Dror Ortho-Design, Inc. 10-K

Item 9A. Controls and Procedures. 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 Exchange Act) Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report, have concluded that, based on such evaluation, our disclosure controls and procedures were not 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. Internal Control over Financial Reporting Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and the disposition of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and board of directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. 50 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Management evaluated the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation management concluded that our internal control over financial reporting was not effective as of December 31, 2023. During the year ended December 31, 2023, management identified the following weaknesses, which were deemed to be material weaknesses in internal controls: 1. Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties. 2. The Company does not have Chief Financial Officer that can oversee day to day operations and the financial reporting function. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report in this Annual Report. Changes in Internal Controls over Financial Reporting There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting. Item 9B. Other Information Not applicable . Item 9C Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. Not applicable. 51 PART III Item 10. Directors, Executive Officers and Corporate Governance. Officers and Directors The following persons became our directors and executive officers on August 14, 2023 and hold the positions set forth opposite their respective names as of March 29, 2024: Name Age Position Eliyahu (Lee) Haddad 57 Chief Executive Officer and Director Moshe Shvets 59 Chief Technology Officer and Director Chaim Hurvitz 63 Director and Chairman of the Board Chaim Ravad 58 Director Yehuda Englander 43 Director Directors and Executive Officers Information concerning our directors and executive officers is set forth below. The biographical description of each director includes the specific experience, qualifications, attributes and skills that led the Board to conclude that such person should serve as a director. Eliyahu (Lee) Haddad Mr. Haddad has served as our Chief Executive Officer and director since December 2021. Mr. Haddad is a multi-disciplinary finance and technology expert, with extensive senior level operational experience in raising capital, growing complex business models, and guiding startups and later stage companies to successful exits. Prior to his employment at Dror, Mr. Haddad served as Chief Executive Officer of HFT Investments from 2007 through 2021. He also served as a Senior Adviser at Exceed Talent Capital between 2019 and 2023. Over the course of his 30-year career, Mr. Haddad has structured and managed a number of technology and media transactions valued at an aggregate of over $85 billion, including $250 million in transactions within the Israeli high-tech space in AI, medical technology, and cybersecurity. Mr. Haddad received a bachelor’s degree in economics and philosophy from Columbia University, where he was the recipient of the National Science Foundation Award in Theoretical Physics and started his career in the M&A subgroup of Morgan Stanley’s media and technology group for several years. We believe that Mr. Haddad’s extensive business experience qualifies him to serve as a member of our Board. Moshe Shvets Mr. Shvets has served as a director and as our Chief Technology Officer since July 20, 2020. Mr. Shvets has also served as a Senior Vice President since December 1, 2021. Mr. Shvets is a seasoned senior executive with 25 years of experience in building companies with over €250M yearly revenues that involve complex instrumentation & processes, regulation, software, and global infrastructure. Prior to joining Dror, Mr. Shvets founded and served as a director of BiSec Ltd. from 2015 to 2018. Mr. Shvets has also served as president of OAO Belzan from 2011 to 2013, and president of OAO DZV from 2011 to 2014. Before joining the management team, Mr. Shvets was one of the investors in our Company. Mr. Shvets received a bachelor’s degree from Saint Petersburg State University in Aerospace Instrumentation in 1999. We believe that Mr. Shvets’s extensive experience commercializing new technologies qualifies him to serve as a member of our Board. Chaim Hurvitz Mr. Hurvitz has served as a director and Chairman of our Board since January 17, 2012. Mr. Hurvitz has founded and has served as a chief executive office of C.H. Health, a healthcare focused venture capital firm since May 2011. His investments through CH Health have included several successful exits including the NASDAQ IPOs of Galmed Pharmaceuticals Ltd. (NASDAQ: GLMD) (“Galmed”) and UroGen Pharma Ltd. (NASDAQ: URGN) (“UroGen”). He was previously a member of Teva’s senior management, serving as the President of Teva International Group from 2002 through 2010, Vice-President of Israeli Pharmaceutical Sales from 1999 through 2002 and President and CEO of Teva Pharmaceuticals Europe from 1992 through 1999. Mr. Hurvitz presently serves the chairman of Univo Pharmaceuticals Ltd., the chairman of Shirat Hachaim Ltd., a director of Celexir, a director of Genoscience Pharma S.A.S., and has previously served as the chairman CTG Weld Limited, the chairman of PolyPid Ltd. (NASDAQ: PYPD), as the chairman of Galmed, as a director of UroGen, and as a director of Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA). Mr Hurvitz is also a member of management of the Manufacturers Association of Israel and Head of its Pharmaceutical branch. Mr. Hurvitz received a B.A. in political science and economics from Tel Aviv University in 1985. We believe that Mr. Hurvitz’s extensive management experience in the healthcare industry qualifies him to serve as a member of our Board. 52 Chaim Ravad Mr. Ravad has served as a director since February 2015. Mr. Ravad has experience in food catering and real estate industries. In his capacity as our director, Mr. Ravad has served as a major contributor to the development of Dror’s teeth straightening product from its early stages and until receipt of FDA and CE approval and has in the past successfully assisted in securing private investments in our Company. Mr. Ravad is a graduate of Hebron Yeshiva. Yehuda Englander Mr. Englander has served as a director since December 6, 2021. Mr. Englander is a co-founder of YYE ALEY SHLECHT ASSETS LTD. and YE RUT Finance Ltd. Prior to that, Mr. Englander led Yehuda Englander Finance Advisory Ltd. for four years. Mr. Englander received a B.A. in Accounting from Lev Academic Center at Jerusalem College of Technology. We believe that Mr. Englander’s extensive investment experience qualifies him to serve as a member of our Board. Involvement in Certain Legal Proceedings None of the members of the Board or our executive officers has, in the last ten years, been involved in any legal proceeding of the type described under Item 103I(2) or Item 401(f) of Regulation S-K. Director Independence Our Common Stock is quoted on the OTC Pink Market operated by the OTC Markets Group Inc., which does not have director independence requirements. We also have not established our own definition for determining whether our director and nominees for directors are “independent” nor have we adopted any other standard of independence employed by any national securities exchange. We expect our Board, in the future, to appoint an audit committee, nominating committee and compensation committee, and to adopt charters relative to each such committee. We intend to appoint such persons to committees of the Board as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek a listing on a national securities exchange. In addition, we intend that a majority of our directors will be independent directors, of which at least one director will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the SEC. We do not currently have an “audit committee financial expert” since we currently do not have an audit committee in place. Family Relationships There are no family relationships among our directors or executive officers. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors and executive officers and each person who owns more than ten percent of a registered class of our equity securities (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock and our other equity securities. Reporting Persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review of the copies of the forms received by us during the fiscal year ended December 31, 2023 and written representations that no other reports were required, we believe that each person who, at any time during such fiscal year, was a director, officer or beneficial owner of more than ten percent of our common stock complied with all Section 16(a) filing requirements during such fiscal year with the following exceptions: (1) Mr. Haddad, Mr. Englander, Mr. Shvets, and Mr. Ravad filed Form 3s on September 27, 2023, disclosing their becoming Reporting Persons in connection with the closing of the Share Exchange on August 14, 2023 and (2) Mr. Haddad, Mr. Hurvitz, Mr. Shvets, and Mr. Ravad filed Form 4s on September 27, 2023, disclosing the acquisition of shares of Series A Preferred Stock, and warrants to purchase Common Stock on August 14, 2023. 53 Insider Trading Arrangements and Policies; Code of Ethics We intend to adopt insider trading policies and procedures and a code of ethics that will apply to our officers, directors and employees, including our principal executive officer and principal accounting officer, but have not done so to date due to our relatively small size. We intend to adopt written insider trading policies and procedures and a written code of ethics in the near future. Director Nominations by Security Holders Our Second Amended and Restated Bylaws (the “Bylaws”) contain provisions that address the process by which a stockholder may nominate an individual to stand for election to our board of directors (the “Board”). To recommend a nominee for election to the Board, a stockholder must submit his or her recommendation to our Secretary at our corporate offices at Shatner Street 3, Jerusalem, Israel. Such nomination must satisfy the notice, information and consent requirements set forth in our Bylaws and must be received by us prior to the date set forth under “Submission of Future Stockholder Proposals” in our most recent proxy statement. A stockholder’s recommendation must be accompanied by the information with respect to stockholder nominees as specified in our Bylaws, including among other things, the name, age, address and occupation of the recommended person, the proposing stockholder’s name and address, the ownership interests of the proposing stockholder and any beneficial owner on whose behalf the nomination is being made (including the number of shares beneficially owned, any hedging, derivative, short or other economic interests and any rights to vote any shares) and any material monetary or other relationships between the recommended person and the proposing stockholder and/or the beneficial owners, if any, on whose behalf the nomination is being made. Item 11. Executive Compensation. The following table sets forth summary compensation information for the respective fiscal years. For the purpose of this prospectus, our “named executive officers” or “NEOs” are our principal executive officer (“PEO”), Mr. Haddad, and our sole non-PEO executive officer, Mr. Shvets. We provide a description of the employment arrangements with Mr. Haddad and Mr. Shvets, below under “Employment Agreements.” The following table includes all compensation earned by our named executive officers for the respective period, regardless of whether such amounts were actually paid during the period. This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Summary Compensation Table The following table sets forth information concerning the compensation of our named executive officers for the fiscal years indicated below. Name and principal position Year Salary ($) (1) Bonus ($) Stock awards ($) Option awards ($) (2) Nonequity incentive plan compensation ($) Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Eliyahu (Lee) Haddad 2023 419,962 — — 2,506,941 — — — 2,926,903 (Chief Executive Officer and Director) 2022 343,456 20,252 — — — — — 363,708 Moshe Shvets 2023 313,770 — — 1,504,145 — — — 1,817,915 (Chief Technology Officer) 2022 228,743 20,203 — — — — — 248,946 (1) Compensation amounts received in non-U.S. currency have been converted into U.S. dollars using the average exchange rate for the applicable year. The average exchange rate for 2023 was 3.690 NIS per dollar and the average exchange rate for 2022 was 3.359 NIS per dollar. (2) In accordance with SEC rules, this column reflects the aggregate fair value of the option awards granted during the respective fiscal year computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for share-based compensation transactions. The assumptions made in the valuation of the share-based payments are contained in Note 2 to our financial statements included in this prospectus. 54 Narrative Disclosure Regarding Summary Compensation Table Our Board reviews compensation annually for all employees, including named executive officers. In making compensation determinations, the Board considers compensation for comparable positions in the market and with peer companies, the historical compensation levels of executives, individual performance as compared to the board’s expectations and objectives, the board’s desire to motivate employees to achieve short- and long-term results that are in the best interests of our stockholders and a long-term commitment to our Company. Annual Base Salaries Base salaries for the executive officers are initially established through arm’s-length negotiations at the time of the executive officer’s hiring, taking into account such executive officer’s qualifications, experience, the scope of his or her responsibilities and competitive market compensation paid by other companies for similar positions within the industry and geography. Base salaries are reviewed periodically, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. In making decisions regarding salary increases, we may also draw upon the experience of members of the Board with executives at other companies. Bonus Compensation For 2023, our named executive officers are not eligible to receive a discretionary annual bonus based on individual and company performance. During fiscal year 2022, Messrs. Haddad and Shvets earned discretionary bonuses as set forth in the Summary Compensation Table above. Equity-Based Incentive Awards Our equity-based incentive awards are designed to align our interests and those of our stockholders with those of our employees and consultants, including our named executive officers. We have historically used stock options as incentives for long-term compensation to the named executive officers as the return on such awards is tied to an increase in our stock price. We may grant equity awards at such times as our Board determines appropriate in their discretion. Additional grants may occur periodically in order to incentivize executives with respect to achieving certain corporate goals or to reward them for exceptional performance. See “Outstanding Equity Awards at Fiscal Year-End” below for additional information regarding outstanding equity awards held by our named executive officers as of December 31, 2023. Employment Agreements Eliyahu (Lee) Haddad On December 6, 2021, Private Dror entered into an employment agreement (the “Haddad Employment Agreement”) with Mr. Haddad to serve as Private Dror’s chief executive officer. Pursuant to this employment agreement, Mr. Haddad is entitled to a monthly salary (including all social benefit payments provided under Israeli law) of $22,256. Mr. Haddad is also entitled to an annual bonus based on achievement of objectives and Board’s approval. In connection with his employment agreement, Mr. Haddad was granted options to purchase five percent (5%) of our fully diluted Ordinary Shares issued and issuable on the date of the employment agreement, which options shall vest in three tranches on the first, second, and third anniversary of the date of the employment agreement. The options are subject to accelerated vesting upon the achievement by us of certain performance milestones. We cannot terminate Mr. Haddad’s employment not for “cause,” and in circumstances constituting “cause,” we may terminate the agreement effective immediately. Mr. Haddad can terminate the agreement for convenience upon 30 days written notice, and may terminate the agreement immediately for “good reason.” If Mr. Haddad’s employment is terminated without cause, or Mr. Haddad resigns for good reason, he is entitled to twelve month’s salary. Following the closing of the Share Exchange, the Board appointed Mr. Haddad to the office of Chief Executive Officer on the terms of the Haddad Employment Agreement. 55 Moshe Shvets On January 26, 2022, Private Dror entered into an employment agreement (the “Shvets Employment Agreement”) with Mr. Shvets to serve as Private Dror’s Senior Vice President, effective as of December 1, 2021. Mr. Shvets was named Chief Technology Officer as of July 20, 2020. Pursuant to his employment agreement, Mr. Shvets is entitled to a monthly gross salary of NIS 32,000. Mr. Shvets is also entitled to certain social and fringe benefits as set forth in the employment agreement. In connection with his employment agreement, Mr. Shvets was granted options to purchase three percent (3%) of our fully diluted Ordinary Shares issued and issuable on the date of the employment agreement, which options shall vest in three tranches on the first, second, and third anniversary of the date of the employment agreement. The options are subject to accelerated vesting upon the achievement by us of certain performance milestones. Mr. Shvets’ employment can be terminated by either party for convenience upon 30 days written notice. Following the closing of the Share Exchange, the Board appointed Mr. Shvets to the office of Chief Technology Officer on the terms of the Shvets Employment Agreement. Outstanding Equity Awards at Fiscal Year-End The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2023. Information in this table has been adjusted to give pro forma effect to the Share Exchange. Option awards Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Eliyahu (Lee) Haddad (Chief Executive Officer and Director) 63,977,143 (1) 31,988,572 (1) — $ 0.0038480 August 14, 2033 Moshe Shvets (Chief Technology Officer and Director) 38,385,796 (2) 19,192,898 (2) — $ 0.0038480 August 14, 2033 (1) On December 6, 2021, Mr. Haddad was granted options to purchase up to 26,097 ordinary shares of Private Dror at an exercise price of $14.15 per ordinary share. In connection with the Share Exchange, these options were exchanged for options to purchase up to 95,965,715 shares of Common Stock at an exercise price of approximately $0.0038480 per share. These options vest in three tranches on the first, second, and third anniversary of the employment start date. The options are subject to accelerated vesting upon the achievement by us of certain performance milestones. (2) On December 1, 2021, Mr. Shvets was granted options to purchase up to 15,658 ordinary shares of Private Dror at an exercise price of $14.15 per ordinary share. In connection with the Share Exchange, these options were exchanged for options to purchase up to 57,578,694 shares of Common Stock at an exercise price of approximately $0.0038480 per share. These options vest in three tranches on the first, second, and third anniversary of the employment start date. The options are subject to accelerated vesting upon the achievement by us of certain performance milestones. 56 Equity Incentive Plans 2021 Share Incentive Plan Prior to the Share Exchange, Private Dror adopted the Dror 2021 Share Incentive Plan (the “2021 Plan”), which provides for the granting of stock options, restricted stock, restricted stock units, and other stock-based awards to employees, directors, officers, consultants, and advisors of Private Dror or its affiliates. Under the 2021 Plan, 51,482 ordinary shares of Private Dror were initially reserved for issuance as awards, and stock options covering up to 44,365 ordinary shares of Private Dror (which were exchanged for stock options covering approximately 163,142,084 shares of Common Stock in connection with the Share Exchange) are outstanding as of the date hereof. No other type of equity award is currently outstanding under the 2021 Plan. As further described below, upon the closing of the Share Exchange, any stock options outstanding under the 2021 Plan were converted into stock options under the Dror Ortho-Design, Inc. 2023 Long-Term Incentive Plan (the “2023 Plan”). The 2021 Plan is filed as Exhibit 10.9 to the registration statement on Form S-1 of which this prospectus forms a part. 2023 Long-Term Incentive Plan On August 14, 2023, our Board adopted the 2023 Plan. Under the 2023 Plan, we reserved 235,958,571 shares of our Common Stock for issuance as awards to our key employees, key contractors, and non-employee directors and those of our subsidiaries, of which 100% may be delivered pursuant to incentive stock options. A form of the 2023 Plan is filed as Exhibit 10.10 to the registration statement on Form S-1 of which this prospectus forms a part. The 2023 Plan currently consists of the primary plan document that governs all awards granted under the 2023 Plan for eligible U.S. employees, contractors, and non-employee directors who are subject to U.S. income taxation and a sub-plan annex designated for the purpose of grants of equity awards to eligible Israeli employees, officers, and contractors of the Company and its affiliates who are subject to Israeli income taxation. Upon the closing of the Share Exchange, we became the sponsor of the 2021 Plan, and all outstanding stock option awards previously granted under the 2021 Plan will be converted into awards under the 2023 Plan. Thus, all outstanding options to purchase ordinary shares of Dror (which are converted into options to purchase shares of Common Stock of the Company pursuant to the Share Exchange Agreement, as amended) were converted to options to purchase shares of Common Stock of the Company. The purpose of the 2023 Plan is to provide an incentive to attract and retain the services of key employees, key contractors, and non-employee directors of the Company and its subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of awards. The 2023 Plan will be administered by our Board or a committee of the Board (the “Committee”) consisting of two or more members. At any time there is no Committee to administer the 2023 Plan, any reference to the Committee is a reference to the Board. The Committee will determine the persons to whom awards are to be made, determine the type, size and terms of awards, interpret the 2023 Plan, establish and revise rules and regulations relating to the 2023 Plan, and make any other determinations that it believes necessary for the administration of the 2023 Plan. The Committee may delegate certain duties to one or more officers of the Company as provided in the 2023 Plan. Unless terminated earlier by our Board, the 2023 Plan will expire on August 14, 2033. No awards may be made under the 2023 Plan after its expiration date, but awards made prior thereto may extend beyond that date. The 2023 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards which may be granted singly, in combination, or in tandem, and which may be paid in cash or shares of the Company’s Common Stock. Awards granted pursuant to the 2023 Plan will be evidenced by a written award agreement. The Committee will determine the terms of each award at the time of grant, including, without limitation, the number of shares subject to such award, the term of the award, the exercise price to be paid for the award (if applicable), the vesting and forfeiture conditions, the methods by or forms in which shares will be delivered to participants, the price to be paid for the award (if any), and any other terms and conditions applicable to such award. To date, no awards have been granted pursuant to the 2023 Plan, other than the awards that were previously granted pursuant to the 2021 Plan and will be converted into an award under the 2023 Plan, as described above. 57 The Board may, at any time and from time to time, without the consent of the participants, alter, amend, revise, suspend or discontinue the 2023 Plan in whole or in part; provided, however, that (i) no amendment that requires shareholder approval in order for the 2023 Plan and any awards granted thereunder to continue to comply with Sections 421 and 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (including any successors to such sections, or other applicable law) or any applicable requirements of any securities exchange or inter-dealer quotation system on which the Company’s Common Stock is listed or traded, shall be effective unless such amendment is approved by the requisite vote of the Company’s shareholders entitled to vote on the amendment; and (ii) unless required by law, no action by the Board regarding amendment or discontinuance of the 2023 Plan may adversely affect any rights of any participant or obligations of the Company to any participant with respect to any outstanding award under the 2023 Plan without the consent of the affected participant. Commitments to Grant Stock Options In addition to the stock option awards to be granted in substitution of stock options currently outstanding under the 2021 Plan, we currently have a commitment to issue options to purchase up to 0.5% of the outstanding shares of Common Stock to Mr. Haddad, contingent on the Company achieving certain market capitalization targets. We anticipate issuing these options pursuant to the 2023 Plan at such time as the Company has a sufficient number of authorized and unissued shares of Common Stock. Director Compensation The following table presents the total compensation for each person who served as a non-employee member of our Board during the fiscal year ended December 31, 2023. Other than as set forth in the table and described more follow below, and as set forth in the Summary Compensation Table with respect to our employee directors, we did not pay any compensation to, reimburse any expense of, make any equity awards or non-equity awards to, or pay any other compensation to any of the other members of our Board in 2023. Name Fees earned or paid in cash ($) Stock awards ($) Option awards ($) (1) Non-equity incentive plan compensation ($) Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Chaim Hurvitz — — — — — — — Chaim Ravad (2) — — — — — — — Yehuda Englander (3) 11,383 — 250,723 — — — 262,106 (1) In accordance with SEC rules, this column reflects the aggregate fair value of option awards granted during the fiscal year ended December 31, 2022, computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for share-based compensation transactions. The assumptions made in the valuation of the share-based payments are contained in Note 2 to our financial statements included in this prospectus. (2) On February 7, 2024, we entered into a consulting agreement (the “Ravad Consulting Agreement”) with Mr. Ravad, pursuant to which, in consideration for certain services provided as a board member, Mr. Ravad would receive a cash fee of $5,000 each month. The Ravad Consulting Agreement is terminable by either party upon 30 days written notice to the other party, and it will terminate automatically once Mr. Ravad has received fees in the aggregate amount of $55,000. (3) On June 1, 2022, Private Dror entered into a consulting agreement (the “Englander Consulting Agreement”) with Mr. Englander, pursuant to which, in consideration for certain financial and strategic consulting services, Mr. Englander receives a cash fee of NIS 3,500 + VAT each month and was also granted with options to purchase 2,610 Ordinary Shares of Private Dror, which options were exchanged for options to purchase 9,597,675 shares of Common Stock in connection with the Share Exchange and shall vest in three tranches on the first, second, and third anniversary of the date of the consulting agreement. The options are subject to accelerated vesting upon an exit event. Effective as of February 7, 2024, we entered into the First Amendment to the Englander Consulting Agreement with Mr. Englander, which provided that Mr. Engalnder’s monthly cash fee in respect of the services provided would be equal to $2,500 + VAT. 58 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth information regarding the beneficial ownership of Common Stock as of March 29, 2024: ● each person, or group of affiliated persons, known by us to beneficially own more than 5% of outstanding shares of any class of our voting securities; ● each of our directors; ● each of our named executive officers; and ● all directors and executive officers as a group. Unless otherwise indicated below, beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she, or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. The beneficial ownership percentages set forth in the following table are based on 495,454,546 shares of Common Stock and 10,463,363 shares of Preferred Stock, which are entitled to cast an aggregate of 749,721,570 votes, outstanding as of March 29, 2024. Name of Beneficial Owner (1) Number of Shares of Common Stock Beneficially Owned Percent of Class Number of Shares of Series A Convertible Preferred Stock Beneficial Owned Percent of Class Percent of Voting Power (2) 5% Stockholders Orin Hirschmann/AIGH (3) 49,588,407 (4) 9.99 % 3,054,544 (5) 29.19 % 4.11 % Congregation Ahavas Tzdokah Vchesed Inc. (6) 61,722,996 (7) 12.46 % — — 5.12 % Moshe Bodner 54,989,344 (8) 9.99 % 1,511,873 14.45 % 4.56 % The Hewlett Fund (9) 45,453,150 (10) 8.65 % 301,804 2.88 % 3.77 % Directors and Named Executive Officers Eliyahu (Lee) Haddad 63,977,143 (11) 11.44 % 45,455 * * Moshe Shvets 54,989,344 (12) 9.99 % 691,621 6.61 % 1.38 % Chaim Hurvitz 54,989,344 (13) 9.99 % 592,151 5.66 % 4.56 % Chaim Ravad 54,989,344 (14) 9.99 % 2,150,946 20.56 % 4.56 % Yehuda Englander 3,199,225 (15) * — — * All Directors and Executive Officers as a Group (5 persons) 223,144,400 42.05 % 3,480,172 33.26 % 12.47 % * Represents beneficial ownership of less than 1%. (1) Except as expressly noted in the footnotes below, beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. The amounts set forth in this table reflect the application of various limitations on the exercise of certain warrants and the conversion of shares of Preferred Stock, including beneficial ownership limitations. Unless otherwise indicated below, the address for each beneficial owner listed is c/o Dror Ortho-Design, Inc., Shatner 3, Jerusalem, Israel. (2) Stockholders are entitled to one vote per each share of Common Stock owned. Stockholders are entitled to the number of votes per each share of Preferred Stock owned equal to the number of shares of Common Stock into such share of Preferred Stock is convertible into pursuant to the Certificate of Designations, after giving effect to beneficial ownership limitations. 59 (3) Mr. Orin Hirschman has sole voting and dispositive power over shares held by AIGH Investment Partners, LP (“AIGH LP”), and its affiliated entities, AIGH Investment Partners, LLC (“AIGH LLC”), WVP Emerging Manager Onshore Fund, LLC – AIGH Series (“WVP-AIGH”), and WVP Emerging Manager Onshore Fund, LLC – Optimized Equity Series (“WVP-OES”). The principal business address of Mr. Hirschman and each such entity is 6006 Berkeley Avenue, Baltimore, MD 21209. (4) Represents (1) 30,000,000 shares of Common Stock held by AIGH LP, (2) 8,662,500 shares of Common Stock held by AIGH LLC, (3) 7,000,000 shares of Common Stock held by WVP-AIGH, (4) 3,000,000 shares of Common Stock held by WVP-OES, and (5) 925,907 shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by such entities that are convertible within 60 days of March 29, 2024. (5) Represents (1) 1,600,000 shares of Preferred Stock held by AIGH LP, (2) 954,543.85 shares of Preferred Stock held by AIGH LLC, (3) 400,000 shares of Preferred Stock held by WVP-AIGH, and (4) 100,000 shares of Preferred Stock held by WVP-OES. (6) Rabbi Nusyn Pinches Erlich has sole voting and dispositive power over these shares. The address for Congregation Ahavas Tzdokah Vchesed Inc. is 1655 E 24th St, Brooklyn, NY 11229. (7) Represents shares of Common Stock. (8) Represents 54,989,344 shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by Mr. Bodner that are convertible within 60 days of March 29, 2024. (9) Martin Chopp has voting and dispositive power over the securities held by The Hewlett Fund LP (“Hewlett”). Hewlett’s address is 100 Merrick Road, Suite 400W, Rockville Centre, NY 11570. (10) Represents (1) 15,272,727 shares of Common Stock held by Hewlett and (2) 30,180,423 shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by Hewlett that are convertible within 60 days of March 29, 2024 (11) Represents 63,977,143 shares of Common Stock issuable upon the exercise of options upon that are exercisable within 60 days of March 29, 2024. (12) Represents (1) 38,385,796 shares of Common Stock issuable upon the exercise of options and (2) 26,141,712 shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by Mr. Shvets that are exercisable or convertible within 60 days of March 29, 2024. (13) Represents 54,989,344 shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by Shirat Hachaim Ltd. (“Shirat Hachaim”) that are convertible within 60 days of March 29, 2024. Mr. Hurvitz is the sole owner of Shirat Hachaim and has sole voting and dispositive power over shares held by Shirat Hachaim. (14) Represents 54,989,344 shares of Common Stock issuable upon the conversion of shares of Preferred Stock held by Mr. Ravad that are convertible within 60 days of March 29, 2024. (15) Represents 3,199,225 shares of Common Stock issuable upon the exercise of options held by Mr. Englander that are exercisable within 60 days of March 29, 2024. 60 Item 13. Certain Relationships and Related Transactions, and Director Independence. In addition to the compensation arrangements discussed under “Executive Compensation,” the following is a description of transactions since January 1, 2022 to which we have been a party, in which the amount involved exceeds or will exceed the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest. We also describe below certain other transactions with our directors, executive officers and stockholders. We believe that we have executed all of the transactions set forth below on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates are approved by our audit committee, once it has been formed and its members appointed, and a majority of the members of our Board, including a majority of the independent and disinterested members of our Board, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties. Indemnification Agreements and Directors’ and Officers’ Liability Insurance We have entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our Amended Charter and our Bylaws. Each indemnification agreement provides for indemnification and advancement by the Company of certain expenses and costs relating to claims, suits, or proceedings arising from service to the Company or, at its request, service to other entities to the fullest extent permitted by applicable law. We also maintain directors’ and officers’ liability insurance. Item 14. Principal Accountant Fees and Services. Accounting Fees Our independent registered public accounting firm is Barzily and Co., CPA’s (PCAOB Firm ID No.: 2015) (“Barzily”) located in Jerusalem, Israel. From 2017 until October 18, 2023, our independent accountant was Sadler, Gibb & Associates, LLC (“Sadler”). The following table presents fees for professional audit services rendered (i) by Barzily for the audit of our annual financial statements for the year ended December 31, 2023 and the review of our quarterly financial statements for the third quarter of 2023, and (ii) by Sadler for the audit of our annual financial statements for the year ended December 31, 2022 and the review of our quarterly financial statements for the first and second quarters of 2023, and fees billed for other services rendered by Barzily and Sadler during those periods. For the year ended December 31, 2023 2022 Audit fees (1) $ 59,782 $ 24,000 Audit-related fees (2) $ 7,939 $ 19,000 Tax-related fees (3) $ 0 $ 0 All other fees (4) $ 0 $ 0 Total fees $ 67,721 $ 43,000 (1) Audit fees for 2023 primarily related to the audit of our annual consolidated financial statements for the 2023 fiscal year, and the reviews of the financial statements included in our Quarterly Reports on Form 10-Q or included in a Form 8-K for the 2023 fiscal year. Audit fees for 2022 primarily related to the audit of our annual consolidated financial statements for the 2022 fiscal year, and the reviews of the financial statements included in our Quarterly Reports on Form 10-Q for the 2022 fiscal year (including direct engagement expenses). (2) Audit-related fees billed in 2023 included services performed relating to the Share Exchange. Audit-related fees billed in 2022 included fees, if any, for assurance and related services by Sadler that were reasonably related to the performance of the audit or review of our financial statements and were not reported under “audit fees.” (3) There were no tax-related fees billed in 2023 or 2022. (4) There were no other fees billed in 2023 or 2022. Audit Committee Pre-Approval Policy and Procedures Our Board does not presently have a separately designated standing audit committee. As such, the percentage of services set forth above in the categories audit-related fees, tax-related fees, and all other fees that were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) (relating to the approval of a de minimis amount of non-audit services after the fact but before completion of the audit) was 0%. The functions of an audit committee are undertaken by our Board. 61 PART IV Item 15. Exhibit and Financial Statement Schedules. The following documents are filed as part of this report: (1) Financial Statements Page Audited Condensed Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 2015) F-2 Consolidated Balance Sheets F-4 Statements of Operations F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to the Financial Statements F-8 (2) Financial Statement Schedules: None. (3) Exhibits: See “Index to Exhibits” for a description of our exhibits. Item 16. Form 10–K Summary. None. 62 Index to Exhibits Exhibit No. Description 2.1 Share Exchange Agreement, dated July 5, 2023, by and among Dror Ortho-Design, Inc., Dror Ortho-Design Ltd., and certain shareholders of Dror Ortho-Design Ltd. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 2.2 Amendment to the Share Exchange Agreement, dated August 14, 2023, by and among Dror Ortho-Design, Inc., Dror Ortho-Design Ltd., and certain shareholders of Dror Ortho-Design Ltd. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 3.1 Amended and Restated Certificate of Incorporation of Dror Ortho-Design, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 3.2 Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 3.3 Certificate of Correction to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Dror Ortho-Design, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the Commission on November 14, 2023) 3.4 Amended and Restated Certificate of Incorporation of Dror Ortho-Design, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 4, 2024) 3.5 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.5 to the Current Report on Form 8-K, filed with the Commission on March 1, 2007) 3.6 Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K/A, filed with the Commission on November 14, 2023) 4.1 Form of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 4.2* Description of Securities 10.1+ Employment Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Eliyahu (Lee) Haddad (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.2+ Employment Agreement, dated January 26, 2022, between Dror Ortho-Design Ltd. and Moshe Shvets (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.3+ Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Eliyahu (Lee) Haddad (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.4+ Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Moshe Shvets (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.5+ Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Chaim Hurvitz (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.6+ Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Chaim Ravad (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.7+ Indemnification Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Yehuda Englander (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 63 10.8+ Consulting Agreement, dated December 6, 2021, between Dror Ortho-Design Ltd. and Yaacov Bodner (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.9+ 2021 Share Incentive Plan (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.10+ 2023 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.11 Securities Purchase Agreement, dated August 14, 2023, between Dror Ortho-Design, Inc. and certain purchasers identified therein (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.12 Registration Rights Agreement, dated August 14, 2023, between Dror Ortho-Design, Inc. and certain purchasers identified therein (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.13 Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2023) 10.14+ Services Agreement, dated June 1, 2022, between Dror Ortho-Design Ltd. and Yehuda Englander (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on August 18, 2023) 10.15+* First Amendment to Services Agreement, dated February 7, 2023, between Dror Ortho-Design, Inc. and Yehuda Englander 10.16+* Services Agreement, dated February 7, 2023, between Dror Ortho-Design, Inc. and Chaim Ravad 16.1 Letter from Sadler, Gibb & Associates, LLC to the Securities and Exchange Commission dated October 20, 2023 (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 24, 2023) 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 9, 2024) 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 INS* Inline XBRL Instance Document 101 SCH* Inline XBRL Taxonomy Extension Schema Document 101 CAL* Inline XBRL Taxonomy Calculation Linkbase Document 101 DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101 LAB* Inline XBRL Taxonomy Labels Linkbase Document 101 PRE* Inline XBRL Taxonomy Presentation Linkbase Document 104* Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished herewith. + Management contract or compensatory plan or arrangement. 64 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: April 1, 2024 By: /s/ Eliyahu (Lee) Haddad Name: Eliyahu (Lee) Haddad Title: Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Eliyahu (Lee) Haddad Chief Executive Officer and Director (Principal Executive Officer and April 1, 2024 Eliyahu (Lee) Haddad Principal Financial and Accounting Officer) /s/ Chaim Hurvitz Director and Chairman of the Board April 1, 2024 Chaim Hurvitz /s/ Moshe Shvets Chief Technology Officer and Director April 1, 2024 Moshe Shvets /s/ Chaim Ravad Director April 1, 2024 Chaim Ravad /s/ Yehuda Englander Director April 1, 2024 Yehuda Englander 65 DROR ORTHO-DESIGN, INC. CONSOLIDATED FINANCIAL STATEMENTS Table of Contents Page Audited Condensed Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 2015 ) F-2 Consolidated Balance Sheets F-4 Statements of Operations F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to the Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Dror Ortho-Design, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Dror Ortho-Design, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “Financial Statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The financial statements are presented on a going concern basis. As described in Note 1 to the financial statements, the Company has not yet generated any material revenues, has suffered recurring losses from operations with an accumulated deficit of $13,730,705 as of December 31, 2023, and is dependent upon external sources for financing its operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization efforts, regulatory approvals, and ultimately the market acceptance of the Company’s products. There is no assurance that the Company will be successful in raising these funds. These financial statements do not include adjustments that may result from the outcome of these uncertainties. The Company is exploring additional fundraising opportunities. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. F- 2 Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the board of directors and that (1) relate to accounts or disclosures that are material to the financial statements and (2) are especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Share Exchange Transaction – Refer to Note 1 of the financial statements Description of critical audit matter As described in Note 1 to the financial statements, the Company entered into a share exchange agreement with Dror Ortho-Design, Ltd., (“Private Dror”). Pursuant to the agreement, 100% of the outstanding equity capital of Private Dror was exchanged for shares of common and preferred stock of the Company, so that the Private Dror’s shareholders were issued common and preferred shares in the amount that resulted in them holding 56.1% of the total voting rights in the Company. In addition, the Company raised $5,225,000 as part of a private placement funding, and warrants and options exercisable by its terms to Private Dror’s shares were exchanged to the Company. As a result of the transaction, Private Dror became a wholly-owned subsidiary of the Company. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures used to address the accounting for the share exchange transaction included the following: 1. We obtained and reviewed the share exchange agreement and other related agreements and documents to evaluate the Company’s application of relevant accounting standards to the transaction. 2. We reviewed the Company’s determination who the legal and accounting acquirer and acquiree were. 3. We reviewed the accounting treatment of the modification of warrants and options . 4. We evaluated the accuracy and completeness of the Company’s presentation of the share exchange agreement in the financial statements, including evaluating whether disclosures were in accordance with relevant accounting standards. As a result of the audit procedures applied, we reached the conclusion that the Share Exchange Transaction was accounted for correctly in the financial statements as of December 31, 2023. We have served as the Company’s auditor since 2021. By: /s/ Barzily and Co. BARZILY AND CO., CPA’s Jerusalem, Israel , 2024 April 1, 2024 F- 3 DROR ORTHO-DESIGN, INC. CONSOLIDATED BALANCE SHEETS (U.S. dollars) December 31, 2023 December 31, 2022 Assets Current Assets: Cash $ 3,347,843 $ 1,039,059 Receivables and prepaid expenses 114,100 101,353 Total Current Assets 3,461,943 1,140,412 Noncurrent Assets: Property and equipment at cost, net of accumulated depreciation 2,328 2,998 Total Assets 3,464,271 1,143,410 Liabilities And Stockholders’ Equity Current Liabilities: Accounts payable $ 106,833 $ 30,792 Accrued royalties — — Founders claim accrual — 240,000 Accrued expenses and other payables 190,271 276,126 Total Current Liabilities 297,104 546,918 Noncurrent Liabilities: Accrued severance 5,243 416 Total Liabilities 302,347 547,334 Commitments and Contingencies (Note 9) Stockholders’ Equity* Preferred A Stock, $ 0.0001 par value, 12,500,000 shares authorized; 10,463,363 and 7,576,999 shares outstanding at December 31, 2023 and 2022, respectively 1,047 758 Common stock, $ 0.0001 par value; 500,000,000 shares authorized; 495,454,546 and 437,735,093 shares issued and outstanding at December 31, 2023 and 2022, respectively 49,545 43,774 Additional paid-in capital 16,842,037 10,714,366 Accumulated deficit ( 13,730,705 ) ( 10,162,822 ) Total Stockholders’ Equity 3,161,924 596,076 Total Liabilities and Stockholders’ Equity $ 3,464,271 $ 1,143,410 * The number of shares of Common and Preferred A Stock outstanding were retroactively adjusted as a result of the Share Exchange. See Note 1 F- 4 DROR ORTHO-DESIGN INC. CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. dollars) Year Ended December 31, 2023 December 31, 2022 Operating Expenses Research and development $ 1,004,443 $ 850,680 General and administrative expenses 1,120,426 814,653 Share-based compensation 2,253,793 19,908 Total Operating Expenses 4,378,662 1,685,241 Loss from operations ( 4,378,662 ) ( 1,685,241 ) Financial income, net 90,147 1,742 Gain on retirement of royalty accrual 720,632 — Total other income 810,779 1,742 Loss before provision for income taxes ( 3,567,883 ) ( 1,683,499 ) Provision for income taxes — — Net loss $ ( 3,567,883 ) $ ( 1,683,499 ) Net loss per common share Basic and Diluted $ ( 0.01 ) $ ( 0.00 ) Weighted-average common shares outstanding Basic and Diluted* 296,664,409 437,735,093 * The number of shares of Common and Preferred A Stock outstanding were retroactively adjusted as a result of the Share Exchange. See Note 1 F- 5 DROR ORTHO-DESIGN INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (U.S. dollars) Series A Preferred Stock Common Stock Treasury Stock Additional Paid-In Accumulated Total Stockholders’ Shares* Amount Shares* Amount Shares Amount Capital Deficit Equity Balance at January 1, 2023 7,576,999 $ 758 437,735,093 $ 43,774 — $ — $ 10,714,366 $ ( 10,162,822 ) $ 596,076 Return of founders shares to the Company as part of claim settlement — — ( 330,952,906 ) ( 33,096 ) 330,952,906 33,096 — — — Private Placement Investment, net of issuance costs ($ 571,796 ) 2,886,364 289 186,363,631 18,636 — — 4,634,279 — 4,653,204 Settlement of Treasury Stock prior to recapitalization — — — — ( 330,952,906 ) ( 33,096 ) 33,096 — — Reverse re-capitalization — — 202,308,728 20,231 — — ( 793,497 ) — ( 773,266 ) Stock-based compensation — — — — — — 2,253,793 — 2,253,793 Net loss — — — — — — — ( 3,567,883 ) ( 3,567,883 ) Balance at December 31, 2023 10,463,363 $ 1,047 495,454,546 $ 49,545 — $ — $ 16,842,037 $ ( 13,730,705 ) $ 3,161,924 Balance at January 1, 2022 7,576,999 $ 758 437,735,093 $ 43,774 — — $ 10,694,458 $ ( 8,479,323 ) $ 2,259,667 Stock-based compensation — —    — — — — 19,908 19,908 Net loss — — — — — — — ( 1,683,499 ) ( 1,683,499 ) Balance at December 31, 2022 7,576,999 $ 758 437,735,093 $ 43,774 — — $ 10,714,366 $ ( 10,162,822 ) $ 596,076 * The number shares of Common and Preferred A Stock outstanding were retroactively adjusted as a result of the Share Exchange. See Note 1 F- 6 DROR ORTHO-DESIGN INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars) For the Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 3,567,883 ) $ ( 1,683,499 ) Stock-based compensation expense 2,253,793 19,908 Gain on retirement of royalty accrual ( 720,632 ) — Depreciation 670 670 Changes in operating assets and liabilities: Receivables and prepaid expenses ( 7,264 ) ( 71,734 ) Accounts payable 44,111 20,768 Accrued expenses and other payables ( 136,446 ) 203,761 Founders claim accrual ( 240,000 ) — Accrued royalties 6,438 — Accrued severance 4,827 ( 7,052 ) Net cash used in operating activities ( 2,362,386 ) ( 1,517,178 ) Cash flows from investing activities: Cash acquired in reverse merger 17,966 — Net cash provided by investing activities 17,966 — Cash flows from financing activities: Proceeds from private placement raise 5,225,000 — Issuance costs ( 571,796 ) Net cash provided in financing activities 4,653,204 — Net increase (decrease) in cash 2,308,784 ( 1,517,178 ) Cash, beginning of year 1,039,059 2,556,237 Cash, end of year $ 3,347,843 $ 1,039,059 Supplemental cash flow information: Cash paid for interest $ — $ — Cash paid for taxes $ — $ — Non-cash activities: Shares issued at reverse recapitalization $ 20,231 $ — Net liabilities assumed in merger $ 791,232 $ — Return of founders shares to the Company as part of claim settlement $ 33,096 — Settlement of Treasury Stock prior to recapitalization $ 33,096 — F- 7 DROR ORTHO-DESIGN INC. NOTES TO FINANCIAL STATEMENTS Note 1 – Organization and Basis of Presentation Organization The Company was incorporated as Novint Technologies, Inc. in the State of New Mexico in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging with Novint Technologies, Inc., a Delaware corporation. On August 14, 2023, following a share exchange agreement, the Company changed its name from “Novint Technologies, Inc.” to “Dror Ortho-Design, Inc.”. Following the Share Exchange (as defined below), the Company succeeded the business of Dror Ortho-Design, Ltd. (“Private Dror”) as its sole line of business. The Company is involved in the research and development of an orthodontic alignment platform and has not yet reached the sales stage for its product. The Company’s stock is quoted on the OTC Pink Market under the symbol “DROR.” Reverse Recapitalization On July 5, 2023, Private Dror entered into a share exchange agreement with the Company and on August 14, 2023 the share exchange was consummated (the “Share Exchange”). As a result of the Share Exchange, the shareholders of Private Dror exchanged all 235,089 of their outstanding shares of common stock, for 106,782,187 shares of the Company’s Common Stock and 7,576,999 shares of the Company’s Series A Preferred Stock. Pursuant to the terms of the Share Exchange, the Company raised $ 5,225,000 as part of a private placement funding, and the private placement investors received 186,363,631 shares of common stock and 2,886,364 shares of Series A Preferred Stock. As a result, Private Dror became a wholly owned subsidiary of the Company and the Private Dror shareholders hold 56.1 % of the Company’s common stock equivalents based on the common and preferred shares received in the Share Exchange. The Share Exchange is being accounted for as a recapitalization, with Private Dror deemed to be the accounting acquirer, and the Company the accounting acquiree. Accordingly, Private Dror’s historical financial statements for periods prior to the consummation of the Share Exchange have become those of the registrant. Assets and liabilities and the historical operations reported for periods prior to the Share Exchange are those of Private Dror other than equity items. All references to common stock, preferred stock, share and per share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented. Pursuant to the Share Exchange, the Company issued shares of its common stock and preferred stock to Private Dror’s stockholders, at an exchange ratio of 3,677.27 shares of the Company’s common stock. As of August 14, 2023 the fair value of the net liabilities of the Company was $ 793,497 , which was recorded as Additional Paid-In Capital as part of the Share Exchange. Going Concern and Management’s Plans The financial statements are presented on a going concern basis. The Company has not yet generated any material revenues, has suffered recurring losses from operations with an accumulated deficit of $ 13,730,705 as of December 31, 2023, and is dependent upon external sources for financing its operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization efforts, regulatory approvals, and ultimately the market acceptance of the Company’s products. There is no assurance that the Company will be successful in raising these funds. These financial statements do not include adjustments that may result from the outcome of these uncertainties. The Company is exploring additional fundraising opportunities. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements for the years ended December 31, 2023 and 2022 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”). As the Company completed a reverse recapitalization on August 14, 2023, the financial information for the periods prior to the reverse recapitalization reflect those of Private Dror. From August 14, 2023 forward, the financial information presented is the consolidated financial information of the Company and its subsidiary. Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could vary from those estimates. Management utilizes various other estimates, including but not limited to accrued royalties, accrued expenses, the valuation of stock-based compensation, the valuation allowance for deferred tax assets and other contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary. F- 8 Functional Currency The Company accounts for foreign currency transactions pursuant to ASC 830, “Foreign Currency Matters”. The functional currency of the Company and its subsidiary is the United States Dollar (“US$”) as the U.S. dollar is the currency of the primary economic environment in which the Company operates. The accompanying financial statements have been expressed in US$. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations. The exchange rate of the US Dollar to the Israeli Shekel was 3.627 and 3.519 as of December 31, 2023 and 2022, respectively. Cash The Company’s cash is held with financial institutions in the United States and Israel. Management believes that the financial institutions that hold the Company’s cash are financially sound and, accordingly, minimal credit risk exists with respect to these investments. Account balances held in the Unites States may, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. As of December 31, 2023 and 2022, the Company had $ 145,168 and $ 643,658 , respectively, in excess of the FDIC insurance limit. As of December 31, 2023 and 2022, the Company had $ 2,935,078 and $ 144,399 , respectively, in Israeli financial institutions, which is uninsured. The Company has not experienced any losses in such accounts with these financial institutions. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight–line method on the various asset classes, which currently consists of office equipment over their estimated useful lives of seven years when placed in service. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Research and Development The Company expenses all research and development costs as they are incurred. Research and development includes expenditures in connection with in-house research and development as well as proprietary products and technology, and includes salaries and related costs, consulting fees, and professional services. Share–based compensation The Company applies ASC 718-10, “Share- Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors including employee stock options under the Company’s stock plans and equity awards issued to non-employees based on estimated fair values. ASC 718-10 requires companies to estimate the fair value of equity-based option awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense on a straight-line basis over the requisite service periods in the Company’s statement of operations. The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Since the Company does not have sufficiant historical data regarding its volatility of its common stock, the expected volatility used is based on volatility of similar publicly listed companies in comparable industries. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. Determining the appropriate fair value model and calculating the fair value of equity–based payment awards require the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. Income Taxes The Company accounts for income taxes using the asset-and-liability method in accordance with ASC Topic 740, “Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the enactment date. A valuation allowance is recorded if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized in future periods. F- 9 The Company follows the guidance in ASC Topic 740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement of the amount to be recognized. Tax positions that meet the more-likely-than-not threshold are measured at the largest amount of tax benefit that is greater than 50 % likely of being realized upon ultimate finalization with the taxing authority. The Company recognizes the impact of an uncertain income tax position in the financial statements if it believes that the position is more likely than not to be sustained by the relevant taxing authority. The Company will recognize interest and penalties related to tax positions in income tax expense. As of both December 31, 2023 and 2022, there were no unrecognized uncertain income tax positions. Basic and Diluted Net Loss Per Common Share The Company computes net loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic loss per ordinary share is computed by dividing the loss for the period applicable to common shareholders, by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as stock options, warrants and convertible debt instruments. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, the basic and diluted per share amounts for all periods presented are identical. For the years ended December 31, 2023 and 2022, the Company incurred net losses which cannot be diluted; therefore, basic and diluted loss per common share is the same. Each Series A Preferred Stock is convertible into 100 shares of Common Stock, and is included in the table as if converted. As of December 31, 2023 and 2022, shares issuable which could potentially dilute future earnings were as follows: December 31, 2023 2022 Preferred Shares 1,046,336,299 757,699,900 Warrants 964,834,419 510,794,865 Stock Options 163,142,084 163,142,084 Shares excluded from the calculation of diluted loss per share 2,174,312,802 1,431,637,849 Reclassification General and administrative expenses totaling $ 127,453 and $ 19,908 for the year ended December 31, 2022 were reclassified to research and development and share-based compensation, respectively, to conform with current year presentation. The reclassifications had no effect on the net loss for the year ended December 31, 2022. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU2016-13”), as amended by ASU 2019-10. ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. ASU2016-13 is effective for the Company for the annual reporting period beginning January 1, 2023. The Company adopted this guidance for the year ended December 31, 2023, however there was no impact to the financial statements. Note 3 – Prepaid expenses and other current assets: December 31, 2023 2022 VAT receivable $ 73,784 101,353 Prepaid expenses 34,802 - Other assets 5,514 - $ 114,100 101,353 F- 10 Note 4 – Property and Equipment: December 31, 2023 2022 Equipment and furniture $ 9,567 9,567 Less accumulated depreciation ( 7,239 ) ( 6,569 ) Property and equipment, net $ 2,328 2,998 Depreciation expense was $ 670 for both of the years ended December 31, 2023 and 2022, respectively. Note 5 – Accrued expenses: December 31, 2023 2022 Salary and related expenses $ 95,566 169,297 Accrued audit fees 40,000 44,613 Accrued legal fees 30,000 - Accrued consulting fees 24,705 52,811 Other expenses - 9,405 $ 190,271 276,126 Note 6 – Founders claim accrual: The Company recorded a provision in respect of a claim made against Private Dror by its founders. The claim related to amounts claimed as a repayment of loan balances and other amounts including salary and benefit related balances. In January 2023, Private Dror signed an agreement with the founders, settling all-outstanding claims at $ 240,000 which included amounts representing the repayment of a loan, reimbursement of expenses and an amount for pain and suffering. In addition, the agreement stipulated the transfer back of all shares held by the founders to the Private Dror for no additional consideration. The settlement was paid in the first quarter of 2023. In addition, the agreement stipulated the transfer back of all shares ( 330,952,906 ordinary shares with par value of NIS 0.0001 ), held by the founders to the Company. Note 7 – Accrued royalties Accrued royalties related to the Company’s licensing agreements with various parties that provided gaming software to the Company. These licensing agreements contain obligations to pay royalty fees ranging from 5 % to 50 % of either gross or net revenue, and a flat fee per end user of $ 0.50 , subject to an obligation to pay minimum annual royalties of $ 50,000 as specified in the licensing agreements. As part of the Share Exchange, the Company assumed accrued royalties in the amount of $ 714,194 , and accrued an additional $ 6,438 subsequent to the Share Exchange. As the statute of limitations for the collection of the royalties had passed, the Company retired the royalty accrual amounting to $ 720,632 during the fourth quarter of 2023 and ceased to accrue any further amounts. Note 8 – Accrued severance: Under Israeli law, companies are required to make severance payments to terminated Israeli employees. The severance reserve is calculated based on the employee’s last salary and period of employment. A portion of the severance pay and pension obligation is covered by payment of monthly premiums to insurance companies/ policies under approved plans and to pension funds. The deposits presented in the balance sheet include profits accumulated to the balance sheet date. The amounts funded as above are not reflected in the balance sheet since they are not under the control and management of the Company. A portion of employee severance payments are subject to the terms of section 14 of the Israeli Severance Pay Law, 1963, according to which the Company’s current deposits in pension funds and/or in policies in insurance companies exempt it from any additional undertaking towards employees, for which the aforementioned amounts were deposited. F- 11 Note 9 – Commitments and Contingencies The Company partially financed their research and development expenditures under grant programs sponsored by the Israel Innovation Authority (“IIA”) of the Ministry of Economy and Industry (formerly the Office of Chief Scientist) for the support of research and development activities conducted in Israel. At the time the grants were received from the IIA, successful development of the related projects was not assured. In exchange for participation in the programs by the IIA, the Company agreed to pay 3 % of total sales of products developed within the framework of these programs. The royalties will be paid up to a maximum amount equaling 100 % of the grants provided by the IIA, linked to the dollar, bearing annual interest at a rate based on LIBOR. Beginning from January 1, 2024 the rate will be adjusted to SOFR (Secured Over Financing Rate). The obligation to pay these royalties is contingent on actual sales of the products, and in the absence of such sales payment of royalties is not required. In some cases, the Government of Israel’s participation (through the IIA) is subject to export sales or other conditions. The maximum amount of royalties is increased in the event of production outside of Israel. The current contingent royalty obligation as of December 31, 2023 and 2022 is approximately $ 1.12 and $ 1.08 million, respectively. From time to time in the normal course of business, the Company may be subject to routine litigation incidental to its business. Although there can be no assurances as to the ultimate disposition of any such matters, it is the opinion of management, based upon the information available at this time, that there are no matters, individually or in the aggregate, that would have a material adverse effect on the results of operations and financial condition of the Company. War in Israel In October 2023, Israel was attacked by a terrorist organization and entered a state of war. As of the date of these consolidated financial statements, the war in Israel is ongoing and continues to evolve. The Company’s research and development activities are located in Israel. Currently, such activities in Israel remain largely unaffected. During the year ended December 31, 2023, the impact of this war on the Company’s results of operations and financial condition was immaterial. Management will continue to monitor the effect of the war on the Company's financial position and results of operations. Note 10 – Stockholders’ Equity All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented. Common Stock On January 4, 2024, the Company filed its Amended and Restated Certificate of Incorporation, which provided for the number of authorized shares of the Company’s common stock, par value $ 0.0001 per share, to be increased from 500,000,000 to 3,254,475,740 . All issued shares of common stock are entitled to vote on a 1 share/1 vote basis . The Company had 495,454,546 and 437,735,093 shares of common stock issued and outstanding as of December 31, 2023 and 2022, respectively. Holders of our common stock have no preemptive, redemption, conversion or subscription rights. No sinking fund provisions are applicable to our common stock. Upon liquidation, dissolution or winding-up, holders of our common stock are entitled to share in all assets remaining after payment of all liabilities and the liquidation preferences of any of our outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of our assets which are legally available. Such dividends, if any, are payable in cash, in property or in shares of capital stock. As part of the Private Dror founders claim settlement agreement (see Note 6), 330,952,906 shares of common stock were returned to the Private Dror in February 2023. These shares were initially classified as Treasury Stock and were retired as part of the Share Exchange Agreement. Pursuant to the terms of the Share Exchange, the Company raised $ 5,225,000 as part of a private placement funding, $ 5,025,000 from a first closing on August 14, 2023 and an additional $ 200,000 from a second closing on September 13, 2023. The private placement investors received 186,363,631 shares of common stock and 2,886,364 shares of Series A Preferred Stock. Transaction expenses relating to the private placement funding and for the Share Exchange totaled $ 571,796 , and are offset against the proceeds in Additional Paid-In Capital recorded as part of the private placement funding and the Share Exchange. Preferred Stock The Company is authorized to issue up to 12,500,000 shares of $ 0.0001 par value non-redeemable preferred stock. As of December 31, 2022, 7,576,999 shares of Series A Preferred Stock were outstanding. During the third quarter of 2023, as a result of the private placement funding, 2,886,364 shares of Series A Preferred Stock were issued to investors. The following is a summary of the principal terms of the Series A Preferred Stock as set forth in the Certificate of Designation. Conversion The Series A Preferred Stock is convertible into common stock at any time at a conversion price of $ 0.011 , or 100 shares of Common Stock for each share of Preferred A Stock, subject to adjustment for certain anti-dilution provisions set forth in the Series A Certificate of Designation. Upon conversion the shares of Series A Preferred Stock will resume the status of authorized but unissued shares of preferred stock of the Company. Dividends The holders of Series A Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of common stock, when and if actually paid. F- 12 Voting Rights The shareholders of Series A Preferred Stock are entitled to vote with holders of the Company’s common stock, on all matters that such holders of Common Stock are entitled to vote upon, in the same manner and with the same effect as the holders of Common Stock, voting together with the holders of Common Stock as a single class. Each share of Preferred Stock shall entitle the shareholder to cast that number of votes per share of Preferred Stock equal to the number of shares of Common Stock into which such share of Preferred Stock is convertible (after giving effect to certain limitations on conversion, as applicable). As long as any shares of Series A Preferred Stock are outstanding, the Company may not, without the approval of a majority of the then outstanding shares of Series A Preferred Stock (a) alter or change the powers, preferences or rights given to the Series A Preferred Stock, (b) alter or amend our amended and restated certificate of incorporation, the Series A Certificate of Designation, or our amended and restated bylaws in such a manner so as to materially adversely affect any rights given to the Series A Preferred Stock, (c) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined below) senior to the Series A Preferred Stock, or (d) enter into any agreement to do any of the foregoing. Liquidation Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the then holders of the Series A Preferred Stock are entitled to receive out of the assets available for distribution to stockholders of the Company the same amount that a holder of common stock would receive if the Series A Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock.. Warrants Prior to the Share Exchange, there were 510,794,865 warrants to purchase Common shares held by Private Dror shareholders. Pursuant to the warrant terms, 20,960,439 warrants expired as a result of the Share Exchange. On August 14, 2023, the Company issued warrants to purchase up to 489,834,426 shares of Common Stock to Private Dror shareholders in exchange for their outstanding warrants and warrants to purchase up to 456,818,176 shares of Common Stock to the private placement investors in respect of their investment, in addition to warrants to purchase up to 18,181,817 shares of Common Stock issued to private placement investors in a subsequent closing on September 13, 2023. The warrants expire five years from the initial exercise date and are exercisable at an exercise price of $ 0.033 per share. The initial exercise date was dependent on the authorization of additional Common shares which occurred on December 28, 2023. The warrants contain provisions that protect their holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and other similar events. If at the time of the warrant’s exercise there is no effective registration statement registering, or no current prospectus available for, the resale of the shares of common stock underlying the warrant, then the holder will have the right to exercise warrant by means of a cashless exercise. In addition, if (i) the volume-weighted average price of our common stock for 20 consecutive trading days is at least 300 % of the exercise price of the warrants, (ii) the dollar trading volume of our common stock for each trading day within such 20-day trading period equals or exceeds $ 500,000 , (iii) a registration statement providing for the resale of the private placement shares is effective and such registration statement has been effective for six (6) months, (iv) the holder of the warrant is not in possession of any information provided by the Company that constitutes material nonpublic information and (v) the Company has not breached any of the terms of the investment documents (regardless of if such breach has been cured), then the warrants may be redeemed at a price of $ 0.001 per warrant up to one-half, in the aggregate, of the warrants upon not less than 20 days’ prior written notice of redemption to each holder, subject to certain customary restrictions. Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Warrants Shares Price Term Value Balance Outstanding, January 1, 2022 510,794,865 $ 0.02 2.73 $ 15,486 Granted - - - - Forfeited - - - - Exercised - - - - Balance Outstanding, December 31, 2022 510,794,865 $ 0.02 1.73 $ 13,263 Granted 474,999,993 0.03 - - Forfeited ( 20,960,439 ) - - - Exercised - - - - Balance Outstanding, December 31, 2023 964,834,419 $ 0.03 5.00 $ - Exercisable, December 31, 2023 964,834,419 $ 0.03 5.00 $ - The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing common stock price of $ 2.72 , $ 2.33 , and $ 0.01 as of December 31, 2023, 2022 and 2021, respectively, which would have been received by the warrant holders had all warrant holders exercised their warrants as of that date. F- 13 Equity Incentive Plan Prior to the Share Exchange, there were 163,142,084 Private Dror employee stock options that had been granted to two executives and a director. As part of the Share Exchange, the outstanding employee stock options are to be exchanged and the Company is required to issue new employee stock options under the Company’s 2023 Long-Term Incentive Plan with the same terms as the previously issued options. As the Company did not have enough available authorized shares underlying the options to be issued at the time of the merger, the new employee stock options were not issued. In December 2023 the Company authorized additional shares to cover the employee stock options and is working on the legal filings for the establishment of the 2023 Plan. As the agreement stipulates that the new options will continue the vesting schedules of the original options, the Company continues to record the expense over the original vesting period. The Company treated the exchange of the original options for the new options as a modification in accordance with ASC 718. The Company calculated the fair value of the original options prior to the Share Exchange and the fair value of the new options at the time of the Share Exchange. The increase in value due to the modification was $ 4,261,809 is to be recorded as additional share-based compensation expense. As one third of the options had fully vested prior to the Share Exchange, the Company recognized one third of the total amount of the increased value, amounting to $ 1,420,603 at the time of the Share Exchange. The remaining two thirds of the incremental value relating to the unvested options are going to be recorded over the remaining vesting period. The following table summarized the option activity for the years ended December 31, 2023 and 2022: Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Options Shares Price Term (in years) Value Balance Outstanding, January 1, 2022 174,666,648 $ 0.01 8.74 - Granted 9,597,675 0.00 - Forfeited - - - - Exercised - - - - Expired ( 21,122,239 ) 0.04 - - Balance Outstanding, December 31, 2022 163,142,084 $ 0.00 8.96 $ - Granted (Share Exchange) - 0.00 4,070,727 Forfeited (Share Exchange) - 0.00 Exercised Expired Balance Outstanding, December 31, 2023 163,142,084 $ 0.00 9.62 $ 1,003,656 Exercisable, December 31, 2023 105,562,164 $ 0.00 9.62 $ 669,104 Share-based compensation expense for the years ended December 31, 2023 and 2022 amounted to $ 2,253,793 and $ 19,908 , respectively. Share-based compensation relating to general and administrative expenses amounted to $ 1,612,173 and 14,146 for the years ended December 31, 2023 and 2022, respectively. Share-based compensation relating to research and development expenses amounted to $ 641,620 and 5,762 for the years ended December 31, 2023 and 2022, respectively. The fair value of stock options that fully vested during the years ended December 31, 2023 and 2022 was $ 1,420,603 and $ 19,225 , respectively. The weighted average grant date fair value for options granted during the years ended December 31, 2023 and 2022 was $ 0.03 and $ 1.38 , respectively, using the Black Scholes valuation method. As of December 31, 2023, there was $ 2,047,973 of unrecognized compensation cost related to non-vested share-based compensation, which will be amortized over a weighted average period of 0.96 years. The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $ 2.72 , $ 2.33 , and $ 0.01 as of December 31, 2023, 2022 and 2021, respectively, which would have been received by the option holders had all option holders exercised their options as of that date. F- 14 Note 11 – Research and development expenses: The components of research and development expenses are as follows: For the Year Ended December 31, 2023 2022 Subcontractors $ 759,440 $ 542,186 Salaries 191,825 182,995 Consultants and others 53,178 125,499 Total $ 1,004,443 $ 850,680 Note 12 – General and administrative expenses: The components of general and administrative expenses are as follows: For the Year Ended December 31, 2023 2022 Salaries and related $ 543,469 $ 509,800 Legal 206,925 131,922 Professional fees 149,126 52,536 Consulting 106,264 78,525 Rent and utilities 39,157 22,872 Insurance 23,119 - Donations 16,235 - Office expense 9,557 4,020 Royalties 6,438 - Depreciation 670 670 Other 19,466 14,308 Total $ 1,120,426 $ 814,653 Note 13 – Finance income, net: The components of finance income, net are as follows: For the Year Ended December 31, 2023 2022 Exchange differences $ 94,020 $ 3,410 Bank fees ( 3,873 ) ( 1,668 ) Total $ 90,147 $ 1,742 Note 14 – Income Taxes: The Company files corporate income tax returns in the United States (federal), in New York (state), and in Israel (foreign). The Company is subject to federal, state and local income tax examinations by tax authorities for the tax years 2020 through 2023. The Israeli subsidiary tax reports through 2017 are considered final assessments in accordance with the provisions of section 145 of the Income Tax Ordinance. As of December 31, 2023, the Company had federal net operating loss carry forwards of $ 32.8 million. Federal net operating losses generated prior to January 1, 2018, amounting to $ 32.0 million, may be offset against future taxable income, subject to limitation under IRC Section 382, which begin to expire in 2024 if not utilized prior to that date, and fully expire during various years through 2037 for federal purposes. Net operating losses generated after January 1, 2018, amounting to $ 0.8 million, no longer have an expiration but are limited to 80 % of taxable income. Tax loss carryforwards in Israel amount to approximately USD 9.9 million, (NIS 36.5 million) as of December 31, 2023, and do not expire. There are also Israeli capital loss carryforwards amounting to $ 0.3 million (NIS 1.1 million) that can be offset only against capital gains but do not expire. The valuation allowance overall increased by approximately $ 7.9 million and $ 0.1 million in the years ended 2023 and 2022, respectively, and was approximately $ 9.9 million and $ 2.0 million, respectively. The Company has fully reserved the deferred tax asset resulting from available net operating loss carryforwards. F- 15 The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2023 and 2022 is as follows: Year ended December 31, 2023 2022 Income before income taxes $ ( 3,567,883 ) $ ( 1,683,499 ) Taxes under statutory US tax rates ( 749,255 ) ( 353,535 ) Foreign Rate Differential ( 85,538 ) ( 33,670 ) Acquisitions ( 7,163,604 ) - Expired net operating loss 118,215 - Other permanent items ( 53,837 ) 283,891 Increase (decrease) in valuation allowance 7,934,019 103,314 Income tax expense $ - $ - The increase in the Company’s net valuation allowance was mainly due to the reverse merger and continued net operating losses from ongoing operations. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following: December 31, 2023 2022 Deferred tax assets: Net loss carryforwards $ 9,235,425 $ 2,026,144 Capital loss carryforwards 66,063 72,525 Stock-based compensation 518,372 Research and development 131,690 - Deferred asset before valuation allowance 9,951,550 2,098,669 Valuation allowance ( 9,951,550 ) ( 2,098,669 ) Net deferred tax asset $ - $ - In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability. The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of both December 31, 2023 and 2022 the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2023 and 2022. The Company did not recognize any interest or penalties during the years ended December 31, 2023 and 2022 related to unrecognized tax benefits. NOTE 15 – SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date these financial statements were issued. In the opinion of management, there were no subsequent events that would require disclosure or adjustments to the accompanying financial statements through the date the financial statements were issued other than the following: On December 28, 2023, the Company’s stockholders approved the adoption of the Company’s Amended and Restated Certificate of Incorporation (the “Restated Charter”) and an amendment to the Restated Charter to increase the number of authorized shares of the Company’s common stock, par value $ 0.0001 per share from 500,000,000 to 3,254,475,740 and to make a corresponding change to the number of authorized shares of capital stock. On January 4, 2024, the Company filed the Restated Charter, with the provisions of the Authorized Share Increase Amendment incorporated therein, with the Secretary of State of Delaware. During the first quarter of 2024, the Company submitted a request to the Israeli Income Tax Authority, for the approval of a plan for the issuance of employee stock options via a trustee as defined in section 102 of the Income Tax Ordinance. The Company chose a capital taxation route that would apply to the Company’s employees and undertook to deduct the full tax applicable to employees before shares are issued to an employee. On February 1, 2024, we entered into a consulting agreement with a director, pursuant to which, in consideration for certain services provided as a board member, the director would receive a cash fee of $ 5,000 each month. The consulting agreement is terminable by either party upon 30 days written notice to the other party, and it will terminate automatically once the director has received fees in the aggregate amount of $ 55,000 . On February 1, 2024, the Company amended an agreement with an additional director, which increased the monthly cash fee in respect of the services provided to $ 2,500 , plus applicable VAT. F-16