in additional costs and may necessitate changes
to our business practices and divergent operating models, limit the effectiveness of our marketing activities, adversely affect our business,
results of operations, and financial condition, and subject us to additional liabilities.
Environmental Matters
We have no material expenditures for compliance with Federal, State
or local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment.
Employees
As of April 15, 2024, the Company had 3 full-time employees
and 1 part-time employee.
Company Information
Our principal executive offices are located at Shatner Street 3, Jerusalem,
Israel, and our telephone number is +972 (0)74-700-6700.
Our web page address is www.aerodentis.com. References
to our website address do not constitute incorporation by reference of the information contained on the website, and the information contained
on the website is not part of this document or any other document that we file with or furnish to the SEC.
Management
Officers and Directors
The following persons became our directors and executive officers
on August 14, 2023 and hold the positions set forth opposite their respective names as of April 15, 2024:
Name | |
Age | |
Position |
Eliyahu (Lee) Haddad | |
57 | |
Chief Executive Officer and Director |
Moshe Shvets | |
59 | |
Chief Technology Officer and Director |
Chaim Hurvitz | |
63 | |
Director and Chairman of the Board |
Chaim Ravad | |
58 | |
Director |
Yehuda Englander | |
43 | |
Director |
Directors and Executive Officers
Information concerning our directors and executive officers is set
forth below. The biographical description of each director includes the specific experience, qualifications, attributes and skills that
led the Board to conclude that such person should serve as a director.
Eliyahu (Lee) Haddad
Mr. Haddad has served as our Chief Executive Officer and director since
December 2021. Mr. Haddad is a multi-disciplinary finance and technology expert, with extensive senior level operational experience in
raising capital, growing complex business models, and guiding startups and later stage companies to successful exits. Prior to his employment
at Dror, Mr. Haddad served as Chief Executive Officer of HFT Investments from 2007 through 2021. He also served as a Senior Adviser at
Exceed Talent Capital between 2019 and 2023. Over the course of his 30-year career, Mr. Haddad has structured and managed a number of
technology and media transactions valued at an aggregate of over $85 billion, including $250 million in transactions within the Israeli
high-tech space in AI, medical technology, and cybersecurity. Mr. Haddad received a bachelor’s degree in economics and philosophy
from Columbia University, where he was the recipient of the National Science Foundation Award in Theoretical Physics and started his career
in the M&A subgroup of Morgan Stanley’s media and technology group for several years. We believe that Mr. Haddad’s extensive
business experience qualifies him to serve as a member of our Board.
Moshe Shvets
Mr. Shvets has served as a director and as our Chief Technology Officer
since July 20, 2020. Mr. Shvets has also served as a Senior Vice President since December 1, 2021. Mr. Shvets is a seasoned senior executive
with 25 years of experience in building companies with over €250M yearly revenues that involve complex instrumentation & processes,
regulation, software, and global infrastructure. Prior to joining Dror, Mr. Shvets founded and served as a director of BiSec Ltd. from
2015 to 2018. Mr. Shvets has also served as president of OAO Belzan from 2011 to 2013, and president of OAO DZV from 2011 to 2014. Before
joining the management team, Mr. Shvets was one of the investors in our Company. Mr. Shvets received a bachelor’s degree from Saint
Petersburg State University in Aerospace Instrumentation in 1999. We believe that Mr. Shvets’s extensive experience commercializing
new technologies qualifies him to serve as a member of our Board.
Chaim Hurvitz
Mr. Hurvitz has served as a director and Chairman of our Board since
January 17, 2012. Mr. Hurvitz has founded and has served as a chief executive office of C.H. Health, a healthcare focused venture capital
firm since May 2011. His investments through CH Health have included several successful exits including the NASDAQ IPOs of Galmed Pharmaceuticals
Ltd. (NASDAQ: GLMD) (“Galmed”) and UroGen Pharma Ltd. (NASDAQ: URGN) (“UroGen”). He was previously a member of
Teva’s senior management, serving as the President of Teva International Group from 2002 through 2010, Vice-President of Israeli
Pharmaceutical Sales from 1999 through 2002 and President and CEO of Teva Pharmaceuticals Europe from 1992 through 1999. Mr. Hurvitz presently
serves the chairman of Univo Pharmaceuticals Ltd., the chairman of Shirat Hachaim Ltd., a director of Celexir, a director of Genoscience
Pharma S.A.S., and has previously served as the chairman CTG Weld Limited, the chairman of PolyPid Ltd. (NASDAQ: PYPD), as the chairman
of Galmed, as a director of UroGen, and as a director of Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA). Mr Hurvitz is also a member
of management of the Manufacturers Association of Israel and Head of its Pharmaceutical branch. Mr. Hurvitz received a B.A. in political
science and economics from Tel Aviv University in 1985. We believe that Mr. Hurvitz’s extensive management experience in the healthcare
industry qualifies him to serve as a member of our Board.
Chaim Ravad
Mr. Ravad has served as a director since February 2015. Mr. Ravad has
experience in food catering and real estate industries. In his capacity as our director, Mr. Ravad has served as a major contributor to
the development of Dror’s teeth straightening product from its early stages and until receipt of FDA and CE approval and has in
the past successfully assisted in securing private investments in our Company. Mr. Ravad is a graduate of Hebron Yeshiva.
Yehuda Englander
Mr. Englander has served as a director since December 6, 2021. Mr.
Englander is a co-founder of YYE ALEY SHLECHT ASSETS LTD. and YE RUT Finance Ltd. Prior to that, Mr. Englander led Yehuda Englander Finance
Advisory Ltd. for four years. Mr. Englander received a B.A. in Accounting from Lev Academic Center at Jerusalem College of Technology.
We believe that Mr. Englander’s extensive investment experience qualifies him to serve as a member of our Board.
Involvement in Certain Legal Proceedings
None of the members of the Board or our executive officers has, in
the last ten years, been involved in any legal proceeding of the type described under Item 103(c)(2) or Item 401(f) of Regulation
S-K.
Director Independence
Our Common Stock is quoted on the OTC Pink Market operated by the OTC
Markets Group Inc., which does not have director independence requirements. We also have not established our own definition for determining
whether our director and nominees for directors are “independent” nor have we adopted any other standard of independence employed
by any national securities exchange.
We expect our Board, in the future, to appoint an audit committee,
nominating committee and compensation committee, and to adopt charters relative to each such committee. We intend to appoint such persons
to committees of the Board as are expected to be required to meet the corporate governance requirements imposed by a national securities
exchange, although we are not required to comply with such requirements until we elect to seek a listing on a national securities exchange.
In addition, we intend that a majority of our directors will be independent directors, of which at least one director will qualify as
an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the SEC.
We do not currently have an “audit committee financial expert” since we currently do not have an audit committee in place.
Family Relationships
There are no family relationships among our directors or executive
officers.
Executive Compensation
The following table sets forth summary compensation information for
the respective fiscal years. For the purpose of this prospectus, our “named executive officers” or “NEOs” are
our principal executive officer (“PEO”), Mr. Haddad, and our sole non-PEO executive officer, Mr. Shvets. We provide a description
of the employment arrangements with Mr. Haddad and Mr. Shvets, below under “Employment Agreements.” The following table includes
all compensation earned by our named executive officers for the respective period, regardless of whether such amounts were actually paid
during the period.
This discussion may contain forward-looking statements that are based
on our current plans, considerations, expectations and determinations regarding future compensation programs.
Summary Compensation Table
The following table sets forth information concerning the compensation
of our named executive officers for the fiscal years indicated below.
Name
and principal position | |
Year | | |
Salary
($)(1) | | |
Bonus
($) | | |
Stock
awards ($) | | |
Option
awards ($)(2) | | |
Nonequity
incentive plan compensation ($) | | |
Nonqualified
deferred compensation earnings ($) | | |
All
other compensation ($) | | |
Total
($) | |
Eliyahu
(Lee) Haddad | |
| 2023 | | |
| 415,962 | | |
| — | | |
| — | | |
| 2,506,941 | | |
| — | | |
| — | | |
| — | | |
| 2,922,903 | |
(Chief
Executive Officer and Director) | |
| 2022 | | |
| 343,456 | | |
| 20,252 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 363,708 | |
Moshe
Shvets | |
| 2023 | | |
| 313,770 | | |
| — | | |
| — | | |
| 1,504,145 | | |
| — | | |
| — | | |
| — | | |
| 1,817,915 | |
(Chief
Technology Officer) | |
| 2022 | | |
| 228,743 | | |
| 20,203 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 248,946 | |
(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 2023 was 3.690 NIS
per dollar and the average exchange rate for 2022 was 3.359 NIS per dollar |
(2) | In accordance with SEC rules, this column reflects the aggregate
fair value of the option awards granted during the respective fiscal year computed as of their respective grant dates in accordance with
Financial Accounting Standard Board Accounting Standards Codification Topic 718 for share-based compensation transactions. The assumptions
made in the valuation of the share-based payments are contained in Note 2 to our financial statements included in this prospectus. |
Narrative Disclosure Regarding Summary Compensation Table
Our Board reviews compensation annually for all employees, including
named executive officers. In making compensation determinations, the Board considers compensation for comparable positions in the market
and with peer companies, the historical compensation levels of executives, individual performance as compared to the board’s expectations
and objectives, the board’s desire to motivate employees to achieve short- and long-term results that are in the best interests
of our stockholders and a long-term commitment to our Company.
Annual Base Salaries
Base salaries for the executive officers are initially established
through arm’s-length negotiations at the time of the executive officer’s hiring, taking into account such executive officer’s
qualifications, experience, the scope of his or her responsibilities and competitive market compensation paid by other companies for similar
positions within the industry and geography. Base salaries are reviewed periodically, typically in connection with our annual performance
review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities,
performance and experience. In making decisions regarding salary increases, we may also draw upon the experience of members of the Board
with executives at other companies.
Bonus Compensation
For 2023, our named executive officers are not eligible to receive
a discretionary annual bonus based on individual and company performance. During fiscal year 2022, Messrs. Haddad and Shvets earned discretionary
bonuses as set forth in the Summary Compensation Table above.
Equity-Based Incentive Awards
Our equity-based incentive awards are designed to align our interests
and those of our stockholders with those of our employees and consultants, including our named executive officers. We have historically
used stock options as incentives for long-term compensation to the named executive officers as the return on such awards is tied to an
increase in our stock price. We may grant equity awards at such times as our Board determines appropriate in their discretion. Additional
grants may occur periodically in order to incentivize executives with respect to achieving certain corporate goals or to reward them for
exceptional performance. See “Outstanding Equity Awards at Fiscal Year-End” below for additional information regarding outstanding
equity awards held by our named executive officers as of December 31, 2023.
Employment Agreements
Eliyahu (Lee) Haddad
On December 6, 2021, Private Dror entered into an employment agreement
(the “Haddad Employment Agreement”) with Mr. Haddad to serve as Private Dror’s chief executive officer. Pursuant to
this employment agreement, Mr. Haddad is entitled to a monthly salary (including all social benefit payments provided under Israeli law)
of $22,256. Mr. Haddad is also entitled to an annual bonus based on achievement of objectives and Board’s approval. In connection
with his employment agreement, Mr. Haddad was granted options to purchase five percent (5%) of our fully diluted Ordinary Shares issued
and issuable on the date of the employment agreement, which options shall vest in three tranches on the first, second, and third anniversary
of the date of the employment agreement. The options are subject to accelerated vesting upon the achievement by us of certain performance
milestones. We cannot terminate Mr. Haddad’s employment not for “cause,” and in circumstances constituting “cause,”
we may terminate the agreement effective immediately. Mr. Haddad can terminate the agreement for convenience upon 30 days written notice,
and may terminate the agreement immediately for “good reason.” If Mr. Haddad’s employment is terminated without cause,
or Mr. Haddad resigns for good reason, he is entitled to twelve month’s salary.
Following the closing of the Share Exchange, the Board appointed Mr.
Haddad to the office of Chief Executive Officer on the terms of the Haddad Employment Agreement.
Moshe Shvets
On January 26, 2022, Private Dror entered into an employment agreement
(the “Shvets Employment Agreement”) with Mr. Shvets to serve as Private Dror’s Senior Vice President, effective as of
December 1, 2021. Mr. Shvets was named Chief Technology Officer as of July 20, 2020. Pursuant to his employment agreement, Mr. Shvets
is entitled to a monthly gross salary of NIS 32,000. Mr. Shvets is also entitled to certain social and fringe benefits as set forth in
the employment agreement. In connection with his employment agreement, Mr. Shvets was granted options to purchase three percent (3%) of
our fully diluted Ordinary Shares issued and issuable on the date of the employment agreement, which options shall vest in three tranches
on the first, second, and third anniversary of the date of the employment agreement. The options are subject to accelerated vesting upon
the achievement by us of certain performance milestones. Mr. Shvets’ employment can be terminated by either party for convenience
upon 30 days written notice.
Following the closing of the Share Exchange, the Board appointed Mr.
Shvets to the office of Chief Technology Officer on the terms of the Shvets Employment Agreement.
Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding outstanding equity
awards held by our named executive officers as of December 31, 2023.
| |
Option awards |
Name | |
Number of
securities
underlying
unexercised
options (#)
exercisable | |
Number of
securities
underlying
unexercised
options (#)
unexercisable | |
Equity
incentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options
(#) | | |
Option
exercise
price
($) | | |
Option
expiration
date |
Eliyahu (Lee) Haddad | |
| |
| |
| | |
| | |
|
(Chief
Executive Officer and Director) | |
63,977,143 | (1) |
31,988,572 | (1) |
| — | | |
$ | 0.0038480 | | |
August 14, 2033 |
Moshe
Shvets | |
| |
| |
| | | |
| | | |
|
(Chief Technology Officer and Director) | |
38,385,796 | (2) |
19,192,898 | (2) |
| — | | |
$ | 0.0038480 | | |
August 14, 2033 |
(1) |
On December 6, 2021, Mr. Haddad was granted options to purchase up to 26,097 ordinary shares of Private Dror at an exercise price of $14.15 per ordinary share. In connection with the Share Exchange, these options were exchanged for options to purchase up to 95,965,715 shares of Common Stock at an exercise price of approximately $0.0038480 per share. These options vest in three tranches on the first, second, and third anniversary of the employment start date. The options are subject to accelerated vesting upon the achievement by us of certain performance milestones. |
(2) |
On December 1, 2021, Mr. Shvets was granted options to purchase up to 15,658 ordinary shares of Private Dror at an exercise price of $14.15 per ordinary share. In connection with the Share Exchange, these options were exchanged for options to purchase up to 57,578,694 shares of Common Stock at an exercise price of approximately $0.0038480 per share. These options vest in three tranches on the first, second, and third anniversary of the employment start date. The options are subject to accelerated vesting upon the achievement by us of certain performance milestones. |
Equity Incentive Plans
2021 Share Incentive Plan
Prior to the Share Exchange, Private Dror adopted the Dror 2021 Share
Incentive Plan (the “2021 Plan”), which provides for the granting of stock options, restricted stock, restricted stock units,
and other stock-based awards to employees, directors, officers, consultants, and advisors of Private Dror or its affiliates. Under the
2021 Plan, 51,482 ordinary shares of Private Dror were initially reserved for issuance as awards, and stock options covering up to 44,365
ordinary shares of Private Dror (which were exchanged for stock options covering approximately 163,142,084 shares of Common Stock in connection
with the Share Exchange) are outstanding as of the date hereof. No other type of equity award is currently outstanding under the 2021
Plan. As further described below, upon the closing of the Share Exchange, any stock options outstanding under the 2021 Plan were converted
into stock options under the Dror Ortho-Design, Inc. 2023 Long-Term Incentive Plan (the “2023 Plan”). The 2021 Plan is filed
as Exhibit 10.9 to the registration statement on Form S-1 of which this prospectus forms a part.
2023 Long-Term Incentive Plan
On August 14, 2023, our Board adopted the 2023 Plan. Under the 2023
Plan, we reserved 235,958,571 shares of our Common Stock for issuance as awards to our key employees, key contractors, and non-employee
directors and those of our subsidiaries, of which 100% may be delivered pursuant to incentive stock options. A form of the 2023 Plan is
filed as Exhibit 10.10 to the registration statement on Form S-1 of which this prospectus forms a part.
The 2023 Plan currently consists of the primary plan document that
governs all awards granted under the 2023 Plan for eligible U.S. employees, contractors, and non-employee directors who are subject to
U.S. income taxation and a sub-plan annex designated for the purpose of grants of equity awards to eligible Israeli employees, officers,
and contractors of the Company and its affiliates who are subject to Israeli income taxation.
Upon the closing of the Share Exchange, we became the sponsor of the
2021 Plan, and all outstanding stock option awards previously granted under the 2021 Plan will be converted into awards under the 2023
Plan. Thus, all outstanding options to purchase ordinary shares of Dror (which are converted into options to purchase shares of Common
Stock of the Company pursuant to the Share Exchange Agreement, as amended) were converted to options to purchase shares of Common Stock
of the Company.
The purpose of the 2023 Plan is to provide an incentive to attract
and retain the services of key employees, key contractors, and non-employee directors of the Company and its subsidiaries and to provide
such persons with a proprietary interest in the Company through the granting of awards. The 2023 Plan will be administered by our Board
or a committee of the Board (the “Committee”) consisting of two or more members. At any time there is no Committee to administer
the 2023 Plan, any reference to the Committee is a reference to the Board. The Committee will determine the persons to whom awards are
to be made, determine the type, size and terms of awards, interpret the 2023 Plan, establish and revise rules and regulations relating
to the 2023 Plan, and make any other determinations that it believes necessary for the administration of the 2023 Plan. The Committee
may delegate certain duties to one or more officers of the Company as provided in the 2023 Plan. Unless terminated earlier by our Board,
the 2023 Plan will expire on August 14, 2033. No awards may be made under the 2023 Plan after its expiration date, but awards made prior
thereto may extend beyond that date.
The 2023 Plan provides for the granting of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent
rights, and other awards which may be granted singly, in combination, or in tandem, and which may be paid in cash or shares of the Company’s
Common Stock. Awards granted pursuant to the 2023 Plan will be evidenced by a written award agreement. The Committee will determine the
terms of each award at the time of grant, including, without limitation, the number of shares subject to such award, the term of the award,
the exercise price to be paid for the award (if applicable), the vesting and forfeiture conditions, the methods by or forms in which shares
will be delivered to participants, the price to be paid for the award (if any), and any other terms and conditions applicable to such
award.
To date, no awards have been granted pursuant to the 2023 Plan, other
than the awards that were previously granted pursuant to the 2021 Plan and will be converted into an award under the 2023 Plan, as described
above.
The Board may, at any time and from time to time, without the consent
of the participants, alter, amend, revise, suspend or discontinue the 2023 Plan in whole or in part; provided, however, that (i) no
amendment that requires shareholder approval in order for the 2023 Plan and any awards granted thereunder to continue to comply with Sections 421
and 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (including any successors to such sections, or other
applicable law) or any applicable requirements of any securities exchange or inter-dealer quotation system on which the Company’s
Common Stock is listed or traded, shall be effective unless such amendment is approved by the requisite vote of the Company’s shareholders
entitled to vote on the amendment; and (ii) unless required by law, no action by the Board regarding amendment or discontinuance
of the 2023 Plan may adversely affect any rights of any participant or obligations of the Company to any participant with respect to any
outstanding award under the 2023 Plan without the consent of the affected participant.
Commitments to Grant Stock Options
In addition to the stock option awards to be granted in substitution
of stock options currently outstanding under the 2021 Plan, we currently have a commitment to issue options to purchase up to 0.5% of
the outstanding shares of Common Stock to Mr. Haddad, contingent on the Company achieving certain market capitalization targets. We anticipate
issuing these options pursuant to the 2023 Plan at such time as the Company has a sufficient number of authorized and unissued shares
of Common Stock.
Director Compensation
The following table presents the total compensation for each person
who served as a non-employee member of our Board during the fiscal year ended December 31, 2023. Other than as set forth in the table
and described more follow below, and as set forth in the Summary Compensation Table with respect to our employee directors, we did not
pay any compensation to, reimburse any expense of, make any equity awards or non-equity awards to, or pay any other compensation to any
of the other members of our Board in 2023.
Name | |
Fees
earned
or paid
in cash ($) | | |
Stock
awards ($) | | |
Option
awards ($)(1) | | |
Non-equity
incentive
plan compensation ($) | | |
Nonqualified
deferred compensation earnings ($) | | |
All other
compensation ($) | | |
Total ($) | |
Chaim Hurvitz | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Chaim Ravad (2) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Yehuda Englander (3) | |
| 11,383 | | |
| — | | |
| 250,723 | | |
| — | | |
| — | | |
| — | | |
| 262,106 | |
| (1) | In accordance with SEC rules, this column reflects the aggregate
fair value of option awards granted during the fiscal year ended December 31, 2023, computed as of their respective grant dates in accordance
with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for share-based compensation transactions. The assumptions
made in the valuation of the share-based payments are contained in Note 2 to our financial statements included in this prospectus. |
| (2) | On February 7, 2024, we entered into a consulting agreement
(the “Ravad Consulting Agreement”) with Mr. Ravad, pursuant to which, in consideration for certain services provided as a
board member, Mr. Ravad would receive a cash fee of $5,000 each month. The Ravad Consulting Agreement is terminable by either party upon
30 days written notice to the other party, and it will terminate automatically once Mr. Ravad has received fees in the aggregate amount
of $55,000. |
(3) |
On June 1, 2022, Private Dror entered into a consulting
agreement (the “Englander Consulting Agreement”) with Mr. Englander, pursuant to which, in consideration for certain financial
and strategic consulting services, Mr. Englander receives a cash fee of NIS 3,500 + VAT each month and was also granted with options to
purchase 2,610 Ordinary Shares of Private Dror, which options were exchanged for options to purchase 9,597,675 shares of Common Stock
in connection with the Share Exchange and shall vest in three tranches on the first, second, and third anniversary of the date of the
consulting agreement. The options are subject to accelerated vesting upon an exit event.
Effective as of February 7, 2024, we entered into
the First Amendment to the Englander Consulting Agreement with Mr. Englander, which provided that Mr. Engalnder’s monthly cash fee
in respect of the services provided would be equal to $2,500 + VAT. |
Securities Authorized for Issuance under Equity Compensation Plans
The table below sets forth certain information as of December 31, 2023
regarding the shares of our Common Stock available for grant or granted under stock option plans and other compensation arrangements that
(i) were adopted by our stockholders and (ii) were not adopted by our stockholder.
Plan Category | |
Number of securities to be
issued
upon
exercise of
outstanding
options,
warrants
and rights | | |
Weighted
average
exercise
price of
outstanding
options,
warrants,
and rights | | |
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
common) | |
Equity Compensation plans approved by stockholders (1) | |
| 163,142,084 | | |
$ | 0.0038480 | | |
| 245,692,304 | |
Equity Compensation plans not approved by stockholders | |
| — | | |
| — | | |
| — | |
Total | |
| 163,142,084 | | |
$ | 0.0038480 | | |
| 245,692,304 | |
(1) |
Represents shares approved for issuance under the 2021 Plan and the 2023 Plan. All information in this table has been adjusted to give effect to the Share Exchange. |
Description Of
Capital Stock
The following summary of the material terms of our capital stock
is not intended to be a complete summary of the rights and preferences of such securities. The full text of the Amended Charter and Bylaws
of Dror are included as exhibits to the registration statement of which this prospectus forms a part. You are encouraged to read the applicable
provisions of Delaware law, the Amended Charter and Bylaws in their entirety for a complete description of the rights and preferences
of our securities.
Authorized Capital Stock
We have authorized 3,266,975,740 shares of capital stock, par value
$0.0001 per share, of which 3,254,475,740 are shares of Common Stock and 12,500,000 are shares of “blank check” preferred
stock.
As of the date hereof, there are 495,454,546 shares of Common Stock
outstanding.
Capital Stock Issued and Outstanding
We have issued and outstanding securities on a fully diluted basis
as follows:
|
● |
495,454,546 shares of Common Stock, held by approximately 227 stockholders of record; |
|
● |
10,463,362.24 shares of preferred stock; |
|
● |
outstanding options to purchase up to an aggregate of 179,579,481 shares of Common Stock with a weighted average exercise price of approximately $0.003496 per share; and |
|
● |
warrants to purchase up to an aggregate of 964,834,419 shares of Common Stock with a weighted average exercise price of approximately $0.033 per share, of which warrants to purchase 474,999,993 shares of Common Stock were issued to investors in the Private Placement at an exercise price of $0.033 per share. |
Common Stock
Pursuant to our Amended Charter, holders of our Common Stock are entitled
to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our Common Stock have no cumulative
voting rights. All shares of our Common Stock validly authorized and issued, fully paid and nonassessable.
Holders of our Common Stock have no preemptive, redemption, conversion
or subscription rights. No sinking fund provisions are applicable to our Common Stock. Upon liquidation, dissolution or winding-up, holders
of our Common Stock are entitled to share in all assets remaining after payment of all liabilities and the liquidation preferences of
any of our outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding shares of preferred
stock, holders of our Common Stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors
out of our assets which are legally available. Such dividends, if any, are payable in cash, in property or in shares of capital stock.
A holders of one-third of the voting power of the stock issued, outstanding
and entitled to vote thereat, present in person or represented by proxy, will constitute a quorum for the transaction of business at any
meeting of our stockholders. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i)
the chairperson of the meeting, if there be one, or (ii) the stockholders entitled to vote at the meeting, present in person or represented
by proxy, will have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum
is present or represented.
Preferred Stock
Our board of directors has the authority, without further action by
the stockholders, to issue up to 12,500,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences,
privileges, and relative participating, optional, or special rights as well as the qualifications, limitations, or restrictions of the
preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. Our board of directors, without stockholder approval, can issue convertible
preferred stock with voting, conversion, or other rights that could adversely affect the voting power and other rights of the holders
of Common Stock. Preferred stock could be issued quickly with terms calculated to delay or prevent a change of control or make removal
of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the price at which our Common
Stock is quoted for sale, and may adversely affect the voting and other rights of the holders of Common Stock.
Series A Preferred Stock
The terms of the Preferred Shares are as set forth in a Certificate
of Designation of Preferences, Rights and Limitations (the “Certificate of Designation”) filed with the Secretary of State
of the State of Delaware as Annex A to the Amended Charter, which Certificate of Designation designated 12,500,000 shares out of
the authorized but unissued shares of our preferred stock as Series A Preferred Stock with a stated value of $1.10 per share. There are
10,463,362.24 shares of Series A Preferred Stock issued and outstanding. The following is a summary of the principal terms of the Series
A Preferred Stock and is qualified in its entirety by reference to, the Certificate of Designation.
Dividends
The holders of Series A Preferred Stock will be entitled to dividends,
on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of Common Stock, when and if actually
paid.
Voting Rights
The shares of Series A Preferred Stock are entitled to vote with holders
of the Common Stock on all matters that such holders of Common Stock are entitled to vote upon, in the same manner and with the same effect
as the holders of Common Stock, voting together with the holders of Common Stock as a single class. Each share of Series A Preferred Stock
shall entitle the Holder thereof to cast that number of votes per share of Series A Preferred Stock equal to the number of Conversion
Shares into which such share of Series A Preferred Stock is convertible into pursuant to the Certificate of Designation (after giving
effect to any applicable limitation on conversion under the Certificate of Designation). As long as any shares of Series A Preferred Stock
are outstanding, we may not, without the approval of a majority of the then outstanding shares of Series A Preferred Stock (a) alter
or change the powers, preferences or rights given to the Series A Preferred Stock, (b) alter or amend our amended and restated certificate
of incorporation, the Certificate of Designation, or our amended and restated bylaws in such a manner so as to materially adversely affect
any rights given to the Series A Preferred Stock, (c) authorize or create any class of stock ranking as to dividends, redemption
or distribution of assets upon a Liquidation (as defined below) senior to the Series A Preferred Stock, or (d) enter into any agreement
to do any of the foregoing.
Liquidation
Upon any liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary (a “Liquidation”), the then holders of the Series A Preferred Stock are entitled to receive out of
the assets available for distribution to stockholders of the Company the same amount that a holder of Common Stock would receive if the
Series A Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which
amounts shall be paid pari passu with all holders of Common Stock.
Conversion
The Series A Preferred Stock is convertible into Common Stock at any
time at a conversion price of $0.011, subject to adjustment for certain anti-dilution provisions set forth in the Series A Certificate
of Designation (the “Series A Conversion Price”). Upon conversion the shares of Series A Preferred Stock will resume the status
of authorized but unissued shares of preferred stock of the Company.
Conversion at the Option of the Holder
The Series A Preferred Stock is convertible at the then-effective Series
A Conversion Price at the option of the holder at any time and from time to time.
Automatic Conversion
On the trading day immediately following any day the Company is able
to satisfy some or all of its reservation requirements pursuant to the Certificate of Designation (the “Automatic Conversion Time”),
all, but not less than all, of the outstanding shares of Series A Preferred Stock for which Common Stock has been reserved will automatically
convert, without any action on the part of the holder thereof and without payment of any additional consideration, into that number of
shares of reserved Common Stock, determined by dividing the stated value of such share of Series A Preferred Stock by the Series A Conversion
Price. The Company will provide prompt written notice to the holders of Series A Preferred Stock of the Automatic Conversion Time on the
trading day immediately following the Automatic Conversion Time.
Beneficial Ownership Limitation
The Series A Preferred Stock cannot be converted to common stock if
the holder and its affiliates would beneficially own more than 4.99% (or 9.99% at the election of the holder) of the outstanding common
stock. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us,
provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase
or decrease will apply only to the holder providing such notice.
Preemptive Rights
No holders of Series A Preferred Stock will, as holders of Series A
Preferred Stock, have any preemptive rights to purchase or subscribe for common stock or any of our other securities.
Redemption
The shares of Series A Preferred Stock are not redeemable by the Company.
Negative Covenants
As long as any shares of Preferred Stock are outstanding, unless the
holders of more than 50% in stated value of the then outstanding shares of Preferred Stock shall have otherwise given prior written consent
the Company shall not, subject to certain exceptions, (a) enter into, create, incur, assume, guarantee or suffer to exist any indebtedness,
(b) enter into, create, incur, assume or suffer to exist any liens, (c) amend its organizational documents in any manner that materially
and adversely affects any rights of the holders, (d) repay, repurchase or offer to repay, repurchase or otherwise acquire any shares of
its common stock, common stock equivalents or junior securities, (e) enter into any transaction with any affiliate of the Company which
would be required to be disclosed in any public filing with the SEC, unless such transaction is made on an arm’s-length basis and
expressly approved by a majority of the disinterested directors of the Company, (f) declare or pay a dividend on junior securities or
(g) enter into any agreement with respect to any of the foregoing.
Trading Market
There is no established trading market for any of the Series A Preferred
Stock, and we do not expect a market to develop. We do not intend to apply for a listing for any of the Series A Preferred Stock on any
securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the Series A Preferred
Stock will be limited.
Private Placement Warrants and Share Exchange Warrants
In connection with the Private Placement and the Share Exchange, we
issued to holders of Series A-4 Warrants and to the Private Placement Investors five-year Warrants to purchase up to an aggregate
of 964,834,419 shares of Common Stock at an exercise price of $0.033 per share. We are prohibited from effecting the exercise of any Warrant
to the extent that as a result of such exercise the holder of the exercised Warrant beneficially owns more than 4.99% in the aggregate
of the issued and outstanding shares of our Common Stock calculated immediately after giving effect to the issuance of shares of our Common
Stock upon the exercise of the Warrant. The Warrants contain provisions that protect their holders against dilution by adjustment of the
purchase price in certain events such as stock dividends, stock splits and other similar events.
If at the time of a Warrant’s exercise there is no effective
registration statement registering, or no current prospectus available for, the resale of the Warrant Shares, then the holder will have
the right to exercise the Warrant by means of a cashless exercise. In addition, if (i) the volume-weighted average price of our Common
Stock for 20 consecutive trading days is at least 300% of the exercise price of the Warrants, (ii) the dollar trading volume of our Common
Stock for each trading day within such 20-day trading period equals or exceeds $500,000, (iii) a registration statement providing for
the resale of the Warrant Shares is effective and such registration statement has been effective for six (6) months, (iv) the holder of
the Warrant is not in possession of any information provided by the Company that constitutes material nonpublic information and (v) the
Company has not breached any of the terms of the documents governing the Private Placement (regardless of if such breach has been cured),
then we may redeem the Warrants at a price of $0.001 per Warrant up to one-half, in the aggregate, of the Warrants upon not less than
20 days’ prior written notice of redemption to each holder, subject to certain customary restrictions.
Potential Effects of Authorized but Unissued Stock
We have shares of Common Stock and preferred stock available for future
issuance without stockholder approval. We may utilize these additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock.
The existence of unissued and unreserved Common Stock and preferred
stock may enable our board of directors to issue shares to persons friendly to current management or to issue preferred stock with terms
that could render more difficult or discourage a third-party attempt to obtain control of our company by means of a merger, tender offer,
proxy contest or otherwise, thereby protecting the continuity of our company’s management. In addition, our board of directors has
the discretion to determine designations, rights, preferences, privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the fullest extent permissible
under the DGCL and subject to any limitations set forth in our Amended Charter. The purpose of authorizing our board of directors to issue
preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible
financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third-party to acquire,
or could discourage a third party from acquiring, a majority of our outstanding voting stock.
Dividend Policy
We currently intend to use all available funds to develop our business
and do not anticipate that we will pay dividends in the future. We can give no assurances that we will ever have excess funds available
to pay dividends.
Anti-Takeover Effects of Certain Provisions of our Certificate of
Incorporation, Bylaws and the DGCL
Amended Charter and Bylaws
Provisions of our Amended Charter and Bylaws may delay or discourage
transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders
might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.
Therefore, these provisions could adversely affect the price of our Common Stock. Among other things, our Amended Charter and Bylaws:
| ● | permit our board of directors to issue up to 12,500,000 shares
of preferred stock, without further action by the stockholders, with any rights, preferences and privileges as they may designate, including
the right to approve an acquisition or other change in control; and |
| ● | do not provide for cumulative voting rights (therefore allowing
the holders of a majority of the shares of Common Stock entitled to vote in any election of directors to elect all of the directors standing
for election, if they should so choose). |
Delaware Law
We are subject to Section 203 of the DGCL. Section 203 generally prohibits
a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction in which the person became an interested stockholder, unless:
| ● | prior to the date of the transaction, the board of directors
of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested
stockholder; |
| ● | the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares
outstanding (i) shares owned by persons who are directors and also officers and (ii) shares owned by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or
exchange offer; or |
|
● |
on or subsequent to the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66⅔% of the outstanding voting stock which is not owned by the interested stockholder. |
Section 203 defines a business combination to include:
|
● |
any merger or consolidation involving the corporation and the interested stockholder; |
|
● |
any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; |
|
● |
subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or |
|
● |
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an “interested stockholder”
as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated
with, or controlling, or controlled by, the entity or person. The term “owner” is broadly defined to include any person that,
individually, with or through that person’s affiliates or associates, among other things, beneficially owns the stock, or has the
right to acquire the stock, whether or not the right is immediately exercisable, under any agreement or understanding or upon the exercise
of warrants or options or otherwise or has the right to vote the stock under any agreement or understanding, or has an agreement or understanding
with the beneficial owner of the stock for the purpose of acquiring, holding, voting or disposing of the stock.
The restrictions in Section 203 do not apply to corporations that have
elected, in the manner provided in Section 203, not to be subject to Section 203 of the DGCL or, with certain exceptions, which do not
have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders. Our Amended
Charter and Amended Bylaws do not opt out of Section 203.
Section 203 could delay or prohibit mergers or other takeover or change
in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even though such a transaction may offer
our stockholders the opportunity to sell their stock at a price above the price at which our Common Stock is quoted for sale.
Security Ownership
of
Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of Common Stock as of April 15, 2024:
|
● |
each person, or group of affiliated persons, known by us to beneficially own more than 5% of outstanding shares of any class of our voting securities; |
|
● |
each of our named executive officers; and |
|
● |
all directors and executive officers as a group. |
Unless otherwise indicated below, beneficial ownership is determined
according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she, or it possesses
sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable
within 60 days.
The beneficial ownership percentages set forth in the following
table are based on 495,454,546 shares of Common Stock and 10,463,363 shares of Preferred Stock, which are entitled to cast an aggregate
of 749,721,570 votes, outstanding as of April 15, 2024.
Name of Beneficial Owner (1) | |
Number of
Shares of
Common
Stock
Beneficially
Owned | | |
Percent of
Class | | |
Number of Shares of
Series A
Convertible
Preferred
Stock
Beneficial
Owned | | |
Percent of
Class | | |
Percent of
Voting
Power (2) | |
5% Stockholders | |
| | |
| | |
| | |
| | |
| |
Orin Hirschmann/AIGH (3) | |
| 49,588,407 | (4) | |
| 9.99 | % | |
| 3,054,544 | (5) | |
| 29.19 | % | |
| 4.11 | % |
Congregation Ahavas Tzdokah Vchesed Inc. (6) | |
| 61,722,996 | (7) | |
| 12.46 | % | |
| — | | |
| — | | |
| 5.12 | % |
Moshe Bodner | |
| 54,989,344 | (8) | |
| 9.99 | % | |
| 1,511,873 | | |
| 14.45 | % | |
| 4.56 | % |
The Hewlett Fund (9) | |
| 45,453,150 | (10) | |
| 8.65 | % | |
| 301,804 | | |
| 2.88 | % | |
| 3.77 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Directors and Named Executive Officers | |
| | | |
| | | |
| | | |
| | | |
| | |
Eliyahu (Lee) Haddad | |
| 63,977,143 | (11) | |
| 11.44 | % | |
| 45,455 | | |
| * | | |
| * | |
Moshe Shvets | |
| 54,989,344 | (12) | |
| 9.99 | % | |
| 691,621 | | |
| 6.61 | % | |
| 1.38 | % |
Chaim Hurvitz | |
| 54,989,344 | (13) | |
| 9.99 | % | |
| 592,151 | | |
| 5.66 | % | |
| 4.56 | % |
Chaim Ravad | |
| 54,989,344 | (14) | |
| 9.99 | % | |
| 2,150,946 | | |
| 20.56 | % | |
| 4.56 | % |
Yehuda Englander | |
| 3,199,225 | (15) | |
| * | | |
| — | | |
| — | | |
| * | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
All Directors and Executive Officers as a Group (5 persons) | |
| 223,144,400 | | |
| 42.05 | % | |
| 3,480,172 | | |
| 33.26 | % | |
| 12.47 | % |
| * | Represents beneficial ownership of less than 1%. |
(1) |
Except as expressly noted in the footnotes below, beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. The amounts set forth in this table reflect the
application of various limitations on the exercise of certain warrants and the conversion of shares of Preferred Stock, including
beneficial ownership limitations.
Unless otherwise indicated below, the address for each beneficial
owner listed is c/o Dror Ortho-Design, Inc., Shatner 3, Jerusalem, Israel. |
| (2) | Stockholders are entitled to one vote per each share of Common
Stock owned as of. Stockholders are entitled to the number of votes per each share of Preferred Stock owned equal to the number of shares
of Common Stock into such share of Preferred Stock is convertible into pursuant to the Certificate of Designations, after giving effect
to beneficial ownership limitations. |
| (3) | Mr. Orin Hirschman has sole voting and dispositive power over
shares held by AIGH Investment Partners, LP (“AIGH LP”), and its affiliated entities, AIGH Investment Partners, LLC (“AIGH
LLC”), WVP Emerging Manager Onshore Fund, LLC – AIGH Series (“WVP-AIGH”), and WVP Emerging Manager Onshore Fund,
LLC – Optimized Equity Series (“WVP-OES”). The principal business address of Mr. Hirschman and each such entity is
6006 Berkeley Avenue, Baltimore, MD 21209. |
| (4) | Represents (1) 30,000,000
shares of Common Stock held by AIGH LP, (2) 8,662,500 shares of Common Stock held by AIGH
LLC, (3) 7,000,000 shares of Common Stock held by WVP-AIGH, (4) 3,000,000 shares of Common
Stock held by WVP-OES, and (5) 925,907 shares of Common Stock issuable upon the conversion
of shares of Preferred Stock held by such entities that are convertible within 60 days of
April 15, 2024. |
| (5) | Represents (1) 1,600,000 shares of Preferred Stock held by AIGH
LP, (2) 954,543.85 shares of Preferred Stock held by AIGH LLC, (3) 400,000 shares of Preferred Stock held by WVP-AIGH, and (4) 100,000
shares of Preferred Stock held by WVP-OES. |
| (6) | Rabbi Nusyn Pinches Erlich has sole voting and dispositive power
over these shares. The address for Congregation Ahavas Tzdokah Vchesed Inc. is 1655 E 24th St, Brooklyn, NY 11229. |
| (7) | Represents shares of Common Stock. |
| (8) | Represents 54,989,344
shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by
Mr. Bodner that are convertible within 60 days of April 15, 2024. |
| (9) | Martin Chopp has voting and dispositive power over the securities
held by The Hewlett Fund LP (“Hewlett”). Hewlett’s address is 100 Merrick Road, Suite 400W, Rockville Centre, NY 11570. |
| (10) | Represents (1) 15,272,727
shares of Common Stock held by Hewlett and (2) 30,180,423 shares of Common Stock
issuable upon the conversion of shares of Preferred Stock held by Hewlett that are convertible
within 60 days of April 15, 2024 |
| (11) | Represents 63,977,143
shares of Common Stock issuable upon the exercise of options upon that are exercisable within
60 days of April 15, 2024. |
| (12) | Represents (1) 38,385,796
shares of Common Stock issuable upon the exercise of options and (2) 26,141,712 shares
of Common Stock issuable upon the conversion of shares of Preferred Stock held by Mr. Shvets
that are exercisable or convertible within 60 days of April 15, 2024. |
| (13) | Represents 54,989,344
shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by
Shirat Hachaim Ltd. (“Shirat Hachaim”) that are convertible within 60 days of
April 15, 2024. Mr. Hurvitz is the sole owner of Shirat Hachaim and has sole voting
and dispositive power over shares held by Shirat Hachaim. |
| (14) | Represents 54,989,344
shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by
Mr. Ravad that are convertible within 60 days of April 15, 2024. |
| (15) | Represents 3,199,225
shares of Common Stock issuable upon the exercise of options held by Mr. Englander that are
exercisable within 60 days of April 15, 2024. |
Selling Securityholders
The shares of Common Stock being offered by the Selling Securityholders
are those issued to the Selling Securityholders in connection with the Private Placement and the Share Exchange, as applicable, and those
issuable to the Selling Securityholders upon conversion of the Series A Preferred Stock and upon exercise of the Private Placement
Warrants and the Share Exchange Warrants. For additional information regarding the issuances of those shares of Common Stock, Series A
Preferred Stock, the Private Placement Warrants and the Share Exchange Warrants, see “Management’s Discussion and Analysis
–Our Company – Private Placement” and “Management’s Discussion and Analysis –Our Company –
Share Exchange” above. We are registering the shares of Common Stock in order to permit the Selling Securityholders to offer
the shares for resale from time to time. Except for the ownership of the shares of Common Stock, Series A Preferred Stock, the Private
Placement Warrants, and the Share Exchange Warrants, and except as disclosed in our periodic reports and current reports filed with the
SEC from time to time, the Selling Securityholders have not had any material relationship with us within the past three years.
The table below lists the Selling Securityholders and other information
regarding the beneficial ownership of the shares of Common Stock by each of the Selling Securityholders. The second column lists the
number of shares of Common Stock beneficially owned by each Selling Securityholder, based on its ownership of the shares of Common Stock,
Series A Preferred Stock the Private Placement Warrants, and the Share Exchange Warrants, as of April 15, 2024, assuming conversion
of the Series A Preferred Stock and exercise of the Private Placement Warrants and Share Exchange Warrants held by the Selling Securityholders
on that date, taking into account beneficial ownership limitations on conversions or exercises.
The third column lists the shares of Common Stock being offered by
this prospectus by the Selling Securityholders.
In accordance with the terms of a Registration Rights Agreement, this
prospectus generally covers the resale of the sum of (i) Private Placement Shares and shares of Common Stock issued in connection
with the Share Exchange, (ii) the maximum number of Conversion Shares issuable upon conversion of the shares of Series A Preferred
Stock issued in connection with the Private Placement, (ii) the maximum number of Conversion Shares issuable upon conversion of the
shares of Series A Preferred Stock issued to the investors in the December 2021 Transaction in connection with the Share Exchange,
and (iv) the maximum number of shares of Common Stock issuable upon exercise of the Private Placement Warrants, determined as if
the outstanding Series A Preferred Stock were fully converted and the Private Placement Warrants and the Share Exchange Warrants were
exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each
as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration
right agreement, without regard to any limitations on the conversion of the Series A Preferred Stock and exercise of the Private Placement
Warrants and the Share Exchange Warrants.
In addition, this prospectus covers the sum of (i) the number of shares
of Common Stock issued to the remaining Private Dror shareholders in the Share Exchange, (ii) the maximum number of Conversion Shares
issuable upon conversion of the Series A Preferred Stock issued to the remaining Private Dror shareholders in the Share Exchange,
and (iii) the maximum number of shares of Common Stock issuable upon exercise of the Share Exchange Warrants.
The fourth and fifth columns assume the sale of all of the shares offered
by the Selling Securityholders pursuant to this prospectus.
Under the terms of the Series A Preferred Stock and the terms of the
Warrants, a Selling Securityholder may not convert the Series A Preferred Stock and may not exercise any Warrant, respectively, to the
extent such conversion or exercise, as applicable, would cause such Selling Securityholder, together with its affiliates and attribution
parties, to beneficially own a number of shares of Common Stock which would exceed 4.99% or 9.99%, as applicable, of our then outstanding
Common Stock following such conversion or exercise, excluding for purposes of such determination shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and exercise of the Private Placement Warrants or the Share Exchange Warrants, respectively,
that have not been converted and exercised. The number of shares in the second and fourth columns reflect this limitation. The Selling
Securityholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
Name of Selling Securityholder | |
Number of
Shares of
Common
Stock
Beneficially
Owned
Prior to
Offering (1) | | |
Maximum
Number of
Shares of
Common
Stock to be
Sold
Pursuant
to this
Prospectus | | |
Number of
shares of
Common
Stock
Beneficially
Owned
After
Offering | | |
Percentage
of Common
Stock
Beneficially
Owned
After
Offering | |
AIGH Investment Partners, LP (2) | |
| 49,588,407 | | |
| 380,000,000 | | |
| 8,662,500 | | |
| * | |
WVP Emerging Manager Onshore Fund, LLC – AIGH Series (3) | |
| 49,588,407 | | |
| 94,000,000 | | |
| 8,662,500 | | |
| * | |
WVP Emerging Manager Onshore Fund, LLC – Optimized Equity Series (4) | |
| 49,588,407 | | |
| 26,000,000 | | |
| 8,662,500 | | |
| * | |
AIGH Investment Partners, LLC (5) | |
| 49,588,407 | | |
| 140,908,930 | | |
| 8,662,500 | | |
| * | |
Timothy Hasara (6) | |
| 24,828,008 | | |
| 45,454,544 | | |
| — | | |
| * | |
Charles Alpert (7) | |
| 27,746,840 | | |
| 54,545,454 | | |
| — | | |
| * | |
Fame Associates (8) | |
| 25,066,776 | | |
| 27,272,029 | | |
| — | | |
| * | |
Mazel D&K (9) | |
| 24,947,429 | | |
| 27,271,679 | | |
| — | | |
| * | |
Allele Capital Partners (10) | |
| 18,181,818 | | |
| 18,181,818 | | |
| — | | |
| * | |
AME Capital (11) | |
| 37,300,689 | | |
| 40,911,024 | | |
| — | | |
| * | |
Fieldcrest Holdings LLC (12) | |
| 13,636,362 | | |
| 13,636,362 | | |
| — | | |
| * | |
Moshe Stern (13) | |
| 4,545,454 | | |
| 4,545,454 | | |
| — | | |
| * | |
Lee Grohman (14) | |
| 9,090,908 | | |
| 9,090,908 | | |
| — | | |
| * | |
Esti Circle LLC (15) | |
| 18,181,818 | | |
| 18,181,818 | | |
| — | | |
| * | |
Paul Packer (16) | |
| 18,181,818 | | |
| 18,181,818 | | |
| — | | |
| * | |
The Hewlett Fund LP (17) | |
| 53,294,260 | | |
| 72,725,877 | | |
| — | | |
| * | |
Yaakov Bodner (18) | |
| 38,940,787 | | |
| 59,654,765 | | |
| — | | |
| * | |
Bodner 2020 Descendants Trust (19) | |
| 22,726,225 | | |
| 22,726,225 | | |
| — | | |
| * | |
Eliyahu (Lee) Haddad (20) | |
| 63,977,143 | | |
| 9,090,908 | | |
| 63,977,143 | | |
| 11.25 | % |
Anekam Investments LLC (21) | |
| 9,090,908 | | |
| 9,090,908 | | |
| — | | |
| * | |
SWE Estate and Sports Holding GmbH (22) | |
| 18,181,818 | | |
| 18,181,818 | | |
| — | | |
| * | |
Sunshine Equity Partners LLC (23) | |
| 9,090,211 | | |
| 9,090,211 | | |
| — | | |
| * | |
Meadows Management LLC (24) | |
| 9,090,211 | | |
| 9,090,211 | | |
| — | | |
| * | |
East Holdings LLC (25) | |
| 22,729,206 | | |
| 22,729,206 | | |
| — | | |
| * | |
Joseph Teichman (26) | |
| 9,090,211 | | |
| 9,090,211 | | |
| — | | |
| * | |
Rochel Adler (27) | |
| 4,545,106 | | |
| 4,545,106 | | |
| — | | |
| * | |
Janna Court LLC (28) | |
| 36,364,523 | | |
| 36,364,523 | | |
| — | | |
| * | |
Pearl Family LLC (29) | |
| 9,090,211 | | |
| 9,090,211 | | |
| — | | |
| * | |
Brooklyn 2021 Trust (30) | |
| 22,729,206 | | |
| 22,729,206 | | |
| — | | |
| * | |
Rabbi Hershel Berkowitz (31) | |
| 4,545,106 | | |
| 4,545,106 | | |
| — | | |
| * | |
RIGC Fund III LLC (32) | |
| 18,180,423 | | |
| 18,180,423 | | |
| — | | |
| * | |
Ronen Shachar (33) | |
| 36,772,700 | | |
| 36,772,700 | | |
| — | | |
| * | |
Chaim Ravad (34) | |
| 54,989,344 | | |
| 443,346,380 | | |
| — | | |
| * | |
Shirat HaChaim Ltd (35) | |
| 54,989,344 | | |
| 101,632,388 | | |
| — | | |
| * | |
Moshe Shvets (36) | |
| 54,989,344 | | |
| 95,303,806 | | |
| 38,385,796 | | |
| 6.10 | % |
Moshe Bodner (37) | |
| 54,989,344 | | |
| 297,516,884 | | |
| — | | |
| * | |
Medici Medical Ltd. (38) | |
| 54,989,344 | | |
| 74,637,549 | | |
| — | | |
| * | |
| (1) | This table and the information
in the notes below are based upon information supplied by the Selling Securityholders and
upon 495,454,546 shares of Common Stock issued and outstanding as of April 15, 2024
(prior to any deemed issuance of any shares issuable upon conversion of the Series A
Preferred Stock or exercise of any Private Placement Warrants or Share Exchange Warrants).
Except as expressly noted in the footnotes below, beneficial ownership has been determined
in accordance with Rule 13d-3 under the Exchange Act and so includes securities each person
has a right to acquire within 60 days of April 15, 2024. The amounts set forth in this
column reflect the application of various limitations on the issuance of Conversion Shares
and Warrant Shares in the Certificate of Designations and the Warrants, respectively, including
beneficial ownership limitations. |
|
Unless otherwise indicated in the applicable footnote, the address for each Selling Securityholder is c/o Dror Ortho-Design, Inc., Shatner 3, Jerusalem, Israel. |
(2) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 30,000,000 shares of Common Stock, (ii) 160,000,000 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (iii) 190,000,000 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. Shares beneficially owned include 8,662,500 shares of Common Stock held by AIGH Investment Partners, LLC (“AIGH LLC”).
Mr. Orin Hirschmann has sole voting and dispositive power over shares held by AIGH Investment Partners, LP (“AIGH LP”), and its affiliated entities, AIGH LLC, WVP Emerging Manager Onshore Fund, LLC – AIGH Series (“WVP-AIGH”), and WVP Emerging Manager Onshore Fund, LLC – Optimized Equity Series (“WVO-OES”). Shares held by AIGH LP, WVP-AIGH, WVP-OES, and AIGH LLC are aggregated when taking into account beneficial ownership limitations on conversions or exercises. The principal business address of Mr. Hirschman and each such entity is 6006 Berkeley Avenue, Baltimore, MD 21209. |
(3) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 7,000,000 shares of Common Stock, (ii) 40,000,000 Conversion Shares issuable upon conversion of the Series A Preferred Stock, and (iii) 47,000,000 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. Shares held by AIGH LP, WVP-OES, and AIGH LLC are aggregated with those held by WVP-AIGH when taking into account beneficial ownership limitations on conversions or exercises.
Mr. Orin Hirschmann has sole voting and dispositive power over shares held by WVP-AIGH. |
(4) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 3,000,000 shares of Common Stock, (ii) 10,000,000 Conversion Shares issuable upon conversion of the Series A Preferred Stock, and (iii) 13,000,000 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. Shares held by AIGH LP, WVP-AIGH, and AIGH LLC are aggregated with those held by WVP-OES when taking into account beneficial ownership limitations on conversions or exercises.
Mr. Orin Hirschmann has sole voting and dispositive power over shares held by WVP-OES. |
(5) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 95,454,385 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 45,454,545 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. Shares held by AIGH LP, WVP AIGH, and WVP OES are aggregated with those held by AIGH LLC when taking into account beneficial ownership limitations on conversions or exercises.
Mr. Orin Hirschmann has sole voting and dispositive power over shares held by AIGH LLC. |
(6) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 22,727,272 shares of Common Stock and (ii) 22,727,272 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(7) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 24,272,727 shares of Common Stock, (ii) 3,000,000 Conversion Shares issuable upon conversion of the Series A Preferred Stock, and (iii) 27,272,727 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants |
(8) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 18,181,120 shares of Common Stock and (ii) 9,090,909 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(9) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 20,453,498 shares of Common Stock and (ii) 6,818,181 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(10) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 9,090,909 shares of Common Stock and (ii) 9,090,909 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(11) |
Securities to be sold pursuant to this prospectus consist of (i) 19,516,088 shares of Common Stock, (ii) 12,304,027 Conversion Shares issuable upon conversion of the Series A Preferred Stock, (iii) 9,090,909 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(12) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 6,818,181 shares of Common Stock and (ii) 6,818,181 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(13) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 2,272,727 shares of Common Stock and (ii) 2,272,727 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(14) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 4,545,454 shares of Common Stock and (ii) 4,545,454 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(15) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 9,090,909 shares of Common Stock and (ii) 9,090,909 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(16) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 9,090,909 shares of Common Stock and (ii) 9,090,909 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(17) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 15,272,727 shares of Common Stock, (ii) 30,180,423 Conversion Shares issuable upon conversion of the Series A Preferred Stock, and (iii) 27,272,727 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(18) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 13,636,363 shares of Common Stock, (ii) 13,635,317 Conversion Shares issuable upon conversion of the Series A Preferred Stock, (iii) 13,636,363 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants, and (iv) 18,746,722 Share Exchange Warrant Shares issuable upon exercise of Share Exchange Warrants. |
(19) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 4,545,454 shares of Common Stock, (ii) 13,635,317 Conversion Shares issuable upon conversion of the Series A Preferred Stock, and (iii) 4,545,454 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(20) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 4,545,454 Conversion Shares
issuable upon conversion of the Series A Preferred Stock and (ii) 4,545,454 Private Placement Warrant Shares issuable
upon exercise of Private Placement Warrants. Shares beneficially owned include 63,977,143 shares of Common Stock issuable upon the
exercise of options held by Mr. Haddad that are exercisable within 60 days of April 15, 2024. |
(21) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 4,545,454 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 4,545,454 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(22) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 9,090,909 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 9,090,909 Private Placement Warrant Shares issuable upon exercise of Private Placement Warrants. |
(23) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 9,090,211 shares of Common Stock. |
(24) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 9,090,211 shares of Common Stock. |
(25) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 22,729,206 Conversion Shares issuable upon conversion of the Series A Preferred Stock. |
(26) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 9,090,211 shares of Common Stock. |
(27) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 4,545,106 shares of Common Stock. |
(28) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 36,364,523 Conversion Shares issuable upon conversion of the Series A Preferred Stock. |
(29) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 9,090,211 shares of Common Stock. |
(30) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 10,000,000 shares of Common Stock and (ii) 12,729,206 Conversion Shares issuable upon conversion of the Series A Preferred Stock. |
(31) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 4,545,106 shares of Common Stock. |
(32) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 18,180,423 shares of Common Stock. |
(33) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of 36,772,700 Conversion Shares issuable upon conversion of the Series A Preferred Stock. |
(34) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 215,094,554 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 228,251,826 Share Exchange Warrant Shares issuable upon exercise of Share Exchange Warrants. |
(35) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 59,215,079 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 42,417,309 Share Exchange Warrant Shares issuable upon exercise of Share Exchange Warrants. Chaim Hurvitz has voting and investment control over the securities held by Shirat HaChaim Ltd. |
(36) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 69,162,094 Conversion
Shares issuable upon conversion of the Series A Preferred Stock and (ii) 26,141,712 Share Exchange Warrant Shares issuable
upon exercise of Share Exchange Warrants. Shares beneficially owned include 38,385,796 shares of Common Stock issuable upon the exercise
of options held by Mr. Shvets that are exercisable within 60 days of April 15, 2024. |
(37) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 151,187,279 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 146,329,605 Share Exchange Warrant Shares issuable upon exercise of Share Exchange Warrants. |
(38) |
Maximum number of shares of Common Stock to be sold pursuant to this prospectus consist of (i) 46,690,297 Conversion Shares issuable upon conversion of the Series A Preferred Stock and (ii) 27,947,252 Share Exchange Warrant Shares issuable upon exercise of Share Exchange Warrants. |
Certain Relationships
And Related Person Transactions
In addition to the compensation arrangements discussed under “Executive
Compensation,” the following is a description of transactions since January 1, 2022 to which we have been a party, in which the
amount involved exceeds or will exceed the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end
for the last two completed fiscal years, and in which any of our directors, executive officers or beneficial owners of more than 5% of
our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest. We also
describe below certain other transactions with our directors, executive officers and stockholders.
We believe that we have executed all of the transactions set forth
below on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that
all future transactions between us and our officers, directors and principal stockholders and their affiliates are approved by our audit
committee, once it has been formed and its members appointed, and a majority of the members of our Board, including a majority of the
independent and disinterested members of our Board, and are on terms no less favorable to us than those that we could obtain from unaffiliated
third parties.
Indemnification Agreements and Directors’ and Officers’
Liability Insurance
We have entered into separate indemnification agreements with our directors
and executive officers, in addition to indemnification provided for in our Amended Charter and our Bylaws. Each indemnification agreement
provides for indemnification and advancement by the Company of certain expenses and costs relating to claims, suits, or proceedings arising
from service to the Company or, at its request, service to other entities to the fullest extent permitted by applicable law. We also maintain
directors’ and officers’ liability insurance.
Material U.S. Federal
Tax Considerations For Holders Of
Common Stock And Warrants
The following discussion is a summary of the material U.S. federal
income tax consequences relating to the purchase, ownership, and disposition of our Common Stock (including through the exercise of Warrants
and conversion of Preferred Stock), but does not purport to be a complete analysis of all potential tax effects. The effects of other
U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or non-U.S. tax laws are not discussed.
This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative
pronouncements of the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations.
Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of our Common
Stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance
the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership,
and disposition of our Common Stock.
This discussion is limited to holders of our Common Stock as a “capital
asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address
all U.S. federal income tax consequences relevant to a holder’s particular circumstances, including the impact of the Medicare
contribution tax on net investment income and the alternative minimum tax. In addition, it does not address consequences relevant to holders
subject to special rules, including, without limitation:
|
● |
U.S. expatriates and former citizens or long-term residents of the United States; |
|
● |
persons holding our Common Stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
|
● |
banks, insurance companies, and other financial institutions; |
|
● |
brokers, dealers, or traders in securities; |
|
● |
“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax; |
|
● |
partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein); |
|
● |
tax-exempt organizations or governmental organizations; |
|
● |
persons deemed to sell our Common Stock under the constructive sale provisions of the Code; |
|
● |
persons who hold or receive our Common Stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
|
● |
tax-qualified retirement plans; and |
|
● |
“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds. |
If an entity treated as a partnership for U.S. federal income
tax purposes holds our Common Stock, the tax treatment of an owner in such an entity will depend on the status of the owner, the activities
of such entity, and certain determinations made at the owner level. Accordingly, entities treated as partnerships for U.S. federal
income tax purposes holding our Common Stock and the owners in such entities should consult their tax advisors regarding the U.S. federal
income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATIONAL
PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME
TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF OUR Common Stock
ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, OR NON-U.S. TAXING JURISDICTION OR UNDER
ANY APPLICABLE INCOME TAX TREATY.
U.S. Holders
For purposes of this discussion, a “U.S. Holder” is
any beneficial owner of our Common Stock that is for U.S. federal income tax purposes:
|
● |
an individual who is a citizen or resident of the United States; |
|
● |
a corporation (or other entity taxable as a corporation) created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
|
● |
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
|
● |
a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. |
Taxation of Distributions
As described in the section titled “Dividend Policy,” we
do not anticipate paying any dividends on our Common Stock in the foreseeable future. However, if we make distributions of cash or property
on our Common Stock, the gross amount of distributions made with respect to the Common Stock generally will be includible in a U.S. Holder’s
gross income, in accordance with such U.S. Holder’s method of accounting for U.S. federal income tax purposes, as dividend
income to the extent that such distributions are paid out of our current or accumulated earnings and profits as determined under U.S. federal
income tax principles. Dividends will be taxable to a corporate U.S. Holder at regular corporate tax rates, and a portion of such
dividends (either 50%, 65% or 100%, depending upon the corporate U.S. Holder’s ownership of the Company) will generally be
eligible for the dividends received deduction if the requisite holding period is satisfied. Distributions in excess of our current or
accumulated earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its Common Stock (but
not below zero) and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such Common Stock, as
described under “— Gain or Loss on Sale, Taxable Exchange, or Other Taxable Disposition of Common Stock” below.
With respect to non-corporate U.S. Holders and with certain exceptions,
dividends may be “qualified dividend income,” which is taxed at the lower applicable long-term capital gain rate provided
that the U.S. Holder satisfies certain holding period requirements and the U.S. Holder is not under an obligation to make related payments
with respect to positions in substantially similar or related property. If the holding period requirements are not satisfied, then non-corporate
U.S. Holders may be subject to tax on such dividends at regular ordinary income tax rates instead of the preferential rate that applies
to qualified dividend income.
Gain or Loss on Sale, Taxable Exchange, or Other Taxable Disposition
of Common Stock
Upon a sale or other taxable disposition of our Common Stock, a U.S. Holder
generally will recognize capital gain or loss. Generally, the amount of such gain or loss is equal to the difference between (i) the
sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. Holder’s
adjusted tax basis in its Common Stock so disposed of. A U.S. Holder’s adjusted tax basis in its Common Stock generally will
equal the U.S. Holder’s adjusted cost less any prior distributions treated as a return of capital. In the case of any shares
of Common Stock originally acquired as part of an investment unit, the acquisition cost for the share of Common Stock that was part of
such unit would equal an allocable portion of the acquisition cost of the unit based on the relative fair market values of the components
of the unit at the time of acquisition.
Any such capital gain or loss generally will be long-term capital gain
or loss if the U.S. Holder’s holding period for the Common Stock so disposed of exceeds one year. If the holding period requirements
are not satisfied, any gain on a sale or taxable disposition of the Common Stock would be subject to short-term capital gain treatment
and would be taxed at regular ordinary income tax rates. Long-term capital gains recognized by non-corporate U.S. Holders will be
eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Exercise of a Warrant
Except as discussed below with respect to the cashless exercise of
a warrant, a U.S. Holder generally will not recognize gain or loss upon the exercise of a Warrant. A U.S. Holder’s tax
basis in a share of our Common Stock received upon exercise of the Warrant generally will be an amount equal to the sum of the U.S. Holder’s
initial investment in the Warrant and the exercise price. The U.S. Holder’s holding period for the share of Common Stock received
upon exercise of the Warrant generally will commence on the date of exercise of the Warrant or the date following the date of exercise
of the Warrant; however, in either case the holding period will not include the period during which the U.S. Holder held the Warrant.
The tax consequences of a cashless exercise of a Warrant are not clear
under current tax law. A cashless exercise may be tax-free, either because the exercise is not a realization event or because the exercise
is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. Holder’s
basis in the share of Common Stock received would equal the holder’s basis in the Warrants used to effect the cashless exercise.
If the cashless exercise is not treated as a realization event, a U.S. Holder’s holding period in the Common Stock generally
would be treated as commencing on the date following the date of exercise (or possibly the date of exercise of the Warrant). If the cashless
exercise were treated as a recapitalization, the holding period of the Common Stock would include the holding period of the Warrant.
It is also possible that a cashless exercise could be treated in part
as a taxable exchange in which gain or loss would be recognized. In such event, a portion of the Warrants to be exercised on a cashless
basis could, for U.S. federal income tax purposes, be deemed to have been surrendered in consideration for the exercise price of
the remaining Warrants, which would be deemed to be exercised. For this purpose, a U.S. Holder could be deemed to have surrendered
Warrants having an aggregate fair market value equal to the exercise price for the total number of Warrants to be deemed exercised. The
U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the Warrants
deemed surrendered and the U.S. Holder’s tax basis in such Warrants. In this case, a U.S. Holder’s tax basis in
the Common Stock received would equal the sum of the U.S. Holder’s initial investment in the Warrants deemed exercised and
the exercise price of such Warrants. A U.S. Holder’s holding period for the Common Stock in such case generally would commence
on the date following the date of exercise (or possibly the date of exercise) of the Warrant.
Due to the absence of authority on the U.S. federal income tax
treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described
above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax
consequences of a cashless exercise.
Conversion of Preferred Stock into Common Stock
As a general rule, a U.S. Holder will not recognize any gain or loss
in respect of the receipt of Common Stock upon the conversion of the Preferred Stock, except to the extent of dividends in arrears, as
described below. Except to the extent of Common Stock treated as received in respect of any dividends in arrears as described below, the
adjusted tax basis of Common Stock received on conversion will equal the adjusted tax basis of the Preferred Stock converted, and the
holding period of such Common Stock received on conversion will generally include the period during which the Preferred Stock was held
prior to conversion.
Any cash received attributable to any declared but unpaid dividends
on the Preferred Stock will be treated as described above under “—Taxation of Distributions.” Furthermore, although
it is not free from doubt, it is expected that Common Stock received in respect of declared but unpaid dividends on the Preferred Stock
will be treated as described above under “—Taxation of Distributions.” The adjusted tax basis of any Common Stock received
upon conversion that is attributable to accrued and unpaid dividends will equal its fair market value at the time it is distributed and
its holding period will begin on the day following the distribution.
You should consult your own tax advisor to determine the specific tax
treatment of the receipt of shares in respect of accrued but unpaid dividends in your particular circumstances.
Information Reporting and Backup Withholding
Distributions with respect to Common Stock to a U.S. Holder, regardless
of whether such distributions constitute dividends, and proceeds from the disposition of our Common Stock by a U.S. Holder generally
are subject to information reporting to the IRS and possible U.S. backup withholding, unless the U.S. Holder is an exempt recipient.
Backup withholding may apply to such payments if a U.S. Holder fails to furnish a correct taxpayer identification number, a certification
of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Backup withholding is not an additional tax; rather, the U.S. federal
income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in
an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished
to the IRS in a timely manner.
Non-U.S. Holders
For purposes of this discussion, a “Non-U.S. Holder”
is any beneficial owner of our Common Stock that is for U.S. federal income tax purposes:
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a non-resident alien individual; |
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a foreign corporation; or |
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a foreign estate or trust. |
Taxation of Distributions
If we do make distributions of cash or property on our Common Stock,
such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal
income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder’s adjusted
tax basis in its Common Stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under
“— Gain or Loss on Sale, Taxable Exchange, or Other Taxable Disposition of Common Stock.”
Subject to the discussion below on effectively connected income, dividends
paid to a Non-U.S. Holder will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such
lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E
(or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish
the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely
filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to
benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected
with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are
attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption,
the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends
are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal
income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits
tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted
for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different
rules.
Gain or Loss on Sale, Taxable Exchange, or other Taxable Disposition
of Common Stock
A Non-U.S. Holder will not be subject to U.S. federal income tax
on any gain realized upon the sale or other taxable disposition of our Common Stock unless:
|
● |
the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); |
|
● |
the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or |
|
● |
our Common Stock constitute U.S. real property interests (“USRPI”) by reason of our status as a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes. |
Gain described in the first bullet point above generally will be subject
to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject
to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected
gain, as adjusted for certain items.
A Non-U.S. Holder described in the second bullet point above will
be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on gain
realized upon the sale or other taxable disposition of our Common Stock, which may be offset by U.S. source capital losses of the
Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder
has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently
are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the
fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business
assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become
a USRPHC, gain arising from the sale or other taxable disposition of our Common Stock and warrants by a Non-U.S. Holder will not
be subject to U.S. federal income tax if our Common Stock and warrants are “regularly traded,” as defined by applicable
Treasury Regulations, on an established securities market and such Non-U.S. Holder owned, actually and constructively, 5% or less
of our Common Stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the
Non-U.S. Holder’s holding period.
Non-U.S. Holders should consult their tax advisors regarding potentially
applicable income tax treaties that may provide for different rules.
Exercise of a Warrant
The characterization for U.S. federal income tax purposes of the
exercise, redemption or lapse of a warrant held by a Non-U.S. Holder will generally correspond to the characterization described
under “— U.S. Holders — Exercise of a Warrant” above, although to the extent a cashless exercise
results in a taxable exchange, the consequences would follow those described above in “— Gain or Loss on Sale, Taxable
Exchange, or Other Taxable Disposition of Common Stock.”
Conversion of Preferred Stock into Common Stock
Non-U.S. Holders generally will not recognize any gain or loss by reason
of receiving Common Stock in exchange for Preferred Stock upon conversion of the Preferred Stock. Any cash received attributable to declared
but unpaid dividends on the Preferred Stock will be treated as described above under “—Taxation of Distributions.” Furthermore,
although it is not free from doubt, it is expected that Common Stock received in respect of declared but unpaid dividends on the Preferred
Stock will be treated as a taxable distribution, and we intend to withhold tax from such distributions to Non-U.S. Holders as described
above under “—Taxation of Distributions.” Non-U.S. Holders should consult their own tax advisors to determine the specific
tax treatment of the receipt of shares in respect of accrued but unpaid dividends in their particular circumstances.
Information Reporting and Backup Withholding
Payments of dividends on our Common Stock will not be subject to backup
withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States
person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, or W-8ECI,
or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any distributions
on our Common Stock paid to a Non-U.S. Holder, regardless of whether such distributions constitute dividends or whether any tax was
actually withheld. In addition, proceeds of the sale or other taxable disposition of our Common Stock within the United States or
conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable
withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is
a United States person or the holder otherwise establishes an exemption. Proceeds of a disposition of our Common Stock conducted
through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also
be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder
resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax
liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the
Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”)) on certain types of payments
made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed
on dividends on, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of,
our Common Stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined
in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial
foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes
identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial
foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to
the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the
Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons”
or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such
accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign
financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may
be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance,
withholding under FATCA generally applies to payments of dividends on our Common Stock. While withholding under FATCA would have applied
also to payments of gross proceeds from the sale or other disposition of our Common Stock, proposed Treasury Regulations eliminate FATCA
withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury
Regulations are issued.
Prospective investors should consult their tax advisors regarding the
potential application of withholding under FATCA to their investment in our Common Stock.
Plan Of Distribution
Each Selling Securityholder of the securities being offered pursuant
to this prospectus and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities
covered hereby on the OTC Pink Market or any other stock exchange, market or trading facility on which the securities are traded or in
private transactions. These sales may be at fixed or negotiated prices. A Selling Securityholder may use any one or more of the following
methods when selling securities:
|
● |
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
|
● |
block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
|
● |
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
|
● |
an exchange distribution in accordance with the rules of the applicable exchange; |
|
● |
privately negotiated transactions; |
|
● |
settlement of short sales made after the effective date of the Registration Statement; |
|
● |
in transactions through broker-dealers that agree with the Selling Securityholders to sell a specified number of such securities at a stipulated price per security; |
|
● |
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
|
● |
a combination of any such methods of sale; or |
|
● |
any other method permitted pursuant to applicable law. |
The Selling Securityholders may also sell securities under Rule 144
or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Securityholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Securityholders (or,
if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set
forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance
with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the sale of the securities or interests therein,
the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn
engage in short sales of the securities in the course of hedging the positions they assume. The Selling Securityholders may also sell
securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that
in turn may sell these securities. The Selling Securityholders may also enter into option or other transactions with broker-dealers or
other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial
institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant
to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Securityholders and any broker-dealers or agents that are
involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities
purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Securityholder has
informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to
distribute the securities.
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Securityholders against certain
losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the securities may be resold by the Selling Securityholders without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public
information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant
to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through
registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale
securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to
the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition,
the Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Securityholders or any other person.
We will make copies of this prospectus available to the Selling Securityholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
Certain of our security holders have entered into Lock-up Agreements. See “Certain Relationships and Related Person Transactions.”
We are required to pay all fees and expenses incident to the registration
of shares of our Common Stock to be offered and sold pursuant to this prospectus, which we expect to be approximately $45,200.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan or distribution.
Legal Matters
The validity of the securities offered hereby will be passed upon for
us by Haynes and Boone, LLP.
Experts
The financial statements of Private Dror for the fiscal years ended
December 31, 2023 and December 31, 2022 included in this prospectus have been audited by Barzily & Co., an independent registered
public accounting firm, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and
accounting.
Where You Can Find
Additional Information
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. We have also filed a registration statement on Form S-1, including exhibits, under the Securities
Act with respect to the shares of Common Stock offered by this prospectus. This prospectus is part of the registration statement, but
does not contain all of the information included in the registration statement or the exhibits. Our SEC filings are available to the public
on the internet at a website maintained by the SEC located at http://www.sec.gov.
Our website address is www.aerodentis.com. The information contained
on, or that may be accessed through, our website is not a part of, and is not incorporated into, this prospectus.
DROR ORTHO-DESIGN, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
Dror Ortho-Design, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Dror Ortho-Design, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of
operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred
to as the “Financial Statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The financial statements are presented on a going
concern basis. As described in Note 1 to the financial statements, the Company has not yet generated any material revenues, has suffered
recurring losses from operations with an accumulated deficit of $13,730,705 as of December 31, 2023, and is dependent upon external sources
for financing its operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis.
Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital,
its research and commercialization efforts, regulatory approvals, and ultimately the market acceptance of the Company’s products.
There is no assurance that the Company will be successful in raising these funds. These financial statements do not include adjustments
that may result from the outcome of these uncertainties. The Company is exploring additional fundraising opportunities.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to
the board of directors and that (1) relate to accounts or disclosures that are material to the financial statements and (2) are especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Share Exchange Transaction – Refer to Note 1 of the financial
statements
Description of critical audit matter
As described in Note 1 to the financial statements,
the Company entered into a share exchange agreement with Dror Ortho-Design, Ltd., (“Private Dror”). Pursuant to the agreement,
100% of the outstanding equity capital of Private Dror was exchanged for shares of common and preferred stock of the Company, so that
the Private Dror’s shareholders were issued common and preferred shares in the amount that resulted in them holding 56.1% of the
total voting rights in the Company. In addition, the Company raised $5,225,000 as part of a private placement funding, and warrants and
options exercisable by its terms to Private Dror’s shares were exchanged to the Company. As a result of the transaction, Private
Dror became a wholly-owned subsidiary of the Company.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures used to address the accounting
for the share exchange transaction included the following:
| 1. | We obtained and reviewed the share exchange agreement and other related agreements and documents to evaluate
the Company’s application of relevant accounting standards to the transaction. |
| | |
| 2. | We reviewed the Company’s determination who the legal and accounting acquirer and acquiree were. |
| | |
| 3. | We reviewed the accounting treatment of the modification of warrants and options. |
| | |
| 4. | We evaluated the accuracy and completeness of the Company’s presentation of the share exchange agreement
in the financial statements, including evaluating whether disclosures were in accordance with relevant accounting standards. |
As a result of the audit procedures applied, we reached
the conclusion that the Share Exchange Transaction was accounted for correctly in the financial statements as of December 31, 2023.
We have served as the Company’s auditor since 2021.
By: /s/ Barzily and Co.
BARZILY AND CO., CPA’s
Jerusalem, Israel, 2024
April 1, 2024
DROR ORTHO-DESIGN, INC.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars)
| |
December 31,
2023 | | |
December 31,
2022 | |
Assets | |
| | |
| |
Current Assets: | |
| | |
| |
Cash | |
$ | 3,347,843 | | |
$ | 1,039,059 | |
Receivables and prepaid expenses | |
| 114,100 | | |
| 101,353 | |
Total Current Assets | |
| 3,461,943 | | |
| 1,140,412 | |
| |
| | | |
| | |
Noncurrent Assets: | |
| | | |
| | |
Property and equipment at cost, net of accumulated depreciation | |
| 2,328 | | |
| 2,998 | |
Total Assets | |
| 3,464,271 | | |
| 1,143,410 | |
| |
| | | |
| | |
Liabilities And Stockholders’ Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 106,833 | | |
$ | 30,792 | |
Accrued royalties | |
| — | | |
| — | |
Founders claim accrual | |
| — | | |
| 240,000 | |
Accrued expenses and other payables | |
| 190,271 | | |
| 276,126 | |
Total Current Liabilities | |
| 297,104 | | |
| 546,918 | |
| |
| | | |
| | |
Noncurrent Liabilities: | |
| | | |
| | |
Accrued severance | |
| 5,243 | | |
| 416 | |
Total Liabilities | |
| 302,347 | | |
| 547,334 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 9) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Equity* | |
| | | |
| | |
Preferred A Stock, $0.0001 par value, 12,500,000 shares authorized; 10,463,363 and 7,576,999 shares outstanding at December 31, 2023 and 2022, respectively | |
| 1,047 | | |
| 758 | |
Common stock, $0.0001 par value; 500,000,000 shares authorized; 495,454,546
and 437,735,093 shares issued and outstanding at December 31, 2023 and 2022, respectively | |
| 49,545 | | |
| 43,774 | |
Additional paid-in capital | |
| 16,842,037 | | |
| 10,714,366 | |
Accumulated deficit | |
| (13,730,705 | ) | |
| (10,162,822 | ) |
Total Stockholders’ Equity | |
| 3,161,924 | | |
| 596,076 | |
Total Liabilities and Stockholders’ Equity | |
$ | 3,464,271 | | |
$ | 1,143,410 | |
DROR ORTHO-DESIGN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars)
| |
Year Ended | |
| |
December 31,
2023 | | |
December 31,
2022 | |
Operating Expenses | |
| | |
| |
Research and development | |
$ | 1,004,443 | | |
$ | 850,680 | |
General and administrative expenses | |
| 1,120,426 | | |
| 814,653 | |
Share-based compensation | |
| 2,253,793 | | |
| 19,908 | |
Total Operating Expenses | |
| 4,378,662 | | |
| 1,685,241 | |
| |
| | | |
| | |
Loss from operations | |
| (4,378,662 | ) | |
| (1,685,241 | ) |
| |
| | | |
| | |
Financial income, net | |
| 90,147 | | |
| 1,742 | |
Gain on retirement of royalty accrual | |
| 720,632 | | |
| — | |
Total other income | |
| 810,779 | | |
| 1,742 | |
| |
| | | |
| | |
Loss before provision for income taxes | |
| (3,567,883 | ) | |
| (1,683,499 | ) |
| |
| | | |
| | |
Provision for income taxes | |
| — | | |
| — | |
Net loss | |
$ | (3,567,883 | ) | |
$ | (1,683,499 | ) |
| |
| | | |
| | |
Net loss per common share | |
| | | |
| | |
Basic and Diluted | |
$ | (0.01 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Weighted-average common shares outstanding | |
| | | |
| | |
Basic and Diluted* | |
| 296,664,409 | | |
| 437,735,093 | |
DROR ORTHO-DESIGN INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
(U.S. dollars)
| |
Series A
Preferred Stock | | |
Common Stock | | |
Treasury Stock | | |
Additional Paid-In | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares* | | |
Amount | | |
Shares* | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance at January 1, 2023 | |
| 7,576,999 | | |
$ | 758 | | |
| 437,735,093 | | |
$ | 43,774 | | |
| — | | |
$ | — | | |
$ | 10,714,366 | | |
$ | (10,162,822 | ) | |
$ | 596,076 | |
Return of founders shares to the Company as part of claim settlement | |
| — | | |
| — | | |
| (330,952,906 | ) | |
| (33,096 | ) | |
| 330,952,906 | | |
| 33,096 | | |
| — | | |
| — | | |
| — | |
Private Placement Investment, net of issuance costs ($571,796) | |
| 2,886,364 | | |
| 289 | | |
| 186,363,631 | | |
| 18,636 | | |
| — | | |
| — | | |
| 4,634,279 | | |
| — | | |
| 4,653,204 | |
Settlement of Treasury Stock prior to recapitalization | |
| — | | |
| — | | |
| — | | |
| — | | |
| (330,952,906 | ) | |
| (33,096 | ) | |
| 33,096 | | |
| — | | |
| — | |
Reverse re-capitalization | |
| — | | |
| — | | |
| 202,308,728 | | |
| 20,231 | | |
| — | | |
| — | | |
| (793,497 | ) | |
| — | | |
| (773,266 | ) |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,253,793 | | |
| — | | |
| 2,253,793 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,567,883 | ) | |
| (3,567,883 | ) |
Balance at December 31, 2023 | |
| 10,463,363 | | |
$ | 1,047 | | |
| 495,454,546 | | |
$ | 49,545 | | |
| — | | |
$ | — | | |
$ | 16,842,037 | | |
$ | (13,730,705 | ) | |
$ | 3,161,924 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at January 1, 2022 | |
| 7,576,999 | | |
$ | 758 | | |
| 437,735,093 | | |
$ | 43,774 | | |
| — | | |
| — | | |
$ | 10,694,458 | | |
$ | (8,479,323 | ) | |
$ | 2,259,667 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 19,908 | | |
| | | |
| 19,908 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,683,499 | ) | |
| (1,683,499 | ) |
Balance at December 31, 2022 | |
| 7,576,999 | | |
$ | 758 | | |
| 437,735,093 | | |
$ | 43,774 | | |
| — | | |
| — | | |
$ | 10,714,366 | | |
$ | (10,162,822 | ) | |
$ | 596,076 | |
DROR ORTHO-DESIGN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars)
| |
For the Year Ended December 31, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (3,567,883 | ) | |
$ | (1,683,499 | ) |
Stock-based compensation expense | |
| 2,253,793 | | |
| 19,908 | |
Gain on retirement of royalty accrual | |
| (720,632 | ) | |
| — | |
Depreciation | |
| 670 | | |
| 670 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Receivables and prepaid expenses | |
| (7,264 | ) | |
| (71,734 | ) |
Accounts payable | |
| 44,111 | | |
| 20,768 | |
Accrued expenses and other payables | |
| (136,446 | ) | |
| 203,761 | |
Founders claim accrual | |
| (240,000 | ) | |
| — | |
Accrued royalties | |
| 6,438 | | |
| — | |
Accrued severance | |
| 4,827 | | |
| (7,052 | ) |
Net cash used in operating activities | |
| (2,362,386 | ) | |
| (1,517,178 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Cash acquired in reverse merger | |
| 17,966 | | |
| — | |
Net cash provided by investing activities | |
| 17,966 | | |
| — | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from private placement raise | |
| 5,225,000 | | |
| — | |
Issuance costs | |
| (571,796 | ) | |
| | |
Net cash provided in financing activities | |
| 4,653,204 | | |
| — | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 2,308,784 | | |
| (1,517,178 | ) |
Cash, beginning of year | |
| 1,039,059 | | |
| 2,556,237 | |
Cash, end of year | |
$ | 3,347,843 | | |
$ | 1,039,059 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | — | | |
$ | — | |
Cash paid for taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Non-cash activities: | |
| | | |
| | |
Shares issued at reverse recapitalization | |
$ | 20,231 | | |
$ | — | |
Net liabilities assumed in merger | |
$ | 791,232 | | |
$ | — | |
Return of founders shares to the Company as part of claim settlement | |
$ | 33,096 | | |
| — | |
Settlement of Treasury Stock prior to recapitalization | |
$ | 33,096 | | |
| — | |
DROR ORTHO-DESIGN INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 – Organization and Basis of Presentation
Organization
The Company was incorporated as Novint Technologies,
Inc. in the State of New Mexico in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging
with Novint Technologies, Inc., a Delaware corporation. On August 14, 2023, following a share exchange agreement, the Company changed
its name from “Novint Technologies, Inc.” to “Dror Ortho-Design, Inc.”. Following the Share Exchange (as defined
below), the Company succeeded the business of Dror Ortho-Design, Ltd. (“Private Dror”) as its sole line of business. The Company
is involved in the research and development of an orthodontic alignment platform and has not yet reached the sales stage for its product.
The Company’s stock is quoted on the OTC
Pink Market under the symbol “DROR.”
Reverse Recapitalization
On July 5, 2023, Private Dror entered into a share exchange agreement
with the Company and on August 14, 2023 the share exchange was consummated (the “Share Exchange”). As a result of the
Share Exchange, the shareholders of Private Dror exchanged all 235,089 of their outstanding shares of common stock, for 106,782,187 shares
of the Company’s Common Stock and 7,576,999 shares of the Company’s Series A Preferred Stock. Pursuant to the terms of the
Share Exchange, the Company raised $5,225,000 as part of a private placement funding, and the private placement investors received 186,363,631
shares of common stock and 2,886,364 shares of Series A Preferred Stock. As a result, Private Dror became a wholly owned subsidiary of
the Company and the Private Dror shareholders hold 56.1% of the Company’s common stock equivalents based on the common and preferred
shares received in the Share Exchange.
The Share Exchange is being accounted for as a
recapitalization, with Private Dror deemed to be the accounting acquirer, and the Company the accounting acquiree. Accordingly, Private
Dror’s historical financial statements for periods prior to the consummation of the Share Exchange have become those of the registrant.
Assets and liabilities and the historical operations reported for periods prior to the Share Exchange are those of Private Dror other
than equity items. All references to common stock, preferred stock, share and per share amounts have been retroactively restated to reflect
the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented.
Pursuant to the Share Exchange, the Company issued
shares of its common stock and preferred stock to Private Dror’s stockholders, at an exchange ratio of 3,677.27 shares of the Company’s
common stock.
As of August 14, 2023 the fair value of the net
liabilities of the Company was $793,497, which was recorded as Additional Paid-In Capital as part of the Share Exchange.
Going Concern and Management’s Plans
The financial statements are presented on a going
concern basis. The Company has not yet generated any material revenues, has suffered recurring losses from operations with an accumulated
deficit of $13,730,705 as of December 31, 2023, and is dependent upon external sources for financing its operations. There is no assurance
that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company’s future operations are
dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization efforts, regulatory
approvals, and ultimately the market acceptance of the Company’s products. There is no assurance that the Company will be successful
in raising these funds. These financial statements do not include adjustments that may result from the outcome of these uncertainties.
The Company is exploring additional fundraising opportunities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements for the
years ended December 31, 2023 and 2022 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”).
As the Company completed a reverse recapitalization
on August 14, 2023, the financial information for the periods prior to the reverse recapitalization reflect those of Private Dror. From
August 14, 2023 forward, the financial information presented is the consolidated financial information of the Company and its subsidiary.
Use of Estimates and Assumptions
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could vary from those estimates. Management utilizes various other estimates, including but not limited
to accrued royalties, accrued expenses, the valuation of stock-based compensation, the valuation allowance for deferred tax assets and
other contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which
the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period
that they are determined to be necessary.
Functional Currency
The Company accounts for foreign currency transactions
pursuant to ASC 830, “Foreign Currency Matters”. The functional currency of the Company and its subsidiary is the United States
Dollar (“US$”) as the U.S. dollar is the currency of the primary economic environment in which the Company operates. The accompanying
financial statements have been expressed in US$. Transactions denominated in currencies other than the functional currency are translated
into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the
balance sheet dates. The resulting exchange differences are recorded in the statements of operations. The exchange rate of the US Dollar
to the Israeli Shekel was 3.627 and 3.519 as of December 31, 2023 and 2022, respectively.
Cash
The Company’s cash is held with financial
institutions in the United States and Israel. Management believes that the financial institutions that hold the Company’s cash are
financially sound and, accordingly, minimal credit risk exists with respect to these investments. Account balances held in the Unites
States may, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. As of December 31, 2023 and 2022, the Company
had $145,168 and $643,658, respectively, in excess of the FDIC insurance limit. As of December 31, 2023 and 2022, the Company had $2,935,078
and $144,399, respectively, in Israeli financial institutions, which is uninsured. The Company has not experienced any losses in such
accounts with these financial institutions.
Property and Equipment
Property and equipment are stated at cost less
accumulated depreciation. Depreciation is calculated using the straight–line method on the various asset classes, which currently
consists of office equipment over their estimated useful lives of seven years when placed in service. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
Research and Development
The Company expenses all research and development costs as they are
incurred. Research and development includes expenditures in connection with in-house research and development as well as proprietary products
and technology, and includes salaries and related costs, consulting fees, and professional services.
Share–based compensation
The Company applies ASC 718-10, “Share-
Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made
to employees and directors including employee stock options under the Company’s stock plans and equity awards issued to non-employees
based on estimated fair values.
ASC 718-10 requires companies to estimate the
fair value of equity-based option awards on the date of grant using an option-pricing model. The fair value of the award is recognized
as an expense on a straight-line basis over the requisite service periods in the Company’s statement of operations.
The fair value of an option award is estimated on the date of grant
using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions
that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life
of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Since the Company does not have sufficiant
historical data regarding its volatility of its common stock, the expected volatility used is based on volatility of similar publicly
listed companies in comparable industries. Risk–free interest rates are calculated based on continuously compounded risk–free
rates for the appropriate term.
Determining the appropriate fair value model and
calculating the fair value of equity–based payment awards require the input of the subjective assumptions described above. The assumptions
used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent
uncertainties and the application of management’s judgment.
Income Taxes
The Company accounts for income taxes using the
asset-and-liability method in accordance with ASC Topic 740, “Income Taxes”. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on the deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the enactment
date. A valuation allowance is recorded if it is more-likely-than-not that some portion or all of the deferred tax assets will not be
realized in future periods.
The Company follows the guidance in ASC Topic
740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in
the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether
the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement
of the amount to be recognized. Tax positions that meet the more-likely-than-not threshold are measured at the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate finalization with the taxing authority. The Company recognizes the impact
of an uncertain income tax position in the financial statements if it believes that the position is more likely than not to be sustained
by the relevant taxing authority. The Company will recognize interest and penalties related to tax positions in income tax expense. As
of both December 31, 2023 and 2022, there were no unrecognized uncertain income tax positions.
Basic and Diluted Net Loss Per Common Share
The Company computes net loss per share in accordance
with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (EPS) on the face
of the income statement. Basic loss per ordinary share is computed by dividing the loss for the period applicable to common shareholders,
by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed
by dividing the net loss by the weighted average number of common shares outstanding for the period and, if dilutive, potential common
shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise
of common stock equivalents such as stock options, warrants and convertible debt instruments. Potentially dilutive securities are excluded
from the computation if their effect is anti-dilutive. As a result, the basic and diluted per share amounts for all periods presented
are identical.
For the years ended December 31, 2023 and 2022,
the Company incurred net losses which cannot be diluted; therefore, basic and diluted loss per common share is the same. Each Series A
Preferred Stock is convertible into 100 shares of Common Stock, and is included in the table as if converted. As of December 31, 2023
and 2022, shares issuable which could potentially dilute future earnings were as follows:
| |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Preferred Shares | |
| 1,046,336,299 | | |
| 757,699,900 | |
Warrants | |
| 964,834,419 | | |
| 510,794,865 | |
Stock Options | |
| 163,142,084 | | |
| 163,142,084 | |
Shares excluded from the calculation of diluted loss per share | |
| 2,174,312,802 | | |
| 1,431,637,849 | |
Reclassification
General and administrative expenses totaling $127,453
and $19,908 for the year ended December 31, 2022 were reclassified to research and development and share-based compensation, respectively,
to conform with current year presentation. The reclassifications had no effect on the net loss for the year ended December 31, 2022.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
Measurement of Credit Losses on Financial Instruments (“ASU2016-13”), as amended by ASU 2019-10. ASU 2016-13 will change
how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity
debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the
asset. ASU2016-13 is effective for the Company for the annual reporting period beginning January 1, 2023. The Company adopted this guidance
for the year ended December 31, 2023, however there was no impact to the financial statements.
Note 3 – Prepaid expenses and other current assets:
| |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
VAT receivable | |
$ | 73,784 | | |
| 101,353 | |
Prepaid expenses | |
| 34,802 | | |
| - | |
Other assets | |
| 5,514 | | |
| - | |
| |
$ | 114,100 | | |
| 101,353 | |
Note 4 – Property and Equipment:
| |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Equipment and furniture | |
$ | 9,567 | | |
| 9,567 | |
Less accumulated depreciation | |
| (7,239 | ) | |
| (6,569 | ) |
Property and equipment, net | |
$ | 2,328 | | |
| 2,998 | |
Depreciation expense was $670 for both of the
years ended December 31, 2023 and 2022, respectively.
Note 5 – Accrued expenses:
| |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Salary and related expenses | |
$ | 95,566 | | |
| 169,297 | |
Accrued audit fees | |
| 40,000 | | |
| 44,613 | |
Accrued legal fees | |
| 30,000 | | |
| - | |
Accrued consulting fees | |
| 24,705 | | |
| 52,811 | |
Other expenses | |
| - | | |
| 9,405 | |
| |
$ | 190,271 | | |
| 276,126 | |
Note 6 – Founders claim accrual:
The Company recorded a provision in respect of
a claim made against Private Dror by its founders. The claim related to amounts claimed as a repayment of loan balances and other amounts
including salary and benefit related balances. In January 2023, Private Dror signed an agreement with the founders, settling all-outstanding
claims at $240,000 which included amounts representing the repayment of a loan, reimbursement of expenses and an amount for pain and suffering.
In addition, the agreement stipulated the transfer back of all shares held by the founders to the Private Dror for no additional consideration.
The settlement was paid in the first quarter of 2023. In addition, the agreement stipulated the transfer back of all shares (330,952,906
ordinary shares with par value of NIS 0.0001), held by the founders to the Company.
Note 7 – Accrued royalties
Accrued royalties related to the Company’s licensing agreements
with various parties that provided gaming software to the Company. These licensing agreements contain obligations to pay royalty fees
ranging from 5% to 50% of either gross or net revenue, and a flat fee per end user of $0.50, subject to an obligation to pay minimum annual
royalties of $50,000 as specified in the licensing agreements. As part of the Share Exchange, the Company assumed accrued royalties in
the amount of $714,194, and accrued an additional $6,438 subsequent to the Share Exchange. As the statute of limitations for the collection
of the royalties had passed, the Company retired the royalty accrual amounting to $720,632 during the fourth quarter of 2023 and ceased
to accrue any further amounts.
Note 8 – Accrued severance:
Under Israeli law, companies are required to make
severance payments to terminated Israeli employees. The severance reserve is calculated based on the employee’s last salary and
period of employment. A portion of the severance pay and pension obligation is covered by payment of monthly premiums to insurance companies/
policies under approved plans and to pension funds. The deposits presented in the balance sheet include profits accumulated to the balance
sheet date. The amounts funded as above are not reflected in the balance sheet since they are not under the control and management of
the Company.
A portion of employee severance payments are subject to the terms of section 14 of the Israeli Severance Pay Law, 1963, according to which the Company’s current deposits in pension funds and/or in policies in insurance companies exempt it from any additional undertaking towards employees, for which the aforementioned amounts were deposited.
Note 9 – Commitments and Contingencies
The Company partially financed their research
and development expenditures under grant programs sponsored by the Israel Innovation Authority (“IIA”) of the Ministry of
Economy and Industry (formerly the Office of Chief Scientist) for the support of research and development activities conducted in Israel.
At the time the grants were received from the IIA, successful development of the related projects was not assured. In exchange for participation
in the programs by the IIA, the Company agreed to pay 3% of total sales of products developed within the framework of these programs.
The royalties will be paid up to a maximum amount equaling 100% of the grants provided by the IIA, linked to the dollar, bearing annual
interest at a rate based on LIBOR. Beginning from January 1, 2024 the rate will be adjusted to SOFR (Secured Over Financing Rate). The
obligation to pay these royalties is contingent on actual sales of the products, and in the absence of such sales payment of royalties
is not required. In some cases, the Government of Israel’s participation (through the IIA) is subject to export sales or other conditions.
The maximum amount of royalties is increased in the event of production outside of Israel. The current contingent royalty obligation as
of December 31, 2023 and 2022 is approximately $1.12 and $1.08 million, respectively.
From time to time in the normal course of business,
the Company may be subject to routine litigation incidental to its business. Although there can be no assurances as to the ultimate disposition
of any such matters, it is the opinion of management, based upon the information available at this time, that there are no matters, individually
or in the aggregate, that would have a material adverse effect on the results of operations and financial condition of the Company.
War in Israel
In October 2023, Israel was attacked by a terrorist
organization and entered a state of war. As of the date of these consolidated financial statements, the war in Israel is ongoing and continues
to evolve. The Company’s research and development activities are located in Israel. Currently, such activities in Israel remain
largely unaffected. During the year ended December 31, 2023, the impact of this war on the Company’s results of operations and financial
condition was immaterial. Management will continue to monitor the effect of the war on the Company's financial position and results of
operations.
Note 10 – Stockholders’ Equity
All references to common stock, share and per
share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the
beginning of the earliest period presented.
Common Stock
On January 4, 2024, the Company filed its Amended and Restated Certificate of Incorporation, which provided for the number of authorized
shares of the Company’s common stock, par value $0.0001 per share, to be increased from 500,000,000 to 3,254,475,740. All issued
shares of common stock are entitled to vote on a 1 share/1 vote basis. The Company had 495,454,546 and 437,735,093 shares of common stock
issued and outstanding as of December 31, 2023 and 2022, respectively.
Holders of our common stock have no preemptive,
redemption, conversion or subscription rights. No sinking fund provisions are applicable to our common stock. Upon liquidation, dissolution
or winding-up, holders of our common stock are entitled to share in all assets remaining after payment of all liabilities and the liquidation
preferences of any of our outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding shares
of preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our
board of directors out of our assets which are legally available. Such dividends, if any, are payable in cash, in property or in shares
of capital stock.
As part of the Private Dror founders claim settlement
agreement (see Note 6), 330,952,906 shares of common stock were returned to the Private Dror in February 2023. These shares were initially
classified as Treasury Stock and were retired as part of the Share Exchange Agreement.
Pursuant to the terms of the Share Exchange, the
Company raised $5,225,000 as part of a private placement funding, $5,025,000 from a first closing on August 14, 2023 and an additional
$200,000 from a second closing on September 13, 2023. The private placement investors received 186,363,631 shares of common stock and
2,886,364 shares of Series A Preferred Stock.
Transaction expenses relating to the private placement
funding and for the Share Exchange totaled $571,796, and are offset against the proceeds in Additional Paid-In Capital recorded as part
of the private placement funding and the Share Exchange.
Preferred Stock
The Company is authorized to issue up to 12,500,000 shares
of $0.0001 par value non-redeemable preferred stock. As of December 31, 2022, 7,576,999 shares of Series A Preferred Stock were
outstanding. During the third quarter of 2023, as a result of the private placement funding, 2,886,364 shares of Series A Preferred Stock
were issued to investors.
The following is a summary of the principal terms
of the Series A Preferred Stock as set forth in the Certificate of Designation.
Conversion
The Series A Preferred Stock is convertible into
common stock at any time at a conversion price of $0.011, or 100 shares of Common Stock for each share of Preferred A Stock, subject to
adjustment for certain anti-dilution provisions set forth in the Series A Certificate of Designation. Upon conversion the shares of Series
A Preferred Stock will resume the status of authorized but unissued shares of preferred stock of the Company.
Dividends
The holders of Series A Preferred Stock will be
entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of common stock,
when and if actually paid.
Voting Rights
The shareholders of Series A Preferred Stock are
entitled to vote with holders of the Company’s common stock, on all matters that such holders of Common Stock are entitled to vote
upon, in the same manner and with the same effect as the holders of Common Stock, voting together with the holders of Common Stock as
a single class. Each share of Preferred Stock shall entitle the shareholder to cast that number of votes per share of Preferred Stock
equal to the number of shares of Common Stock into which such share of Preferred Stock is convertible (after giving effect to certain
limitations on conversion, as applicable). As long as any shares of Series A Preferred Stock are outstanding, the Company may not, without
the approval of a majority of the then outstanding shares of Series A Preferred Stock (a) alter or change the powers, preferences
or rights given to the Series A Preferred Stock, (b) alter or amend our amended and restated certificate of incorporation, the Series
A Certificate of Designation, or our amended and restated bylaws in such a manner so as to materially adversely affect any rights given
to the Series A Preferred Stock, (c) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets
upon a Liquidation (as defined below) senior to the Series A Preferred Stock, or (d) enter into any agreement to do any of the foregoing.
Liquidation
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “Liquidation”), the then holders of the Series A Preferred Stock are
entitled to receive out of the assets available for distribution to stockholders of the Company the same amount that a holder of common
stock would receive if the Series A Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder)
to common stock which amounts shall be paid pari passu with all holders of common stock..
Warrants
Prior to the Share Exchange, there were 510,794,865 warrants to purchase
Common shares held by Private Dror shareholders. Pursuant to the warrant terms, 20,960,439 warrants expired as a result of the Share Exchange.
On August 14, 2023, the Company issued warrants to purchase up to 489,834,426 shares of Common Stock to Private Dror shareholders
in exchange for their outstanding warrants and warrants to purchase up to 456,818,176 shares of Common Stock to the private placement
investors in respect of their investment, in addition to warrants to purchase up to 18,181,817 shares of Common Stock issued to private
placement investors in a subsequent closing on September 13, 2023. The warrants expire five years from the initial exercise date
and are exercisable at an exercise price of $0.033 per share. The initial exercise date was dependent on the authorization of additional
Common shares which occurred on December 28, 2023. The warrants contain provisions that protect their holders against dilution by adjustment
of the purchase price in certain events such as stock dividends, stock splits and other similar events.
If at the time of the warrant’s exercise
there is no effective registration statement registering, or no current prospectus available for, the resale of the shares of common stock
underlying the warrant, then the holder will have the right to exercise warrant by means of a cashless exercise. In addition, if (i) the
volume-weighted average price of our common stock for 20 consecutive trading days is at least 300% of the exercise price of the warrants,
(ii) the dollar trading volume of our common stock for each trading day within such 20-day trading period equals or exceeds $500,000,
(iii) a registration statement providing for the resale of the private placement shares is effective and such registration statement
has been effective for six (6) months, (iv) the holder of the warrant is not in possession of any information provided by the Company
that constitutes material nonpublic information and (v) the Company has not breached any of the terms of the investment documents
(regardless of if such breach has been cured), then the warrants may be redeemed at a price of $0.001 per warrant up to one-half, in the
aggregate, of the warrants upon not less than 20 days’ prior written notice of redemption to each holder, subject to certain customary
restrictions.
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Contractual | | |
Intrinsic | |
Warrants | |
Shares | | |
Price | | |
Term | | |
Value | |
Balance Outstanding, January 1, 2022 | |
| 510,794,865 | | |
$ | 0.02 | | |
| 2.73 | | |
$ | 15,486 | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Balance Outstanding, December 31, 2022 | |
| 510,794,865 | | |
$ | 0.02 | | |
| 1.73 | | |
$ | 13,263 | |
Granted | |
| 474,999,993 | | |
| 0.03 | | |
| - | | |
| - | |
Forfeited | |
| (20,960,439 | ) | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Balance Outstanding, December 31, 2023 | |
| 964,834,419 | | |
$ | 0.03 | | |
| 5.00 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, December 31, 2023 | |
| 964,834,419 | | |
$ | 0.03 | | |
| 5.00 | | |
$ | - | |
The aggregate intrinsic value in the table above represents the total
intrinsic value, based on the Company’s closing common stock price of $2.72, $2.33, and $0.01 as of December 31, 2023, 2022 and
2021, respectively, which would have been received by the warrant holders had all warrant holders exercised their warrants as of that
date.
Equity Incentive Plan
Prior to the Share Exchange, there were 163,142,084 Private Dror employee
stock options that had been granted to two executives and a director. As part of the Share Exchange, the outstanding employee stock options
are to be exchanged and the Company is required to issue new employee stock options under the Company’s 2023 Long-Term Incentive
Plan with the same terms as the previously issued options. As the Company did not have enough available authorized shares underlying the
options to be issued at the time of the merger, the new employee stock options were not issued. In December 2023 the Company authorized
additional shares to cover the employee stock options and is working on the legal filings for the establishment of the 2023 Plan. As the
agreement stipulates that the new options will continue the vesting schedules of the original options, the Company continues to record
the expense over the original vesting period.
The Company treated the exchange of the original options for the new
options as a modification in accordance with ASC 718. The Company calculated the fair value of the original options prior to the Share
Exchange and the fair value of the new options at the time of the Share Exchange. The increase in value due to the modification was $4,261,809
is to be recorded as additional share-based compensation expense. As one third of the options had fully vested prior to the Share Exchange,
the Company recognized one third of the total amount of the increased value, amounting to $1,420,603 at the time of the Share Exchange.
The remaining two thirds of the incremental value relating to the unvested options are going to be recorded over the remaining vesting
period.
The following table summarized the option activity for the years ended
December 31, 2023 and 2022:
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Contractual | | |
Intrinsic | |
Options | |
Shares | | |
Price | | |
Term (in years) | | |
Value | |
Balance Outstanding, January 1, 2022 | |
| 174,666,648 | | |
$ | 0.01 | | |
| 8.74 | | |
| - | |
Granted | |
| 9,597,675 | | |
| 0.00 | | |
| | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Expired | |
| (21,122,239 | ) | |
| 0.04 | | |
| - | | |
| - | |
Balance Outstanding, December 31, 2022 | |
| 163,142,084 | | |
$ | 0.00 | | |
| 8.96 | | |
$ | - | |
Granted (Share Exchange) | |
| - | | |
| 0.00 | | |
| | | |
| 4,070,727 | |
Forfeited (Share Exchange) | |
| - | | |
| 0.00 | | |
| | | |
| | |
Exercised | |
| | | |
| | | |
| | | |
| | |
Expired | |
| | | |
| | | |
| | | |
| | |
Balance Outstanding, December 31, 2023 | |
| 163,142,084 | | |
$ | 0.00 | | |
| 9.62 | | |
$ | 1,003,656 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, December 31, 2023 | |
| 105,562,164 | | |
$ | 0.00 | | |
| 9.62 | | |
$ | 669,104 | |
Share-based compensation expense for the years ended
December 31, 2023 and 2022 amounted to $2,253,793 and $19,908, respectively. Share-based compensation relating to general and administrative
expenses amounted to $1,612,173 and 14,146 for the years ended December 31, 2023 and 2022, respectively. Share-based compensation relating
to research and development expenses amounted to $641,620 and 5,762 for the years ended December 31, 2023 and 2022, respectively. The
fair value of stock options that fully vested during the years ended December 31, 2023 and 2022 was $1,420,603 and $19,225, respectively.
The weighted average grant date fair value for options granted during the years ended December 31, 2023 and 2022 was $0.03 and $1.38,
respectively, using the Black Scholes valuation method.
As of December 31, 2023, there was $2,047,973
of unrecognized compensation cost related to non-vested share-based compensation, which will be amortized over a weighted average period
of 0.96 years.
The aggregate intrinsic value in the table above represents the total
intrinsic value, based on the Company’s closing stock price of $2.72, $2.33, and $0.01 as of December 31, 2023, 2022 and 2021, respectively,
which would have been received by the option holders had all option holders exercised their options as of that date.
Note 11 – Research and development expenses:
The components of research and development expenses are as follows:
| |
For the Year Ended December 31, | |
| |
2023 | | |
2022 | |
Subcontractors | |
$ | 759,440 | | |
$ | 542,186 | |
Salaries | |
| 191,825 | | |
| 182,995 | |
Consultants and others | |
| 53,178 | | |
| 125,499 | |
Total | |
$ | 1,004,443 | | |
$ | 850,680 | |
Note 12 – General and administrative expenses:
The components of general and administrative expenses are as follows:
| |
For the Year Ended
December 31, | |
| |
2023 | | |
2022 | |
Salaries and related | |
$ | 543,469 | | |
$ | 509,800 | |
Legal | |
| 206,925 | | |
| 131,922 | |
Professional fees | |
| 149,126 | | |
| 52,536 | |
Consulting | |
| 106,264 | | |
| 78,525 | |
Rent and utilities | |
| 39,157 | | |
| 22,872 | |
Insurance | |
| 23,119 | | |
| - | |
Donations | |
| 16,235 | | |
| - | |
Office expense | |
| 9,557 | | |
| 4,020 | |
Royalties | |
| 6,438 | | |
| - | |
Depreciation | |
| 670 | | |
| 670 | |
Other | |
| 19,466 | | |
| 14,308 | |
Total | |
$ | 1,120,426 | | |
$ | 814,653 | |
Note 13 – Finance income, net:
The components of finance income, net are as follows:
| |
For the Year Ended
December 31, | |
| |
2023 | | |
2022 | |
Exchange differences | |
$ | 94,020 | | |
$ | 3,410 | |
Bank fees | |
| (3,873 | ) | |
| (1,668 | ) |
Total | |
$ | 90,147 | | |
$ | 1,742 | |
Note 14 – Income Taxes:
The Company files corporate income tax returns in the United States
(federal), in New York (state), and in Israel (foreign). The Company is subject to federal, state and local income tax examinations by
tax authorities for the tax years 2020 through 2023. The Israeli subsidiary tax reports through 2017 are considered final assessments
in accordance with the provisions of section 145 of the Income Tax Ordinance.
As of December 31, 2023, the Company had federal net
operating loss carry forwards of $32.8 million. Federal net operating losses generated prior to January 1, 2018, amounting to $32.0 million,
may be offset against future taxable income, subject to limitation under IRC Section 382, which begin to expire in 2024 if not utilized
prior to that date, and fully expire during various years through 2037 for federal purposes. Net operating losses generated after January
1, 2018, amounting to $0.8 million, no longer have an expiration but are limited to 80% of taxable income. Tax loss carryforwards in Israel
amount to approximately USD 9.9 million, (NIS 36.5 million) as of December 31, 2023, and do not expire. There are also Israeli capital
loss carryforwards amounting to $0.3 million (NIS 1.1 million) that can be offset only against capital gains but do not expire.
The valuation allowance overall increased by approximately
$7.9 million and $0.1 million in the years ended 2023 and 2022, respectively, and was approximately $9.9 million and $2.0 million, respectively.
The Company has fully reserved the deferred tax asset resulting from available net operating loss carryforwards.
The reconciliation of income tax expense computed
at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2023 and 2022 is as follows:
| |
Year ended December 31, | |
| |
2023 | | |
2022 | |
Income before income taxes | |
$ | (3,567,883 | ) | |
$ | (1,683,499 | ) |
Taxes under statutory US tax rates | |
| (749,255 | ) | |
| (353,535 | ) |
Foreign Rate Differential | |
| (85,538 | ) | |
| (33,670 | ) |
Acquisitions | |
| (7,163,604 | ) | |
| - | |
Expired net operating loss | |
| 118,215 | | |
| - | |
Other permanent items | |
| (53,837 | ) | |
| 283,891 | |
Increase (decrease) in valuation allowance | |
| 7,934,019 | | |
| 103,314 | |
Income tax expense | |
$ | - | | |
$ | - | |
The increase in the Company’s net valuation allowance
was mainly due to the reverse merger and continued net operating losses from ongoing operations.
Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income
tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following:
| |
December
31, | |
| |
2023 | | |
2022 | |
Deferred tax assets: | |
| | |
| |
Net loss carryforwards | |
$ | 9,235,425 | | |
$ | 2,026,144 | |
Capital loss carryforwards | |
| 66,063 | | |
| 72,525 | |
Stock-based compensation | |
| 518,372 | | |
| | |
Research
and development | |
| 131,690 | | |
| - | |
| |
| | | |
| | |
Deferred asset before valuation
allowance | |
| 9,951,550 | | |
| 2,098,669 | |
Valuation
allowance | |
| (9,951,550 | ) | |
| (2,098,669 | ) |
Net
deferred tax asset | |
$ | - | | |
$ | - | |
In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary
differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided
a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability.
The Company’s policy is to record interest
and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of both December
31, 2023 and 2022 the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits
during the years ended December 31, 2023 and 2022. The Company did not recognize any interest or penalties during the years ended
December 31, 2023 and 2022 related to unrecognized tax benefits.
NOTE 15 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through
the date these financial statements were issued. In the opinion of management, there were no subsequent events that would require disclosure
or adjustments to the accompanying financial statements through the date the financial statements were issued other than the following:
On December 28, 2023, the Company’s
stockholders approved the adoption of the Company’s Amended and Restated Certificate of Incorporation (the “Restated Charter”)
and an amendment to the Restated Charter to increase the number of authorized shares of the Company’s common stock, par value $0.0001
per share from 500,000,000 to 3,254,475,740 and to make a corresponding change to the number of authorized shares of capital stock. On
January 4, 2024, the Company filed the Restated Charter, with the provisions of the Authorized Share Increase Amendment incorporated therein,
with the Secretary of State of Delaware.
During the first quarter of 2024, the Company
submitted a request to the Israeli Income Tax Authority, for the approval of a plan for the issuance of employee stock options via a trustee
as defined in section 102 of the Income Tax Ordinance. The Company chose a capital taxation route that would apply to the Company’s employees
and undertook to deduct the full tax applicable to employees before shares are issued to an employee.
On February 1, 2024, we entered into a consulting agreement with a
director, pursuant to which, in consideration for certain services provided as a board member, the director would receive a cash fee of
$5,000 each month. The consulting agreement is terminable by either party upon 30 days written notice to the other party, and it will
terminate automatically once the director has received fees in the aggregate amount of $55,000.
On February 1, 2024, the Company amended an agreement with an additional
director, which increased the monthly cash fee in respect of the services provided to $2,500, plus applicable VAT.
DROR
ORTHO-DESIGN, INC.
293,145,818 Shares of Common Stock
1,046,336,224 Shares of Common Stock Underlying
Series A Convertible Preferred Stock
474,999,993 Shares of Common Stock Underlying
Private Placement Warrants
489,834,426 Shares of Common Stock Underlying
Share Exchange Warrants
Prospectus
Part II: Information
Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be borne by
the registrant in connection with the registration of the shares of Common Stock being registered hereby. All of such expenses are estimates,
except for the SEC registration fee.
Securities and Exchange Commission registration fee | |
$ | 5,200 | |
Accounting fees and expenses | |
| 5,000 | |
Legal fees and expenses | |
| 25,000 | |
Financial printing and miscellaneous expenses | |
| 10,000 | |
Total | |
$ | 45,200 | |
Item 14. Indemnification of Directors and Officers.
Amended Charter; Bylaws
Article IX of the Amended Charter and Article VIII of the Bylaws provide
that the Company shall indemnify its officers and directors to the fullest extent permitted by the DGCL. In addition, Article IX
of the Amended Charter provides that a director of the Company shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director as a director.
Delaware Law
Section 145 of the DGCL permits indemnification of directors, officers,
agents and controlling persons of a corporation under certain conditions and subject to certain limitations. Section 145 empowers a corporation
to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit
or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer
or agent of the corporation or another enterprise if serving at the request of our company. Depending on the character of the proceeding,
a corporation may indemnify against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to, the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Section 145 further provides that to the extent a present or former
director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually
and reasonably incurred by such person in connection therewith.
Item 15. Recent Sales of Unregistered Securities.
There were no unregistered sales of the Company’s equity securities
during the period covered by this registration statement, other than those previously reported in a Current Report on Form 8-K, including
the Current Report on Form 8-K filed with the SEC on August 14, 2023, as amended.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits listed below are filed as part of this registration statement.
Exhibit |
|
Description |
2.1 |
|
Share Exchange Agreement, dated July 5, 2023, by and among the Company, Dror Ortho-Design Ltd., and certain shareholders of Dror Ortho-Design Ltd. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) |
2.2 |
|
Amendment to the Share Exchange Agreement, dated August 14, 2023, by and among the Company, Dror Ortho-Design Ltd., and certain shareholders of Dror Ortho-Design Ltd. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) |
3.1 |
|
Amended and Restated Certificate of Incorporation of Dror Ortho-Design, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 4, 2024) |
3.2 |
|
Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 14, 2023) |
4.1 |
|
Form of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
5.1** |
|
Opinion of Haynes and Boone, LLP |
10.1+ |
|
Employment Agreement, dated December 6, 2021, between the Company and Eliyahu (Lee) Haddad (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.2+ |
|
Employment Agreement, dated January 26, 2022, between the Company and Moshe Shvets (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.3+ |
|
Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Eliyahu (Lee) Haddad (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.4+ |
|
Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Moshe Shvets (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.5+ |
|
Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Chaim Hurvitz (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.6+ |
|
Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Chaim Ravad (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.7+ |
|
Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Yehuda Englander (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.8+ |
|
Consulting Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Yaacov Bodner (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.9+ |
|
2021 Share Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.10+ |
|
2023 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 4, 2024) |
10.11 |
|
Securities Purchase Agreement, dated August 14, 2023, between the Company and certain purchasers identified therein (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.12 |
|
Registration Rights Agreement, dated August 14, 2023, between the Company and certain purchasers identified therein (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.13 |
|
Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 14, 2023) |
10.14+ |
|
Services Agreement, dated June 1, 2022, between Dror Ortho-Design Ltd. and Yehuda Englander (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on August 18, 2023) |
10.15+ |
|
First Amendment to Services Agreement, dated February 7, 2023, between Dror Ortho-Design, Inc. and Yehuda Englander (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 1, 2024) |
10.16+ |
|
Services Agreement, dated February 7, 2023, between Dror Ortho-Design, Inc. and Chaim Ravad (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 1, 2024) |
21.1** |
|
List of Subsidiaries |
23.1* |
|
Consent of Barzily and Co., CPA’s, independent registered public accounting firm |
23.2** |
|
Consent of Haynes and Boone, LLP (included in Exhibit 5.1). |
24.1** |
|
Power of Attorney |
101.INS* |
|
Inline XBRL Instance Document. |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
107** |
|
Filing Fee Table |
+ |
Management contract or compensatory plan or arrangement. |
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
|
(1) |
to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Filing Fee Tables” or “Calculation of Registration Fee” table, as applicable, in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; |
|
(2) |
that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; |
|
(3) |
to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and |
|
(4) |
that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1
and has duly caused this Amendment No. 1 to registration statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Jerusalem, Israel, on April 17, 2024.
|
DROR ORTHO-DESIGN, INC. |
|
By: |
/s/ Eliyahu (Lee) Haddad |
|
|
Eliyahu (Lee) Haddad |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer and Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Act, this Amendment
No. 1 to registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Eliyahu (Lee) Haddad |
|
Chief Executive Officer and Director |
|
April 17, 2024 |
Eliyahu (Lee) Haddad |
|
(Principal Executive Officer and Principal Financial and Accounting Officer) |
|
|
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* |
|
Director and Chairman of the Board |
|
April 17, 2024 |
Chaim Hurvitz |
|
|
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|
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|
|
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Chief Technology Officer and Director |
|
|
Moshe Shvets |
|
|
|
|
|
|
|
|
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* |
|
Director |
|
April 17, 2024 |
Chaim Ravad |
|
|
|
|
|
|
|
|
|
* |
|
Director |
|
April 17, 2024 |
Yehuda Englander |
|
|
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*By: |
/s/ Eliyahu (Lee) Haddad |
|
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Eliyahu (Lee) Haddad |
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Attorney-in-Fact |
|
S-1/A
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We consent to the use in this Amendment No. 1
to the Registration Statement on Form S-1 (File No. 333-276981) of our report dated April 1, 2024 relating to the financial
statements of Dror-Ortho Design Ltd. for the years ended December 31, 2023 and 2022, which is part of this Amendment No. 1 to the
Registration Statement.
We also consent to the reference to our firm under
the heading “Experts” in the Prospectus included in such Amendment No. 1 to the Registration Statement.
Barzily & Co.