DROR 10-Q
Dror Ortho-Design, Inc. (DROR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ____ to ____
Commission File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| (Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including
area code:
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.
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).
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 | ☐ |
| ☒ | 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, par value $0.0001 per share, as of November 18, 2025 was
Dror Ortho-Design, Inc.
Quarter Ended September 30, 2025
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | 1 | |
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 1 |
| Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 22 |
| Item 4. | Controls and Procedures | 22 |
| PART II. OTHER INFORMATION | 23 | |
| Item 1. | Legal Proceedings | 23 |
| Item 1A. | Risk Factors | 23 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 25 |
| Item 4. | Mine Safety Disclosures | 25 |
| Item 5. | Other Information | 25 |
| Item 6. | Exhibits | 27 |
| Signatures | 28 | |
i
DROR ORTHO-DESIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars, except share and per share amounts)
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
| September 30, 2025 | December 31, 2024 | |||||||
| Unaudited | Audited | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Receivables and prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets: | ||||||||
| Property and equipment at cost, net of accumulated depreciation | ||||||||
| Total Assets | ||||||||
| Liabilities And Stockholders’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Convertible promissory notes, net | ||||||||
| Derivative liability | ||||||||
| Registration Rights Agreement liability | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities: | ||||||||
| Accrued severance | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred A Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DROR ORTHO-DESIGN, INC.
CONDENSED STATEMENTS OF OPERATIONS
(U.S. dollars, except share and per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative expenses | ||||||||||||||||
| Share-based compensation | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Financial expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Liquidated damages accrual | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.01 | ) | ||||||||
| Basic and Diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted-average common shares outstanding | 956,997,116 | 738,290,665 | 956,997,116 | 576,990,761 | ||||||||||||
| Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DROR ORTHO-DESIGN, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(U.S. dollars, except share and per share amounts)
(Unaudited)
| Series A Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Conversion of Series A Preferred Stock into Common Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | ( | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
DROR ORTHO-DESIGN INC.
CONDENSED STATEMENTS OF CASH FLOWS
(U.S. dollars, except share and per share amounts)
| For the Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Stock-based compensation expense | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of derivative liability | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables and prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other payables | ||||||||
| Registration Rights Agreement liability | ||||||||
| Accrued severance | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible promissory notes, net | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
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 July 5, 2023, the Company 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 par value $
The Company’s stock is quoted on the OTC Pink Market under the symbol “DROR.”
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 $
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, 2024 included within the Company’s Current Report on Form 10-K, originally filed with the SEC on February 19, 2025.
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 nine months ended September 30, 2025 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 expenses, the valuation of stock-based compensation, the fair value of derivative liabilities, expected maturity of debentures and 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.
5
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 transactions. 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
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
September 30, 2025, and December 31, 2024, the Company did not have any balances in excess of the FDIC insurance limit. As of September
30, 2025, and December 31, 2024, the Company had $
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. 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.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s statements of operations.
Research and Development
The Company expenses all research and development costs as they are incurred.
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.
6
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 sufficient 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.
Basic and Diluted Net Loss Per Share of Common Stock
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 share of Common Stock is computed by dividing the loss for the period applicable to holders of Common Stock by the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per share of Common Stock is computed by dividing the net loss by the weighted average number of Common Stock outstanding for the period and, if dilutive, potential shares of Common Stock outstanding during the period. Potentially dilutive securities consist of the incremental shares of 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 nine months
ended September 30, 2025 and 2024, the Company incurred net losses which cannot be diluted; therefore, basic and diluted loss per share
of Common Stock is the same. Each share of Series A Preferred Stock is convertible into
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Series A Preferred Stock | ||||||||
| Warrants | ||||||||
| Stock Options | ||||||||
| Shares excluded from the calculation of diluted loss per share | ||||||||
Recently Issued Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” to require more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this guidance on its condensed consolidated financial statements and related disclosures. The adoption of this pronouncement is not expected to have a material impact on the Company’s condensed consolidated financial statements.
7
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.
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The adoption of the ASU did not have a material impact on its consolidated financial statements related disclosures (See Note 9).
In October 2023, the FASB issued ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification topics, allow investors to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this ASU should be applied prospectively. The Company does not expect ASU 2023-06 will have a material impact to its consolidated financial statements or related disclosures.
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 – REGISTRATIONS RIGHTS AGREEMENT LIABILITY
In connection with the closing
of the Share Exchange, pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”), the Company sold
(i) shares of Common Stock (the “Private Placement Shares”) and shares of Series A Preferred Stock, or a combination thereof,
at an effective purchase price of $
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”),
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 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 (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 $
Under the Registration Rights
Agreement, among other things, if a registration statement registering the resale of the Registrable Securities is not filed by the 45th
calendar date following the date of the Registration Rights Agreement 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 Registration Rights Agreement, then the Company was required to pay as partial liquidated damages in amount equal to the
product of
8
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
NOTE 4 – ACCRUED SEVERANCE
Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Israel pension and severance pay liability to employees are partially covered by regular deposits with recognized pension and severance pay funds under the employees’ names and through the purchase of insurance policies. The amount of the liability for severance pay that is included in the balance sheet expresses the balance of the liability that is not covered by deposits, pursuant to the existing labor agreements. Although certain employees have waived their rights to receive severance pay on a portion of their salaries, the Company has recorded a provision for the full amount that would have been required under Israeli labor law.
NOTE 5 – CONVERTIBLE PROMISSORY NOTES, NET
During the second and third
quarters of 2025, on (i) June 5, 2025, the Company entered into that certain Securities Purchase Agreement (the “First Purchase
Agreement”) with certain existing investors, pursuant to which, the Company agreed to sell in a private placement, Debentures (the
“First Debentures”) in an aggregate principal amount of $
The Advance was accounted for with the same terms as the Q2 Debentures as these were the terms that were included in the agreement signed on November 12, 2025 (see Note 10). The Debentures do not bear interest. The Debentures also set forth certain customary events of default after which the Debentures may be declared immediately due and payable, including certain types of bankruptcy or insolvency events of default. Subject to the satisfaction of certain conditions, including applicable prior notice to the holders of the Debentures, at any time prior to the maturity dates, the Company may elect to prepay all or a portion of the-then outstanding principal amount of the Debentures.
In the event that prior to the maturity dates the Company consummates a public offering of its securities (“Public Offering”), the then-outstanding principal amount of the Debentures automatically converts into shares of the Company’s Common Stock (the “Debenture Shares”) at a conversion price equal to the per share price of the shares of Common Stock offered in the Public Offering. The Debenture Shares, if any, are subject to the same terms and conditions as the shares of Common Stock issued in a Public Offering, including the issuance of any accompanying warrants to purchase shares of Common Stock issued and registration rights granted, if any, to investors in the Public Offering.
In addition, pursuant to
the Purchase Agreements the Company agreed to issue (A) subject to the consummation of a Public Offering, warrants to purchase up to
a number of shares of Common Stock (the “Purchase Warrants”), equal to: (i) in the event the Debentures are outstanding as
of the date of the consummation of the Public Offering,
9
The Company reviewed the
terms of the Bridge Financing Warrants to be issued and determined that due to the variable number of instruments to be issued, they
would constitute a derivative liability. At the initial date, the Company estimated the fair value of both sets of Bridge Financing Warrants
and allocated the total gross proceeds received between them based on that relative fair value identified. The fair value of the embedded
derivative financial instruments was bifurcated from the host instrument and remeasured on recurring basis at each reporting period under
marked to market approach. The fair value of the derivative liabilities at inception amounted to $
Derivative Liability
The Company valued the derivative liability relating to the embedded conversion features using the Black Scholes Model using the following assumptions on the respective dates of the Debentures:
| June 5, 2025 | June 16, 2025 | July 17, 2025 | September 15, 2025 | September 30, 2025 | ||||||||||||||||
| Stock price | $ | $ | $ | $ | $ | |||||||||||||||
| Exercise price | ||||||||||||||||||||
| Term (years) | ||||||||||||||||||||
| Annual volatility | % | % | % | % | % | |||||||||||||||
| Risk free rate | % | % | % | % | % | |||||||||||||||
| Dividend yield | % | % | % | % | % | |||||||||||||||
| Estimated warrant amount | ||||||||||||||||||||
| Fair value of warrants | $ | $ | $ | $ | $ | |||||||||||||||
The Company has assumed that the Debentures will be outstanding as of the potential Public Offering. The Company discounted the Purchase Warrants value due to an estimated probability of 90% of the occurrence of a Public Offering. The Additional Warrants were fully discounted resulting from the Company’s current estimation of a zero probability of an occurrence of Public Offering including warrants.
The Company’s activity in its convertible promissory notes, net related derivative liability was as follows for the period ended September 30, 2025:
| Balance of derivative liability at January 1, 2025 | $ | |||
| Transfer in due to issuance of convertible promissory notes, net with warrant derivative liability | ||||
| Change in fair value of warrant derivative liability | ||||
| Balance of derivative liability at September 30, 2025 | $ |
10
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Israel Innovation Authority
The Company partially financed
their research and development expenditures under grant programs sponsored by the Israel Innovation Authority (“IIA”) (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, in accordance with the terms of the grant, the Company is required to pay
Legal proceedings
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
Starting October 7, 2023, Israel has been engaged in a complex multifront war in the Middle East. An agreement for a ceasefire in Gaza was reached in October 2025, conditioned on the parties meeting certain ongoing requirements.
The Company’s research and development activities are located in Israel. Currently, such activities in Israel remain largely unaffected. During the nine months ended September 30, 2025 and 2024, the impact of the regional conflicts on the Company’s results of operations and financial condition was immaterial. Management will continue to monitor events in the region and their effect on the Company’s financial position and results of operations.
NOTE 7 – STOCKHOLDERS’ EQUITY
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
from
Holders of the Company’s Common Stock have no preemptive, redemption, conversion or subscription rights. No sinking fund provisions are applicable to the Company’s Common Stock. Upon liquidation, dissolution or winding-up, holders of the Company’s Common Stock are entitled to share in all assets remaining after payment of all liabilities and the liquidation preferences of any of the Company’s outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of the Company’s Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors of the Company (the “Board of Directors”) out of the Company’s assets which are legally available. Such dividends, if any, are payable in cash, in property or in shares of capital stock.
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Warrants
On August 14, 2023, the Company
issued warrants (the “Exchange Warrants”) to purchase up to
The outstanding Warrants
expire five years from the initial exercise date and are exercisable at an exercise price of $
On April 17, 2024, the Board
of Directors approved the issuance of warrants to purchase
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 Warrants, then the holders will have the right to exercise the Warrants by means of a cashless
exercise. In addition, if (i) the volume-weighted average price of the Company’s Common Stock for
Equity Incentive Plan
Prior to the Share Exchange,
there were
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 $
On June 17, 2024, the Board
of Directors approved the issuance of
Share-based compensation
expense for the three months ended September 30, 2025 and 2024 amounted to and $
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NOTE 8 – RELATED PARTY TRANSACTIONS
Director Consulting Services
On June 1, 2022, the Company
entered into a consulting agreement with Yehuda Englander, a director of the Company (the “Consulting Agreement”), pursuant
to which, in consideration for certain financial and strategic consulting services, Mr. Englander is entitled to a cash fee of NIS
On February 7, 2024, the Company
entered into a consulting agreement with Chaim Ravad, a director of the Company (the “Ravad Consulting Agreement”), pursuant
to which, in consideration for certain services provided as a member of the Board of Directors, Mr. Ravad was entitled to a cash fee of
$
Stockholder Consulting Services
On August 8, 2023, the Company
entered into a consulting agreement with Oriole, an entity owned by Yaacov Bodner, an owner of
NOTE 9 – SEGMENT REPORTING:
ASC 280, “Segment Reporting”
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization
structure as well as information about services categories, business segments and major customers in financial statements. The Company
has only
The Company adheres to the
provisions of ASC 280, Segment Reporting, which establishes standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those enterprises report selected information about operating segments
in financial statements issued to stockholders. As the Company is currently involved in the development of one product, the Platform,
the Company has determined that it operates in a single reportable segment.
NOTE 10 – SUBSEQUENT EVENTS
On November 12, 2025, the Company entered into the Fourth Purchase
Agreement with certain existing investors. Pursuant to the agreement, the Company agreed to sell to the purchasers in a private placement,
the Fourth Debentures in aggregate principal amounts of $
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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 September 30, 2025 and for the three and nine months ended September 30, 2025 and 2024 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, 2024, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 19, 2025. 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 (as defined herein) 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; |
| ● | 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; |
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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; |
| ● | 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, par value $0.0001 per share (“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 February 19, 2025, 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 the Series A 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.”
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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. Rather, they can get a perfect smile discreetly and hassle-free even while they sleep with our FDA-cleared proprietary solution.
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 is currently in the process of preparing the prototype for FDA approval.
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, 2024 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.
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Recent Developments
On each of June 5, 2025, June 16, 2025, and July 17, 2025, the Company entered into a Securities Purchase Agreement (collectively, the “Initial Purchase Agreements”) with certain existing investors, pursuant to which, the Company agreed to sell to the purchasers in private placements (the “Private Placements”), debentures (collectively, the “Initial Debentures”) in an aggregate principal amount of $300,000 due August 5, 2025, $200,000 due August 15, 2025, and $200,000 due September 17, 2025, respectively. Each of the Initial Debentures were extended to December 13, 2025.
On November 12, 2025, the Company entered into a securities purchase agreement (the “November 2025 Purchase Agreement” and, together with the Initial Purchase Agreements, the “Purchase Agreements”) with each of the purchasers signatory thereto (the “November 2025 Investors”), pursuant to which, the Company agreed to sell to the November 2025 Investors in a private placement, debentures in an aggregate principal amount of $600,000 due January 11, 2026 (the “November 2025 Debentures” and, together with the Initial Debentures, the “Debentures”). Pursuant to the November 2025 Purchase Agreement, the November 2025 Investors have the right to purchase additional debentures, which are subject to the same terms as the Debentures, in an aggregate principal amount of $200,000. In advance of signing the November Purchase Agreement, the Company in September 2025 received $400,000 from certain November 2025 Investors.
In addition, pursuant to each Purchase Agreement, the Company agreed to issue (A) subject to the consummation of a public offering by the Company of its securities (the “Public Offering”), warrants to purchase up to a number of shares of Common Stock (the “Purchase Warrants”) equal to: (i) in the event the applicable Debentures are outstanding as of the date of the consummation of the Public Offering (the “Public Offering Closing Date”), 150% of the Debenture Shares (as defined herein) issued, if any; or (ii) in the event that each of the applicable Debentures are not outstanding as of the Public Offering Closing Date, 100% of the Debenture Shares that would have been issued, if any, as if such Debentures were outstanding as of the Public Offering Closing Date, and (B) subject to the completion of a Public Offering by the Company of warrants to purchase shares of Common Stock, additional warrants to purchase shares of Common Stock (the “Additional Warrants” and, collectively with the Purchase Warrants, the “Bridge Warrants”) equal to: (i) in the event that the applicable Debentures are outstanding as of the Public Offering Closing Date, 150% of the number of shares of Common Stock underlying the warrants issued in the Public Offering that the Purchaser would have been entitled to receive had the Purchaser participated in the Public Offering in the amount equal to the Purchaser’s subscription amount under the Purchase Agreement (the “Warrant Subscription Amount”); or (ii) in the event that the applicable Debentures are not outstanding as of the Public Offering Closing Date, 100% of the Warrant Subscription Amount.
Debentures
Each of the Debentures bear an interest rate of 0% per annum and the maturity date may be extended by the holder for subsequent periods of 60 days upon prior written notice to the Company. The Debentures also set forth certain customary events of default after which the Debentures may be declared immediately due and payable, including certain types of bankruptcy or insolvency events of default. Subject to the satisfaction of certain conditions, including applicable prior notice to the holders of the Debentures, at any time prior to the maturity date, the Company may elect to prepay all or a portion of the-then outstanding principal amount of each of the Debentures.
In the event that prior to the respective maturity date the Company consummates a Public Offering, the then-outstanding principal amount of each of the Debentures automatically converts into shares of the Company’s Common Stock (the “Debenture Shares”) at a conversion price equal to the per share price of the shares of Common Stock offered in the Public Offering. The Debenture Shares, if any, are subject to the same terms and conditions as the shares of Common Stock issued in the Public Offering, including the issuance of any accompanying warrants to purchase shares of Common Stock issued and registration rights granted, if any, to investors in the Public Offering.
Warrants
The Bridge Warrants, if issued, will be exercisable for shares of Common Stock immediately upon issuance, at an exercise price equal to the per share price of the shares of Common Stock offered in the Public Offering (the “Exercise Price”), if any, and expire five years from the date of issuance. The Exercise Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment.
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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 nine months ended September 30, 2025, the Company’s cash used in operations was $1,409,082 leaving a cash balance of $240,362 as of September 30, 2025. Because the Company does not have sufficient resources to fund its 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. During the nine months ended September 30, 2025, the Company raised $1,100,000 from the issuance of the Debentures and is exploring additional fundraising opportunities. Subsequent to the balance sheet date, on November 11, 2025, the Company raised an additional $200,000 from the issuance of loans.
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 September 30, 2025, and the Three Months Ended September 30, 2024
The following table sets forth the results of operations of the Company for the three months ended September 30, 2025 and September 30, 2024:
| Three Months Ended September 30, | ||||||||||||||||
| 2025 | 2024 | Change $ | Change % | |||||||||||||
| Research and development | $ | 151,456 | $ | 451,030 | $ | (299,574 | ) | (66 | )% | |||||||
| General and administrative | $ | 318,424 | $ | 307,593 | $ | 10,831 | 4 | % | ||||||||
| Share-based compensation | $ | - | $ | 543,101 | $ | (543,101 | ) | (100 | )% | |||||||
| Other income (expenses), net | $ | (183,648 | ) | $ | (525,211 | ) | $ | 341,563 | (65 | )% | ||||||
Research and development expenses
Research and development expenses were $151,456 for the three months ended September 30, 2025, compared to $451,030 for the three months ended September 30, 2024. The decrease in research and development expenses of $299,574, or 66%, was primarily due to decreased activities relating to software development.
General and administrative expenses
General and administrative expenses were $318,424 for the three months ended September 30, 2025, compared to $307,593 for the three months ended September 30, 2024. The increase in general and administrative expenses of $10,831, or 4%, was primarily due to an increase in salary related costs during the three months ended September 30, 2025.
Share-based Compensation Expenses
Share-based compensation expenses were $0 for the three months ended September 30, 2025, compared to $543,101 for the three months ended September 30, 2024. The decrease in share-based compensation expenses of $543,101, or 100%, was due to the completion of vesting for all outstanding stock options vesting in the second quarter of 2025.
Other Expenses, Net
Other expenses, net were $183,648 for the three months ended September 30, 2025, compared to $525,211 for the three months ended September 30, 2024. The decrease in net expense of $341,563, or 65%, was primarily due to the recognition of $520,000 of liquidated damages accrual during the three months ended September 30, 2024, partially offset by amortization of debt discount of $159,813 during the three months ended September 30, 2025.
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Comparison of the Nine months ended September 30, 2025, and the Nine months ended September 30, 2024
The following table sets forth the results of operations of the Company for the nine months ended September 30, 2025 and September 30, 2024:
| Nine Months Ended September 30, | ||||||||||||||||
| 2025 | 2024 | Change $ | Change % | |||||||||||||
| Research and development | $ | 715,128 | $ | 1,213,903 | $ | (498,775 | ) | (41 | )% | |||||||
| General and administrative | $ | 1,023,547 | $ | 1,026,431 | $ | (2,884 | ) | 0 | % | |||||||
| Share-based compensation | $ | 39,170 | $ | 1,854,726 | $ | (1,815,556 | ) | (98 | )% | |||||||
| Other income (expenses), net | $ | (211,144 | ) | $ | (547,128 | ) | $ | 335,984 | (61 | )% | ||||||
Research and development expenses
Research and development expenses were $715,128 for the nine months ended September 30, 2025, compared to $1,213,903 for the nine months ended September 30, 2024. The decrease in research and development expenses of $498,775, or 41%, was primarily due to decreased activities relating to software development.
General and administrative expenses
General and administrative expenses were $1,023,547 for the nine months ended September 30, 2025, compared to $1,026,431 for the nine months ended September 30, 2024. The decrease in general and administrative expenses of $2,884, or 0%, was primarily due to a reduction in professional fees during the period offset by an increase in salary related expenses.
Share-based Compensation Expenses
Share-based compensation expenses were $39,170 for the nine months ended September 30, 2025, compared to $1,854,726 for the nine months ended September 30, 2024. The decrease in share-based compensation expenses of $1,815,556, or 98%, was primarily due to the majority of the outstanding stock options vesting in 2024.
Other Expenses, Net
Other expenses, net were $211,144 for the nine months ended September 30, 2025, compared to $547,128 for the nine months ended September 30, 2024. The decrease in net expense of $335,984, or 61%, was primarily due to the recognition of $520,000 of liquidated damages accrual during the nine months ended September 30, 2024, partially offset by amortization of debt discount $174,408 during the nine months ended September 30, 2025.
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 which was used on software and hardware development as well as the accompanying regulatory approvals and IP protection associated with such software and hardware projects. During the nine months ended September 30, 2025, the Company received $1,100,000 in the form of bridge loans from existing investors.
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.”
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Cash Flows
| Nine months ended September 30, | ||||||||
| 2025 | 2023 | |||||||
| Cash used in | ||||||||
| Operating activities | $ | (1,409,082 | ) | $ | (2,178,725 | ) | ||
| Investing activities | - | (25,849 | ) | |||||
| Financing activities | 1,100,000 | - | ||||||
| Net decrease in cash and cash equivalents | $ | (309,082 | ) | $ | (2,204,574 | ) | ||
Nine months ended September 30, 2025 Compared to Nine months ended September 30, 2024
Operating activities
Net cash used in operating activities was $309,082 for the nine months ended September 30, 2025, as compared to $2,204,574 for the nine months ended September 30, 2024. The amount for the nine months ended September 30, 2025, primarily consisted of a net loss of $1,988,989, partially offset by non-cash charges of $222,818 (including stock-based compensation expense of $39,170, depreciation of $3,705, debt discount amortization of $174,408, and $5,535 loss from the change in fair value of a derivative), and a net increase from working capital of $357,089. The amount for the nine months ended September 30, 2024 primarily consisted of a net loss of $4,642,188 offset by non-cash charges of $1,857,526 (including: depreciation of $2,800 and share-based compensation expense of $1,854,726), and an increase in working capital excluding cash of $605,937.
Investing Activities
During the nine months ended September 30, 2025, net cash provided by investing activities was $0. During the nine months ended September 30, 2024, net cash used in investing activities was $25,849 relating to the purchase of fixed assets.
Financing Activities
During the nine months ended September 30, 2025, net cash provided by financing activities was $1,100,000. During the nine months ended September 30, 2024, net cash provided by financing activities was $0.
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.
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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 expenses, estimated lives of long-lived assets, the valuation of stock-based compensation, the fair value of derivative liabilities and 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.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s statements of operations.
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.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” to require more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this guidance on its condensed consolidated financial statements and related disclosures. The adoption of this pronouncement is not expected to have a material impact on the Company’s condensed consolidated financial statements.
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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.
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The adoption of the ASU did not have a material impact on its consolidated financial statements related disclosures.
In October 2023, the FASB issued ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification topics, allow investors to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this ASU should be applied prospectively. The Company does not expect ASU 2023-06 will have a material impact to its consolidated financial statements or related disclosures.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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 (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 “Part I – Item 1A. Risk Factors” of our Annual Report for the year ended December 31, 2024 on Form 10-K, as filed with the SEC on February 19, 2025 and in “Part II – Item 1A. Risk Factors” of our Quarterly Report for the quarter ended June 30, 2025, as filed wit the SEC on August 14, 2025. 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 nine months ended September 30, 2025, the Company’s cash used in operations was $1,409,082 leaving a cash balance of $240,362 as of September 30, 2025. 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.
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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.
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.
In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization) and on other fronts from various extremist groups in region, such as the Houthis in Yemen and various rebel militia groups in Syria and Iraq. In October 2024, Israel began limited ground operations against Hezbollah in Lebanon, and in November 2024, a ceasefire was brokered between Israel and Hezbollah. In addition, in April 2024 and October 2024, Iran launched direct attacks on Israel involving hundreds of drones and missiles and has threatened to continue to attack Israel and is widely believed to be developing nuclear weapons. In June 2025, in light of continued nuclear threats and intelligence assessments indicating imminent attacks, Israel launched a preemptive strike directly targeting military and nuclear infrastructure inside Iran, aimed at disrupting Iran’s capacity to coordinate or launch further hostilities against Israel, as well as to degrade its nuclear program. In response, Iran launched multiple waves of drones and ballistic missiles at Israeli cities. While most of these attacks were intercepted, several caused civilian casualties and damage to infrastructure. The Israeli military has since conducted additional operations against Iranian assets. While a ceasefire was reached between Israel and Iran in June 2025 after 12 days of hostilities, the situation remains volatile. A broader regional conflict involving additional state and non-state actors remains a significant risk. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Additionally, Yemeni rebel group, the Houthis, launched series of attacks on global shipping routes in the Red Sea, causing disruptions of supply chain. Such clashes 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.
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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 September 30, 2025, 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.
On November 12, 2025, the Company entered into the November 2025 Purchase Agreement with each of the November 2025 Investors, pursuant to which, the Company agreed to sell to the November 2025 Investors in a private placement (the “November 2025 Private Placement”), debentures in an aggregate principal amount of $600,000 due January 11, 2026. Pursuant to the November 2025 Purchase Agreement, the November 2025 Investors have the right to purchase additional debentures, which are subject to the same terms as the November 2025 Debentures, in an aggregate principal amount of $200,000. In addition, pursuant to the November 2025 Purchase Agreement the Company agreed to issue (A) subject to the consummation of the Public Offering, Purchase Warrants to purchase shares of Common Stock equal to: (i) in the event the November 2025 are outstanding as of the date of the Public Offering Closing Date, 150% of the November 2025 Debenture Shares issued, if any; or (ii) in the event that the November 2025 Debentures are not outstanding as of the Public Offering Closing Date, 100% of the Debenture Shares that would have been issued, if any, as if such November 2025 Debentures were outstanding as of the Public Offering Closing Date, and (B) subject to the completion of a Public Offering by the Company of warrants to purchase shares of Common Stock, Additional Warrants to purchase shares of Common Stock equal to: (i) in the event that the November 2025 Debentures are outstanding as of the Public Offering Closing Date, 150% of the number of shares of Common Stock underlying the warrants issued in the Public Offering that the November 2025 Investors would have been entitled to receive had the November 2025 Investors participated in the Public Offering in the amount equal to the November 2025 Investors’ subscription amount under the November 2025 Purchase Agreement; or (ii) in the event that the November 2025 Debentures are not outstanding as of the Public Offering Closing Date, 100% of the Warrant Subscription Amount. The transactions contemplated by the November 2025 Purchase Agreement were consummated on November 12, for an aggregate purchase price of $600,000 (the “Closing Date”).
The November 2025 Purchase Agreement contains customary representations, warranties and covenants by the Company and customary indemnification obligations of the Company, including for liabilities under the Securities Act. The representations, warranties and covenants contained in the November 2025 Purchase Agreement were made only for purposes of the November 2025 Purchase Agreement and as of specific dates, were solely for the benefit of the parties to the November 2025 Purchase Agreement and were subject to limitations agreed upon by the parties.
The November 2025 Private Placement is exempt from the registration requirements of the Securities Act pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the November 2025 Investors has represented to the Company that it is an accredited investor within the meaning of Rule 501(a) of Regulation D and that it is acquiring the applicable securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The November 2025 Debentures and related Warrants were offered without any general solicitation by the Company or its representatives.
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Debentures
The November 2025 Debentures bear an interest rate of 0% per annum and have a maturity date of January 11, 2026 (the “November 2025 Maturity Date”), which may be extended by the holder for subsequent periods of 60 days upon prior written notice to the Company. The November 2025 Debentures also set forth certain customary events of default after which the November 2025 Debentures may be declared immediately due and payable, including certain types of bankruptcy or insolvency events of default. Subject to the satisfaction of certain conditions, including applicable prior notice to the holders of the November 2025 Debentures, at any time prior to the November 2025 Maturity Date, the Company may elect to prepay all or a portion of the-then outstanding principal amount of the November 2025 Debentures.
In the event that prior to the November 2025 Maturity Date the Company consummates a Public Offering, the then-outstanding principal amount of the November 2025 Debentures automatically converts into shares of the Company’s Common Stock at a conversion price equal to the per share price of the shares of Common Stock offered in the Public Offering. The Debenture Shares, if any, are subject to the same terms and conditions as the shares of Common Stock issued in the Public Offering, including the issuance of any accompanying warrants to purchase shares of Common Stock issued and registration rights granted, if any, to investors in the Public Offering.
A holder of a November 2025 Debenture is prohibited from converting the November 2025 Debenture into shares of Common Stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s Common Stock then issued and outstanding immediately after giving effect to the issuance of the shares of Common Stock issuable upon conversion of the November 2025 Debenture. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to the Company.
Warrants
The Warrants, if issued, will be exercisable for shares of Common Stock immediately upon issuance, at an exercise price equal to the per share price of the shares of Common Stock offered in the Public Offering (the “Exercise Price”), if any, and expire five years from the date of issuance. The Exercise Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment. A holder of the Warrants may not exercise any portion of such holder’s Warrants to the extent that the holder, together with its affiliates, would beneficially own more than 9.99% of the Company’s outstanding shares of Common Stock immediately after exercise of such Warrants. There is no established public trading market for the Warrants and the Company does not intend to list the Warrants on any national securities exchange or nationally recognized trading system.
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Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
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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: November 18, 2025 | By: | /s/ Eliyahu (Lee) Haddad |
| Name: | Eliyahu (Lee) Haddad | |
| Title: | Chief Executive Officer and Principal Financial and Accounting Officer | |
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