UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 000-51783
Dror Ortho-Design, Inc.
(Exact name of registrant as specified in its
charter)
Delaware | | 85-0461778 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | |
Shatner Street 3
Jerusalem, Israel | | N/A |
(Address of principal executive office) | | (Zip Code) |
Registrant’s telephone number, including
area code: +972 (0)74-700-6700
N/A
(Former name or former address, if changed since last report) |
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
None | | None | | None |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically and every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant has been required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s Common
Stock as of August 13, 2024 was 495,454,546 shares.
Dror Ortho-Design, Inc.
Quarter Ended June 30, 2024
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
DROR ORTHO-DESIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars)
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
Unaudited | | |
Audited | |
Assets | |
| | |
| |
Current Assets: | |
| | |
| |
Cash | |
$ | 1,834,477 | | |
$ | 3,347,843 | |
Other receivables and prepaid expenses | |
| 60,192 | | |
| 114,100 | |
Total Current Assets | |
| 1,894,669 | | |
| 3,461,943 | |
| |
| | | |
| | |
Noncurrent Assets: | |
| | | |
| | |
Property and equipment at cost, net of accumulated depreciation | |
| 26,612 | | |
| 2,328 | |
Total Assets | |
| 1,921,281 | | |
| 3,464,271 | |
| |
| | | |
| | |
Liabilities And Stockholders’ Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 94,338 | | |
$ | 106,833 | |
Accrued expenses and other payables | |
| 163,588 | | |
| 190,271 | |
Total Current Liabilities | |
| 257,926 | | |
| 297,104 | |
| |
| | | |
| | |
Noncurrent Liabilities: | |
| | | |
| | |
Accrued severance | |
| 5,059 | | |
| 5,243 | |
Total Liabilities | |
| 262,985 | | |
| 302,347 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 3) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Equity | |
| | | |
| | |
Preferred A Stock, $0.0001 par value, 12,500,000 shares authorized; 10,463,363 shares outstanding at June 30, 2024 and December 31, 2023, respectively | |
| 1,047 | | |
| 1,047 | |
Common stock, $0.0001 par value; 3,254,475,740 and 500,000,000 shares authorized; 495,454,546 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | |
| 49,545 | | |
| 49,545 | |
Additional paid-in capital | |
| 18,153,662 | | |
| 16,842,037 | |
Accumulated deficit | |
| (16,545,958 | ) | |
| (13,730,705 | ) |
Total Stockholders’ Equity | |
| 1,658,296 | | |
| 3,161,924 | |
Total Liabilities and Stockholders’ Equity | |
$ | 1,921,281 | | |
$ | 3,464,271 | |
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
DROR ORTHO-DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars, except share and per share amounts)
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, 2024 | | |
June 30, 2023 | | |
June 30, 2024 | | |
June 30, 2023 | |
| |
Unaudited | | |
Unaudited | |
Operating Expenses | |
| | |
| | |
| | |
| |
Research and development | |
| 389,216 | | |
| 140,590 | | |
| 762,873 | | |
| 439,362 | |
General and administrative expenses | |
| 333,274 | | |
| 151,347 | | |
| 718,838 | | |
| 316,444 | |
Share-based compensation | |
| 774,428 | | |
| 5,088 | | |
| 1,311,625 | | |
| 10,120 | |
Total Operating Expenses | |
| 1,496,918 | | |
| 297,025 | | |
| 2,793,336 | | |
| 765,926 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (1,496,918 | ) | |
| (297,025 | ) | |
| (2,793,336 | ) | |
| (765,926 | ) |
| |
| | | |
| | | |
| | | |
| | |
Financial Expenses, net | |
| (9,872 | ) | |
| 11,243 | | |
| (21,917 | ) | |
| 14,540 | |
Total other expense | |
| (9,872 | ) | |
| 11,243 | | |
| (21,917 | ) | |
| 14,540 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before provision for income taxes | |
| (1,506,790 | ) | |
| (285,782 | ) | |
| (2,815,253 | ) | |
| (751,386 | ) |
Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
Net loss | |
| (1,506,790 | ) | |
| (285,782 | ) | |
| (2,815,253 | ) | |
| (751,386 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per common share | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
| (0.00 | ) | |
| (0.00 | ) | |
| (0.01 | ) | |
| (0.00 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted-average common stock outstanding | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted* | |
| 495,454,546 | | |
| 106,782,187 | | |
| 495,454,546 | | |
| 189,063,296 | |
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
DROR ORTHO-DESIGN, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(U.S. dollars, except share amounts)
(Unaudited)
| |
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, 2024 | |
| 10,463,363 | | |
$ | 1,047 | | |
| 495,454,546 | | |
$ | 49,545 | | |
| — | | |
$ | — | | |
$ | 16,842,037 | | |
$ | (13,730,705 | ) | |
$ | 3,161,924 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 537,197 | | |
| — | | |
| 537,197 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,308,463 | ) | |
| (1,308,463 | ) |
Balance at March 31, 2024 | |
| 10,463,363 | | |
$ | 1,047 | | |
| 495,454,546 | | |
$ | 49,545 | | |
| — | | |
$ | — | | |
$ | 17,379,234 | | |
$ | (15,039,168 | ) | |
$ | 2,390,658 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 774,428 | | |
| — | | |
| 774,428 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,506,790 | ) | |
| (1,506,790 | ) |
Balance at June 30, 2024 | |
| 10,463,363 | | |
$ | 1,047 | | |
| 495,454,546 | | |
$ | 49,545 | | |
| — | | |
$ | — | | |
| 18,153,662 | | |
| (16,545,958 | ) | |
| 1,658,296 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | | |
| — | | |
| — | | |
| — | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,032 | | |
| — | | |
| 5,032 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (465,604 | ) | |
| (465,604 | ) |
Balance at March 31, 2023 | |
| 7,576,999 | | |
$ | 758 | | |
| 106,782,187 | | |
$ | 10,678 | | |
| 330,952,906 | | |
| 33,096 | | |
$ | 10,719,398 | | |
$ | (10,628,426 | ) | |
$ | 135,504 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,088 | | |
| — | | |
| 5,088 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (285,782 | ) | |
| (285,782 | ) |
Balance at June 30, 2024 | |
| 7,576,999 | | |
$ | 758 | | |
| 106,782,187 | | |
$ | 10,678 | | |
| 330,952,906 | | |
| 33,096 | | |
| 10,724,486 | | |
| (10,914,208 | ) | |
| (145,190 | ) |
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
DROR ORTHO-DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars)
| |
For the Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
| |
(Unaudited) | |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (2,815,253 | ) | |
$ | (751,386 | ) |
Stock-based compensation expense | |
| 1,311,625 | | |
| 10,120 | |
Depreciation | |
| 1,565 | | |
| 335 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Receivables and prepaid expenses | |
| 53,908 | | |
| (35,168 | ) |
Accounts payable | |
| (12,495 | ) | |
| (5,923 | ) |
Accrued expenses and other payables | |
| (26,683 | ) | |
| 16,149 | |
Founders claim accrual | |
| - | | |
| (240,000 | ) |
Accrued severance | |
| (184 | ) | |
| (21 | ) |
Net cash used in operating activities | |
| (1,487,517 | ) | |
| (1,005,894 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| (25,849 | ) | |
| - | |
Net cash used in by investing activities | |
| (25,849 | ) | |
| - | |
| |
| | | |
| | |
Net decrease in cash | |
| (1,513,366 | ) | |
| (1,005,894 | ) |
Cash, beginning of period | |
| 3,347,843 | | |
| 1,039,059 | |
Cash, end of period | |
$ | 1,834,477 | | |
$ | 33,165 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | - | | |
$ | - | |
Cash paid for taxes | |
$ | - | | |
$ | - | |
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
DROR ORTHO-DESIGN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization
and Basis of Presentation
Organization
Dror Ortho-Design, Inc., a
Delaware corporation (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 the Share Exchange (as defined below), the Company changed its name from “Novint
Technologies, Inc.” to “Dror Ortho-Design, Inc.” Following the Share Exchange, 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, par value $0.0001 per share (the “Common Stock”),
and 7,576,999 shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “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 (the “Private
Placement”) pursuant to a Securities Purchase Agreement, by and between the Company and certain purchasers identified therein (the
“Private Placement Investors”), dated as of August 14, 2023 (the “Securities Purchase Agreement”) and the Private
Placement Investors received 186,363,631 shares of Common Stock (the “Private Placement Shares”), 2,886,364 shares of Series
A Preferred Stock and warrants to purchase Common Stock (“Private Placement Warrants”). As a result, Private Dror became a
wholly-owned subsidiary of the Company and the Private Dror shareholders held 56.1% of the Company’s Common Stock equivalents based
on the common and preferred shares received in the Share Exchange.
The Share Exchange was 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, Series A 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 Series A 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 revenues, has suffered recurring losses from operations with
an accumulated deficit of $16,545,958 as of June 30, 2024, 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 unaudited
condensed consolidated financial statements were prepared using accounting principles generally accepted in the United States of America
(“U.S GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
these unaudited condensed consolidated financial statements do not include all information or notes required by U.S. GAAP for annual consolidated
financial statements and should be read in conjunction with the Company’s annual financial statements for the year ended December
31, 2023, included within the Company’s Current Report on Form 10-K, as amended, originally filed with the SEC on April 1, 2024.
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.
In the opinion of management,
the unaudited consolidated condensed financial statements included herein contain all adjustments necessary to present fairly the Company’s
financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal
recurring nature. The results of operations for the six months ended June 30, 2024, may not be indicative of results for the full year.
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 (“U.S. Dollar”) 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 the U.S. Dollar. 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 U.S. Dollar to the Israeli Shekel was 3.759 and 3.627 as of June 30, 2024 and December 31, 2023, 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 June 30, 2024
and December 31, 2023, the Company had $0 and $145,168, respectively, in excess of the FDIC insurance limit. As of June 30, 2024 and December
31, 2023, the Company had $1,694,354 and $2,935,078, respectively, in Israeli financial institutions, which amounts are not uninsured.
The Company has not experienced any losses in such accounts with these financial institutions.
Research and Development
The Company expenses all research
and development costs as they are incurred. Research and development includes, but is not limited to, 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.
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 stock outstanding for the period and, if dilutive, potential common
stock outstanding during the period. Potentially dilutive securities consist of the incremental common stock 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 three and six months
ended June 30, 2024 and 2023, the Company incurred net losses which cannot be diluted; therefore, basic and diluted loss per common share
is the same. Each share of Series A Preferred Stock is convertible into 100 shares of Common Stock and is included in the table as if
converted. As of June 30, 2024 and 2023, shares that are issuable upon conversion of the Series A Preferred Stock, which could potentially
dilute future earnings were as follows:
| |
June 30, | |
| |
2024 | | |
2023 | |
Series A Preferred Stock | |
| 1,046,336,299 | | |
| 757,699,900 | |
Warrants | |
| 975,288,919 | | |
| 510,794,865 | |
Stock Options | |
| 184,264,323 | | |
| 163,142,084 | |
Shares excluded from the calculation of diluted loss per share | |
| 2,205,889,541 | | |
| 1,431,636,849 | |
Reclassification
General and administrative
expenses totaling $38,662 and $5,088 for the three months ended June 30, 2023, and $97,042 and $10,120 for the six months ended June 30,
2023, were reclassified to research and development and share-based compensation, respectively, to conform with current period presentation.
The reclassifications had no effect on the net loss for the six months ended June 30, 2023.
Recently Issued Accounting Pronouncements
In December 2023, the FASB
issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures related to improvements to income tax disclosures.
The amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation
and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The adoption of
this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.
The Company does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
consolidated financial statements.
NOTE 3 – 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
initially based on LIBOR. Beginning from January 1, 2024 the rate was 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 June 30,
2024 and December 31, 2023 is approximately $1.16 million and $1.12 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.
Registration Rights Agreement
In connection with the
Private Placement, on August 14, 2023, the Company entered into a registration rights agreement with the Private Placement Investors
(together with all attachments and exhibits thereto, as each may be amended or modified from time to time, the “Registration
Rights Agreement” of “RRA”), pursuant to which the Company agreed to register, among other registrable securities
(as further described in the RRA), on Form S-1 (or, if the Company is then eligible, on Form S-3) with the Securities and Exchange
Commission (the “SEC”): (i) the Private Placement Shares, (ii) the shares of Common Stock underlying the shares of
Series A Preferred Stock, (iii) the shares of Common Stock underlying the Private Placement Warrants issued to the Private Placement
Investors (the “Warrant Shares”), and (iv) the shares of the Company’s common stock underlying the securities
issued to the investors who, on or about December 6, 2021, participated in the $3,000,000 private placement financing (the
“December 2021 Shares” and, together with the Private Placement Shares, the Conversion Shares, the Warrant Shares,
collectively, the “Registrable Securities” ).
Under the RRA, among other
things, if a registration statement filed registering the resale of the Registrable Securities is not filed by the 45th calendar
date following the date of the RRA and if such registration statement is not declared effective by the SEC by the 135th calendar day (or,
in the event of a “full review” by the SEC, the 165th calendar day) following the date of the RRA, then the Company
is liable to pay as partial liquidated damages in amount equal to the product of 1.0% multiplied by the aggregate Subscription Amount
(as defined in the Securities Purchase Agreement) paid by such investor pursuant to the Securities Purchase Agreement every calendar month
(pro-rated for periods totaling less than a calendar month) until the applicable event is cured. Such liquidated damages would bear interest
at the rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law), accruing daily from the date
such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full.
Pursuant to Section 6(e) of the
Registration Rights Agreement, the provisions of the Registration Rights Agreement may be amended by obtaining the written consent of
the Company and the Private Placement Investors holding 50.1% or more of the then-outstanding Registrable Securities (the “Required
Holders”). On February 9, 2024, the Company filed a registration statement on Form S-1 registering for resale the Registrable Securities,
which was declared effective by the SEC on June 14, 2024. On August 13, 2024, the Company and the Required Holders entered into an Amendment
to the Registration Rights Agreement (“Registration Rights Agreement Amendment”), pursuant to which effective retroactively
to September 28, 2023, (i) the date in which a registration statement registering the resale of the Registrable Securities (the “Registration
Statement”) is required to be filed pursuant to the Registration Rights Agreement was amended to February 9, 2024, and (ii) the
date in which the Registration Statement is required to be declared effective by the SEC pursuant to the Registration Rights Agreement
was amended to June 14, 2024. In consideration for entering into the Registration Rights Agreement Amendment, the Company agreed to pay
the Private Placement Investors the liquidated damages equal to the amount that would otherwise have accrued pursuant to the Registration
Rights Agreement, without giving effect to the Registration Rights Agreement Amendment, which became due and payable upon signing the
Registration Rights Agreement Amendment on August 13, 2024, and which did not become due or payable prior to such date
The Company is currently negotiating the amount of liquidated damages that would have been accrued with the investors, which will not exceed
the most conservative estimate of approximately $520,000.
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 six months ended June 30, 2024, 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 4 – 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 5 – 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 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 (“Authorized Share Increase Amendment”) 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 Secretary of State of Delaware. All issued
shares of Common Stock are entitled to vote on a 1 share/1 vote basis.
Series A 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 June 30, 2024, 10,463,363 shares of Series
A Preferred Stock were outstanding. The stockholders 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 stockholder 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).
Warrants
Prior to the Share Exchange, there were 510,794,865 warrants to
purchase Common Stock held by Private Dror shareholders (“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 shares of Common Stock 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.
On April 17, 2024, the Board
of Directors approved the issuance of 10,454,500 warrants to purchase shares of Common Stock to Oriole Avenue Inc. (“Oriole”)
with the same terms as the warrants issued to the Private Dror Shareholders. The warrants were issued to an investor in respect of services
to be performed pursuant to the Oriole Consulting Agreement (as defined herein) concluding July 15, 2024. The fair value of the warrants
on the date of issuance was $35,814, which will be recognized as general and administrative expense in the Statement of Operations.
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 the Company’s Common Stock for 20 consecutive trading days is at least 300% of
the exercise price of the warrants, (ii) the dollar trading volume of the Company’s 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.
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 (the “2023 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 and 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.
On June 17, 2024, the Company issued 21,122,239 options to purchase
Common Stock to Chaim Hurvitz, a director of the Company. The options have an exercise price of $0.0037 per share, which vested immediately
upon grant and terminate 10 years from the grant date. The fair value of the options on the date of issuance was $170,920, which will
be recognized as general and administrative expenses in the Statement of Operations.
Stock-based compensation expense
for the three months ended June 30, 2024 and 2023 amounted to $774,428 and $5,088, respectively. Stock-based compensation expense for
the six months ended June 30, 2024 and 2023 amounted to $1,311,625 and $10,120, respectively. Share-based compensation relating to general
and administrative expenses amounted to $610,694 and $3,651 for the three months ended June 30, 2024 and 2023, respectively, and $992,768
and $7,263 for the six months ended June 30, 2024 and 2023, respectively. Share-based compensation relating to research and development
expenses amounted to $163,734 and $1,437 for the three months ended June 30, 2024 and 2023, respectively, and $318,857 and $2,857 for
the six months ended June 30, 2024 and 2023, respectively.
NOTE 6 – RELATED PARTY TRANSACTIONS
Director Consulting
Services
On June 1, 2022, the Company
entered into a consulting agreement (the “Englander Consulting Agreement”) with Yehuda Englander, a director of the Company,
pursuant to which, in consideration for certain financial and strategic consulting services, Mr. Englander will receive a cash fee of
NIS 3,500 each month and was also granted 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 which vest in three tranches on the first,
second, and third anniversary of the date of the Englander Consulting Agreement. The options are subject to accelerated vesting upon an
exit event. On February 7, 2024, the Company amended the Englander Consulting Agreement which provides that Mr. Englander’s monthly
cash fee in respect of the services provided is equal to $2,500 and in addition to the monthly fee, Mr. Englander is entitled to expense
reimbursement in an amount not to exceed $500. Consulting services paid to the Mr. Englander recorded as general and administrative expenses
for the three months ended June 30, 2024 and 2023 was $8,997 and $2,878, respectively. Consulting services paid to Mr. Englander recorded
as general and administrative expenses for the six months ended June 30, 2024 and 2023 was $15,991 and $5,847, respectively. Accrued expense
balances in respect of the Englander Consulting Agreement at June 30, 2024 and 2023 were $3,059 and $4,841, respectively.
On February 7, 2024, the Company
entered into a consulting agreement (the “Ravad Consulting Agreement”) with Chaim Ravad, a director of the Company, pursuant
to which, in consideration for certain services provided as a board member, Mr. Ravad will 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 will terminate automatically
once Mr. Ravad has received fees in the aggregate amount of $55,000. Consulting services paid to Mr. Ravad recorded as general and administrative
expenses was $10,000 and $0 for the three months ended June 30, 2024 and 2023, respectively, and $25,000 and $0 for the six months ended
June 30, 2024 and 2023, respectively. Accrued expense balances in respect of the Ravad Consulting Agreement at June 30, 2024 and 2023
were $5,000 and $0, respectively.
Shareholder Consulting
Services
On August 8, 2023, the Company
entered into a consulting agreement (the “Oriole Consulting Agreement”) with Oriole Avenue Inc. (“Oriole”), an
entity owned by Yaacov Bodner, a stockholder of the Company, pursuant to which, in consideration for certain shareholder, investors relations
and general consultancy services, Oriole is entitled to receive cash payments equal in the aggregate to $145,000, and warrants to purchase
up to an aggregate of 10,454,500 shares of the Company’s Common Stock, with an exercise price of $0.033 per share and substantially
the same terms as the Private Placement Warrants. The cash payment will be paid in equal monthly installments of $14,500, commencing on
September 15, 2023 and expiring on July 15, 2024. Although the agreement was signed and the services were provided, the Board of Directors
did not approve of the warrant issuance until April 17, 2024, as required. The value of those warrants on April 17, 2024 amounted to $35,814
which will be amortized over the remaining service period. Consulting services paid to Oriole recorded as general and administrative expenses
for the three months ended June 30, 2024 and 2023 was $43,500 and $0, respectively. Consulting services paid to Oriole recorded as general
and administrative expenses for the six months ended June 30, 2024 and 2023 was $87,000 and $0, respectively.
NOTE 7 – SUBSEQUENT
EVENTS
None
Item 2. 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 June 30, 2024 and for the six months ended June 30, 2024 and 2023 should be read in conjunction with our financial statements and
the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis
should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2023, which
are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024. References
in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”,
“our” and similar terms refer to the Company.
Cautionary Note Regarding
Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events,
future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking
statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance
or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s
good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance
or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause
such differences include, but are not limited to:
|
● |
our 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.; |
|
● |
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; |
|
● |
our products and technologies may not be accepted by the intended commercial consumers of our products, which could harm our future financial performance; |
|
● |
we expect continued operating losses and cannot be certain of our future profitability; |
|
● |
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; |
|
● |
the Company will face competition from large internationally established aligner companies whose products have been widely accepted; |
|
● |
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; |
|
● |
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; |
|
● |
complying with regulations enforced by FDA and other regulatory authorities is expensive and time consuming, and failure to comply could result in substantial penalties; |
|
● |
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. |
|
● |
certain modifications to our products may require new 510(k) clearance or other marketing authorizations; |
|
● |
ongoing changes in healthcare regulation could negatively affect our revenues, business and financial condition; |
|
● |
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; |
|
● |
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; |
|
● |
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 |
|
● |
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. |
The
foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk
factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For
a discussion of these and other risks that relate to our business and financial performance, you should carefully review the risks and
uncertainties described under the heading “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and
in our Annual Report on Form 10-K filed on April 1, 2024, and those described from time to time in our future reports filed with
the Securities and Exchange Commission. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all
risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may
cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this
Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. Except to the extent required by
applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
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, par value $0.0001 per share (the “Common Stock”)
and convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”, and such transaction, 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 its 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 have 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.” Included in our Annual
Report on Form 10-K for the year ended December 31, 2023 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.
Recent Developments
Pursuant to the terms of the
Share Exchange, the Company entered into to a Securities Purchase Agreement, by and between the Company and certain purchasers identified
therein (the “Private Placement Investors”), dated as of August 14, 2023 (the “Securities Purchase Agreement”),
pursuant to which, the Private Placement Investors received shares of Common Stock (the “Private Placement Shares”), shares
of Series A Preferred Stock and warrants to purchase Common Stock (the “Private Placement Warrants”).
In connection with the Private
Placement, on August 14, 2023, the Company entered into a registration rights agreement with the Private Placement Investors (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) the shares of Common Stock underlying the shares of Series A Preferred Stock (the “Conversion Shares”), (iii)
the shares of Common Stock underlying the Private Placement Warrants issued to the Private Placement Investors (the “Warrant Shares”),
and (iv) the shares of the Company’s common stock underlying the securities issued to the investors who, on or about December 6,
2021, participated in the $3,000,000 financing (the “December 2021 Shares” and, together with the Private Placement Shares,
the Conversion Shares, the Warrant Shares, the “Registrable Securities” ).
On August 13, 2024, the Company
and certain of the Private Placement Investors entered into an Amendment to the Registration Rights Agreement (“Registration Rights
Agreement Amendment”), pursuant to which, (i) the date in which a registration statement registering the resale of the Registrable
Securities (the “Registration Statement”) is required to be filed pursuant to the Registration Rights Agreement was amended
to February 9, 2024, and (ii) the date in which the Registration Statement is required to be declared effective by the SEC pursuant to
the Registration Rights Agreement was amended to June 14, 2024. In consideration for entering into the Registration Rights Agreement Amendment,
the Company agreed to pay the Private Placement Investors the liquidated damages equal to the amount that would otherwise have accrued
pursuant to the Registration Rights Agreement, without giving effect to the Registration Rights Agreement Amendment.
Going Concern
The Company’s unaudited
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. During the six months ended June 30, 2024, the Company’s cash
used in operations was $1,513,366 leaving a cash balance of $1,834,477 as of June 30, 2024. Because the Company does not have sufficient
resources to fund our operations for the next twelve months from the date of this filing, management has substantial doubt about the Company’s
ability to continue as a going concern.
General
The
Company is involved in the research and development of an orthodontic alignment platform. The Company has several patents for the technology
used in the platform and is currently in the process of preparing the prototype for FDA approval.
Results of Operations
Comparison of the Three Months Ended June 30, 2024, and
the Three Months Ended June 30, 2023
The
following table sets forth the results of operations of the Company for the three months ended June 30, 2024 and June 30, 2023:
| |
Three Months Ended
June 30, | | |
| | |
| |
| |
2024 | | |
2023 | | |
Change $ | | |
Change % | |
Research and development | |
$ | 389,216 | | |
$ | 140,590 | | |
$ | 248,626 | | |
| 177 | % |
General and administrative | |
$ | 333,274 | | |
$ | 151,347 | | |
$ | 181,927 | | |
| 120 | % |
Share-based compensation | |
$ | 774,428 | | |
$ | 5,088 | | |
$ | 769,340 | | |
| 15,121 | % |
Financial income (expenses), net | |
$ | (9,872 | ) | |
$ | 11,243 | | |
$ | (21,115 | ) | |
| (188 | )% |
Research and development expenses
Research
and development expenses were $389,216 for the three months ended June 30, 2024, compared to $140,590 for the three months ended June
30, 2023. The increase in research and development expenses of $248,626 or 177%, was primarily due to increased activities relating to
the development of our new product.
General and administrative expenses
General
and administrative expenses were $333,274 for the three months ended June 30, 2024, compared to $151,347 for the three months ended June
30, 2023. The increase in general and administrative expenses of $181,927 or 120%, was primarily due to an increase in salaries and related
expenses, as well as professional fees during the three months ended June 30, 2024.
Share-based Compensation Expenses
Share-based compensation expenses
were $774,428 for the three months ended June 30, 2024, compared to $5,088 for the three months ended June 30, 2023. The increase in share-based
compensation expenses of $769,340 or 15,121%, was primarily due to the modification of the outstanding stock options as part of the Share
Exchange.
Financial income (expenses), net
Financial
expense was $9,872 for the three months ended June 30, 2024, compared to $11,243 of income for the three months ended June 30, 2023. The
decrease in financial income, net of $21,115 or 188%, was primarily due to exchange rate differences resulting from the translation of
NIS based assets and liabilities to U.S. Dollars.
Comparison of the Six Months Ended June 30, 2024,
and the Six Months Ended June 30, 2023
The
following table sets forth the results of operations of the Company for the six months ended June 30, 2024 and June 30, 2023:
| |
Six Months Ended
June 30, | | |
| | |
| |
| |
2024 | | |
2023 | | |
Change $ | | |
Change % | |
Research and development | |
$ | 762,873 | | |
$ | 439,362 | | |
$ | 323,511 | | |
| 74 | % |
General and administrative | |
$ | 718,838 | | |
$ | 316,444 | | |
$ | 402,394 | | |
| 127 | % |
Share-based compensation | |
$ | 1,311,625 | | |
$ | 10,120 | | |
$ | 1,301,505 | | |
| 12,861 | % |
Financial income (expenses), net | |
$ | (21,917 | ) | |
$ | 14,540 | | |
$ | 13,067 | | |
| 396 | % |
Research and development expenses
Research
and development expenses were $762,873 for the six months ended June 30, 2024, compared to $439,362 for the six months ended June 30,
2023. The increase in research and development expenses of $323,511 or 74%, was primarily due to increased activities relating to the
development of our new product.
General and administrative expenses
General
and administrative expenses were $718,838 for the six months ended June 30, 2024, compared to $316,444 for the six months ended June 30,
2023. The increase in general and administrative expenses of $402,394 or 127%, was primarily due to an increase in salaries and related
expenses, as well as professional fees during the six months ended June 30, 2024.
Share-based Compensation Expenses
Share-based compensation expenses
were $1,311,625 for the six months ended June 30, 2024, compared to $10,120 for the six months ended June 30, 2023. The increase in share-based
compensation expenses of $1,301,505 or 12,861%, was primarily due to the modification of the outstanding stock options as part of the
Share Exchange.
Financial income (expenses), net
Financial expense was $21,917 for the six months ended June 30,
2024, compared to $14,540 of income for the six months ended June 30, 2023. The decrease in financial income, net of $36,457 or 251%,
was primarily due to exchange rate differences resulting from the translation of NIS based assets and liabilities to U.S. Dollars.
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 $1.5 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 interim condensed consolidated financial statements included in this Quarterly Report on Form
10-Q. 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.”
Cash Flows
| |
Six months ended June 30, | |
| |
2024 | | |
2023 | |
Cash used in | |
| | |
| |
Operating activities | |
$ | (1,487,517 | ) | |
$ | (1,005,894 | ) |
Investing activities | |
| (25,849 | ) | |
| - | |
Financing activities | |
| - | | |
| - | |
Net decrease in cash and cash equivalents | |
$ | (1,513,366 | ) | |
$ | (1,005,894 | ) |
Operating activities
Net cash used in operating
activities was $1,487,517 for the six months ended June 30, 2024 as compared to $1,005,894 for the six months ended June 30, 2023. The
amount for the six months ended June 30, 2024 primarily consisted of a net loss of $3,335,531 offset by non-cash charges of $1,833,468
(including: depreciation of $1,565, Liquidated damages - Registration Rights Agreement of $520,278 and share-based compensation expense
of $1,311,625), and an increase in working capital excluding cash of $14,730. The amount for the six months ended June 30, 2023 primarily
consisted of a net loss of $751,386, partially offset by non-cash charges of $10,455 (including: depreciation of $335 and share-based
compensation expense of $10,120), and a decrease in working capital excluding cash of $264,963.
Investing Activities
During the six months ended
June 30, 2024, net cash used in investing activities was $25,849 relating to the purchase of fixed assets. During the six months ended
June 30, 2023, there was no cash provided by or used in investing activities.
Effects of Inflation
Management does not believe
that inflation has had a material impact on the Company’s business, sales, or operating results during the periods presented.
Off-Balance Sheet Arrangements
The Company currently does
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 our financial condition and results of operations
and which require us to make our 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
The Company has reviewed the
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the SEC and determined that these pronouncements do not have a material impact on the Company’s current or anticipated
consolidated financial statement presentation or disclosures.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information required under this item.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer
and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our
management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding
required disclosure.
Change in Internal Control over Financial Reporting
There were no changes in our
internal control over financial reporting that occurred during our last fiscal quarter ended June 30, 2024 that have materially affected,
or are reasonably likely to affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may
be involved in litigation that arises through the normal course of business. As of the date of this filing, we are not a party to any
material litigation nor are we aware of any such threatened or pending litigation.
There are no proceedings in
which any of our directors, officers, affiliates or any registered or beneficial stockholders is an adverse party or has a material interest
adverse to our interest.
Item 1A. Risk Factors
The following description
of risk factors includes any material changes to, and supersedes the description of, the risk factors addressed below associated with
our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our Annual
Report for the year ended December 31, 2023 on Form 10-K, as filed with the SEC on April 1, 2024 as amended on April 25,
2024. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown,
including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial
condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any
of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and
stock price.
The following discussion
of risk factors contains forward-looking statements. This risk factor may be important to understanding other statements in this Form
10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in
Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Form 10-Q.
The Company’s financial statements
have been prepared on a going concern basis and do not include adjustments that might be necessary if the Company is unable to continue
as a going concern. Management has substantial doubt about the Company’s ability to continue as a going concern.
The Company’s unaudited
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. During the six months ended June 30, 2024, the Company’s cash
used in operations was $1,513,366 leaving a cash balance of $1,834,477 as of June 30, 2024. Because the Company does not have sufficient
resources to fund our operations for the next twelve months from the date of this filing, management has substantial doubt about the Company’s
ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability
and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
The Company will need to raise
additional capital to finance its losses and negative cash flows from operations and may continue to be dependent on additional capital
raising as long as its products do not reach commercial profitability. There are no assurances that the Company would be able to raise
additional capital on terms favorable to it. If the Company is unsuccessful in commercializing its products and raising capital, it will
need to reduce activities, curtail, or cease operations.
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 the Israeli population, 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 restrictions 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 or 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, 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
supplies, and hamper our ability to raise additional funds or sell our securities, among others.
Item
2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
There were no unregistered
sales of the Company’s equity securities during the three months ended June 30, 2024, other than those previously reported
in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior
Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits
* |
Filed herewith. |
** |
Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DROR-ORTHO DESIGN, INC. |
|
|
|
Date: August 14, 2024 |
By: |
/s/ Eliyahu (Lee) Haddad |
|
Name: |
Eliyahu (Lee) Haddad |
|
Title: |
(Principal Executive Officer and
Principal Financial and Accounting Officer) |
|
|
|
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This certification is furnished solely pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”)
for the quarter ended June 30, 2024, of Dror-Ortho Design, Inc. (the “Company”). I, Eliyahu (Lee) Haddad, the Chief Executive
Officer of the Company, certify that, based on my knowledge:
This certification is furnished solely pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”)
for the quarter ended June 30, 2024, of Dror-Ortho Design, Inc. (the “Company”). I, Eliyahu (Lee) Haddad, the Chief Financial
Officer of the Company, certify that, based on my knowledge: