Item 1. Business
Item 1. Business.
As used in this Report,
all references to “we,” “our” and “us” for periods prior to the closing of the Share Exchange refer
to Dror Ortho-Design Ltd., a company incorporated under the laws of the State of Israel, and for periods subsequent to the closing of
the Share Exchange refer to Dror Ortho-Design, Inc., a Delaware corporation and its direct and indirect subsidiaries.
Overview
We were incorporated as Novint
Technologies, Inc. in the State of New Mexico in April 1999. On February 26, 2002, we changed our state of incorporation to Delaware
by merging with Novint Technologies, Inc., a Delaware corporation. On July 5, 2023, we entered into a share exchange agreement with the
shareholders of Dror Ortho-Design, Ltd. (“Private Dror”), pursuant to which the shareholders of Private Dror agreed to exchange
all of their outstanding ordinary shares Private Dror for shares of our Common Stock and convertible preferred stock (the “Share
Exchange”). On August 14, 2023, the Share Exchange was consummated and we changed our name from “Novint Technologies,
Inc.” to “Dror Ortho-Design, Inc.” Following the Share Exchange, we succeeded to the business of Private Dror as our
sole line of business.
Our Company
We have reimagined the way people can correct
their smile.
We plan to disrupt the aligner
market by offering millions of people a revolutionary alternative. We believe that people do not need to change their lifestyle to correct
their smile as they are required to do with existing aligner solutions.
Existing aligner solutions
generally share the same treatment principles, which are different from our solution. In most cases, patients seeking to improve their
smile need to undergo a 12-to-15 month process of wearing plastic aligners, which need to be worn the entire day and should only be removed
while eating or drinking. Patients are prescribed a series of 20 to 30 aligners that are intended to forcefully move teeth progressively
closer to their intended final position. This process causes pain every time a new aligner is used and restricts blood circulation, which
counterproductively slows down tooth movement. All-day aligner solutions are also intrusive, as patients need to conduct their lives
at work or school wearing the plastic aligners. In addition, most existing aligner therapies require multiple visits to an orthodontist
to monitor the progress of treatment plans through intraoral scanning, physical examination and patient testimony.
We believe that recent
rapid advancements in technology have made traditional aligner solutions no longer the most effective treatment option for smile
correction. Our Company has developed a proprietary AI-based platform to correct people’s smiles in a discreet and less
painful manner. On July 14, 2024, the Company announced that its next generation solution will be rebranded from Aerodentis to
“ZSmile” (the “Platform”) since the Platform is intended for nighttime use and while sleeping. The name
“ZSmile” is intended to communicate that people can correct their smile while they sleep or colloquially “getting
some zzz’s”. ZSmile uses only one smart aligner to gently move teeth into their optimum position with pulsating air
while the patient is sleeping or at home. The Company has several patents for the technology used in the Platform and is currently
in the process of preparing the prototype for FDA approval.
Our predecessor first generation
Aerodentis System is a Class II medical device, which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification
process for movement and alignment of teeth during orthodontic treatment of malocclusion in April 2020. The Company is preparing to apply
for 510(k) clearance for the Platform as a Class II medical device, which constitutes an updated version of the currently cleared device.
Such updated Platform contains new and/or different components than the original device, which is why a new 510(k) clearance is required
prior to marketing the Platform in the U.S. We have not yet filed a 510(k) submission for the Platform, and it has, thus, not been found
by the FDA to be substantially equivalent to the first generation Aerodentis System.
The Company currently does
not generate revenues to fund operations and anticipates that it will continue to incur significant losses as it continues to develop
the Platform. Please refer to “Risk Factors - We are in the development stage, are not generating revenues and have no operating
history in the manufacturing and distribution of orthodontic medical devices or platforms for consumer use.” for additional information.
The Company intends to spend approximately $1 million over the next 12 months on software and hardware development as well as the accompanying
regulatory approvals and IP protection associated with such software and hardware projects.
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Our Product
The First Generation Aerodentis System
Our Company was founded in
2005 with the goal of offering millions of people a chance to correct their smile in a more discreet and less painful manner. The first
generation of our product underwent ten years of development by a team of twelve orthodontists, engineers, industrial designers and dental
technicians. This team developed a new clinically-proven method for correcting Class 1 and Class 2 malocclusion using pulsating air.
The team discovered that using pulsating air improved blood circulation in the gums, which is essential to tooth movement. This first-generation
product (the “Aerodentis System”) was composed of a base control unit that contained a pump and motor that would deliver
pulses of air to a micro balloon that was part of a mouthpiece to be used by the patient to deliver the treatment. The use of pulsating
air is the base patented technology that distinguishes our Aerodentis System from clear aligner therapies, which are designed to move
teeth using continuous resistant force delivered by the aligner, which impairs blood flow.
Pictured: Base control
unit, containing micro-pump and controls, attached to the smart aligner. The smart aligner is composed of an outer mouthpiece structure,
which is shaped based on the final position of the teeth for a perfect smile. Behind the outer mouthpiece structure is a micro balloon
that is attached to the base control unit with a fine and flexible microtube. The balloon delivers pulsating air by inflating and deflating.
Behind the balloon is the “push structure,” which provides the balloon with a surface to push against as it gently moves
the teeth.
In January 2013, the Aerodentis
System composed of the base control unit and custom mouthpiece received the European CE Mark. In 2020, it received FDA clearance via
the 510(k) process as a Class II medical device, with broad indication for use “in movement and alignment of teeth during orthodontic
treatment of malocclusion.” Clinical trials demonstrated that Aerodentis System was suitable for adults and pediatric patients
with Class 1 and Class 2 malocclusion, including crowding, proclination and retroclination. Further, clinical trials have demonstrated
that the effectiveness of Aerodentis System was consistent with the results achieved by the Invisalign clear aligners solution provided
by Align Technology, Inc.
Pictured: Close up of
smart aligner with (1) outer structure formed based on the final tooth position desired for a perfect smile and (2) micro balloon
inserted between the outer structure and the inner structure to support the balloon’s expansion.
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The Platform
Building on the Aerodentis
System, we have developed a prototype of the ZSmile, our next generation, comprehensive enhanced solution to Class 1 and Class 2 malocclusion
for which we intend to submit a 510(k) application for marketing in the U.S., as the Platform is beyond the scope of our current FDA
clearance. The prototype of the Platform was developed over the course of eighteen months and is intended to advance the proven clinical
features of the Aerodentis System while incorporating recent developments in artificial intelligence utilized in our ZSmile AI Cloud
(as defined below) component of the Platform, secure wireless and Internet communications with Internet of Things (“IoT”)
devices used in our Smart Aligner System component of the Platform and advanced imaging and 3D printing technologies. IoT devices revers
to pieces of hardware, such as sensors, actuators, gadgets, appliances, or machines, that are programmed for certain applications and
can transmit data over the internet or other networks.
Our Platform is comprised of three primary components:
●
the ZSmile smartphone application;
●
our AI-based cloud service
(“ZSmile AI Cloud”), which is used to perform analytics and manage patient treatment plans; and
●
the smart aligner system
used by the patient, which consists of: (i) a base control unit containing the pump and the IoT components and (ii) a smart aligner
containing the micro-balloon that gently pushes teeth into their intended final position using pulsating air (the “Smart Aligner
System”).
The following provides a more detailed description of each of the
components of our Platform:
ZSmile Smartphone Application
Our freely downloadable
ZSmile smartphone application will allow potential patients to make a video of their smile and teeth and upload the video to the
ZSmile AI Cloud. This 2D video will be converted into a 3D model using our proprietary patent-pending AI based image analysis
technology. The underlying algorithms will then perform an initial analysis to determine if the patient can potentially benefit from
our solution. This complex analysis will be performed in minutes and will deliver a “Go/No Go” response. Once a patient
begins treatment, they will use the smartphone application to provide their dental professional with ongoing remote monitoring of
their treatment progress. The smartphone application can be used to upload additional teeth videos showing progress and to transmit
data from the Smart Aligner System (described below), including the amount of time the patient used the Smart Aligner System and the
pressure and pulse levels administered.
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ZSmile AI Cloud
The ZSmile AI Cloud will
be used to analyze data uploaded by patients and to facilitate communication between patients and dental professionals. If the analysis
performed on the initial video upload from the ZSmile smartphone application delivers a “Go” result, the patient will be
invited to have an intraoral scan performed by a dental professional from our network of participating providers. The results of this
intraoral scan will be uploaded to the ZSmile AI Cloud by the dental professional, and the ZSmile AI Cloud will use a machine learning
algorithm to compare the scan with the initial model generated from the patient’s initial video upload. The machine learning algorithm
is designed to learn with every scan how to improve the accuracy of the 3D images it generates from smartphone videos. We believe that
the Platform’s image analysis of smartphone videos will eventually approach the level of accuracy observed in intraoral scans.
If we achieve this, we will be in a position to be able provide highly accurate image analysis of teeth that can be used throughout the
dental industry since it would allow for smartphones to essentially replace the need for intraoral scans for certain cases. This would
dramatically increase the efficiency and treatment delivery cycle in the dental industry and result in a potentially material economic
benefit to our Company in the future.
The ZSmile AI Cloud will
also be used for ongoing analysis of patient data and management of a patient’s treatment plan throughout the treatment. A dental
professional will use our Platform to develop a customized treatment plan, including any interproximal reduction necessary before treatment
begins, based on the Smart Aligner System. As a patient uploads progress videos from their smartphone, the Platform will compare tooth
positions in previous videos to current positions. A dental professional will be able to use this data to remotely monitor the treatment
progress and modify the treatment plan remotely as needed.
Smart Aligner System
The Platform’s Smart
Aligner System features a newer, more advanced version of our first generation ZSmile System, featuring completely redesigned micropump
and motor mechanisms. The redesign has significantly increased the pump’s pressure capacity, efficiency, and durability. In addition,
the base control unit of Smart Aligner System is now IoT-enabled to allow external secure communication with the device using Wi-Fi and
Bluetooth. The device will thus be able to communicate with the patient’s smartphone as well as the ZSmile AI Cloud and the designated
dental professional, subject to FDA clearance.
The clear aligner of a patient’s
Smart Aligner System will be created using 3D printing based on various 3D images of the patient’s teeth that are collected and
analyzed in the ZSmile AI Cloud. This will represent a significant development in our industry since, today, aligners are not printed
but produced using a thermoforming process. Other companies have implemented 3D printing to produce the aligner models but not the actual
aligners. Although using 3D printing is a superior method for production due to its level of precision and customizability, it has not
been implemented in the production of aligners in the traditional aligner market because it would be financially prohibitive to do so,
since traditional aligner solutions would need to print multiple aligners for each patient. Since our solution requires only one smart
aligner to be produced for each patient, we will be able to take advantage of this cost-effective production method that will also have
economies of scale.
4
Pictured: The Company’s
second generation device ZSmile
Pictured: ZSmile depicted
being used while sleeping
Market Opportunity
Malocclusion is one of the
most prevalent clinical dental conditions in the world, affecting approximately 60% to 75% of the global population. 1 It is
estimated that there are approximately 500 million people globally with malocclusion who could benefit from straightening their teeth. 2
However, most people afflicted by malocclusion do not seek orthodontic treatment due to a number of reasons, including negative
perceptions of metal braces, affordability of treatment, and accessibility to doctors in certain markets and geographies. Annually, only
approximately 21 million or 4.2% of the affected individuals elect treatment by orthodontists. 3 Today, most orthodontic patients
continue to have their malocclusions treated with the use of traditional corrective methods such as metal arch wires and brackets, referred to
as braces, augmented with elastics, metal expanders, headgear or functional appliances, and other ancillary devices as needed. Upon completion
of a patient’s treatment, their dental professional may recommend the patient use a retainer appliance to preserve the benefits
of their treatments.
1 See
Alhammadi, Maged Sultan, et al. “Global distribution of malocclusion traits: A systematic review.” Dental press journal of
orthodontics 23 (2018): 40-e1.
2 Fortune
Business Insight. The global clear aligners market is projected to grow from $3.80 billion in 2023 to $17.27 billion by 2030, at a CAGR
of 24.2% during the forecast period, 2023-2030 (June 2023), available at https://www.fortunebusinessinsights.com/industry-reports/clear-aligners-market-101377.
3 Medi-Tech
Insights. Global Orthodontic Supplies Market Report 2027 – Improving Oral Health Care, available at https://meditechinsights.com/global-orthodontic-supplies-market/.
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According to a 2022 study
conducted by Precedent Research (“Precedence Research 2022 Study”), the global clear aligners market size was estimated at
$6.29 billion in 2022 and is expected to surpass around $46.3 billion by 2030, expanding at a compound annual growth rate (CAGR) of 28.34%
during the period 2022 to 2030. 4
Source : Precedence Research Study, 2022
Our Platform seeks to address
this large and underserved global market by offering a discreet, less intrusive and less painful treatment alternative to available clear
aligners and traditional orthodontic treatments. Our Platform is optimized to correct malocclusions that relate to the “social
six,” which are the front upper six and lower six teeth. We believe that at least 30% of those who currently seek treatment, or
6.6 million people, could benefit from using ZSmile to correct their smiles. According to the Precedence Research 2022 Study, by 2028,
the market for clear aligners will surpass 22 million people, which is our total addressable market.
4 Precedence
Research. Clear Aligners Market (By Age: Adults, Teenagers; By Type: At-home aligners/Direct-to-consumer (DTC) Aligners, In-office Aligners;
By Product: Hard Type, Medium Type, Soft Type; By Material Type: Polyurethane, Plastic Polyethylene Terephthalate Glycol, Poly-vinyl
Chloride; By Distribution Channel: Direct Sales, Laboratories, Others; By End-User: Hospitals, Standalone Practices, Group Practices,
Others) - Global Industry Analysis, Size, Share, Growth, Trends, Regional Outlook, and Forecast 2022-2030 (October 2022), available at
https://www.precedenceresearch.com/clear-aligners-market.
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Source : Precedence Research Study, 2022
●
Our total addressable market
also stands to benefit from the recent trend toward dentists, rather than orthodontists, delivering orthodontic care through clear
aligners. In order for a smile correction solution to work properly, a treatment plan and monitoring needs to be executed by a dental
professional, such as dentists and orthodontists. Since the ZSmile Platform provides the necessary information to develop and administer
a treatment plan using our solution, it may be used by dentists as well as orthodontists, which expands our target distribution channel
to cover both orthodontists and dentists. According to a 2019 Journal of Family Medicine and Primary Care article, approximately
36% of dentists were already performing orthodontic procedures such as the malocclusion corrections. 5 This is an indication
of an ongoing trend of dentists assuming more orthodontic treatment offerings in their practices. We believe that the ease of use
of our Platform will also facilitate eventually selling our solution directly to the consumer in qualified cases with remote dental
professional involvement.
Business Model
Our business model is focused
on engaging the customer throughout their smile correction journey and beyond. Our solution provides an innovative, proprietary end-to-end
platform that spans all stages of customer engagement, from initial acquisition to treatment and ongoing maintenance — all with
minimal need for office visits and lifestyle inconvenience.
5 See
Jayaprakash, Poonam K., et al. “A survey on orthodontic services provided by general dental practitioners.” Journal of family
medicine and primary care 8.7 (2019): 2490-2495.
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Customer Initiated Dentist-Controlled Treatment
Unlike other solutions in
the market, such as traditional clear aligners, we believe our Platform will provide greater access and interaction with the customers
and allow customers to feel more involved in their own treatment process. We hope to engage the power of social media and other digital
outlets to initiate initial demand for our Platform by the customers.
Customer Engagement – Value Creation
Our Platform is designed
to have a high level of engagement with customers, if cleared for marketing in the U.S., as users will be able to scan their teeth with
any smartphone and see how our solution can improve their smile. We intend to engage the customer from their first interest in correcting
their smile and guide them throughout our convenient process.
Network of Dental Professionals
If cleared by FDA, the Platform
will generally function via the following process: if the customer can benefit from our Platform, based on the severity of their tooth
alignment and malocclusions, they will be referred to a dental professional in our network for an intraoral scan. Once the results of
the scan are uploaded to our ZSmile AI Cloud, a remote dental professional will develop a treatment plan for that patient using our Platform.
If the patient requires any tooth preparation before initiating treatment with the smart aligner, the patient will again be referred
to a dental professional in our network. The Company currently does not have any written agreements or arrangements with any dental professionals
governing provision of orthodontic services using our Platform.
Monetization – Value Capture
We intend to generate revenues
by:
●
reselling our solution
through a professional dental network;
●
providing ongoing monitoring
and treatment plans for those who have completed their smile correction and may require smile maintenance throughout their life;
and
●
eventually selling directly
to the consumer in qualified cases with remote dental professional involvement
Sales and Marketing
We intend to market our Platform
in Israel, the European Union (“E.U.”), United Kingdom, United States, and Canada, subject to each country’s requisite
regulatory authorization. We intend to utilize social media to promote our Platform to our targeted audience. The Platform has a potentially
viral social media message that we hope will drive demand by placing user-generated content on all major social medial platforms. Our
marketing strategy themes and promotional messages will emphasize the ease and convenience offered by our Platform as compared to other
available treatments.
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Research and Development
We have a research and development
team with software development, medical device development, dental/orthodontic, data science and other innovation focused backgrounds.
Our current research and development efforts are primarily focused on enhancing the Platform and developing software and processes to
enable the manufacture of our smart aligner systems in volume as well as productizing the prototype through the development of UI/UX
and system integration with existing patent systems.
As of December 2024, our
outsourced software development team is composed of eight professionals with years of experience in artificial intelligence development,
data science, application and software engineering. Members of the team come from the elite intelligence units of the Israeli Defense
Force and have a breadth of experience in computer vision, imaging and targeting systems development. Our software development team is
headed by Yossi Avni, who has 25 years of experience in developing advanced artificial intelligence applications, behavioral biometrics,
behavioral profiling and advanced security systems and holds over 100 patents in these areas.
Our hardware and systems
development team is composed of six professionals with years of experience in FDA-compliant medical device development. They are a part
of Aran Research Development Prototypes Ltd. (“Aran”), a leading Israeli product design and development firm and our third-party
hardware development partner. Aran is ISO 13485 certified and maintains an ISO 7 cleanroom for testing and assembly. Aran also has manufacturing
facilities and a full suite of 3D printing capabilities, which are compliant with FDA guidelines. Our hardware and systems development
team is headed by Avi Kayton, a skilled development manager and systems engineer with 16 years of experience, including extensive experience
in medical device companies.
Intellectual Property
We have three issued U.S.
patents, four pending U.S. patents and numerous global patent applications. These patents and applications cover critical aspects of
our Platform, including the movement of teeth using pulsating air, our diagnostic process, Platform technology, and 3D printing. Our
issued U.S. patents 7819661, 10806376, and 10820965 expire in 2030, 2040, and 2040 respectively. We currently do not own any trademarks.
We intend to continue to
pursue further intellectual property protection through U.S. and non-U.S. patent applications, trademark applications, and non-disclosure
and non-compete agreements. We also intend to seek to protect our software, documentation and other written materials under trade secret
and copyright laws. There can be no assurance that patents will be issued as a result of any patent application or that patents that
have been issued to us or may issue in the future will be found to be valid and enforceable and sufficient to protect our technology
or products.
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Seasonality
Our business is generally
not seasonal. However, we may experience moderate sales fluctuations, at certain periods of the year, such as January, due to renewed
consumer focus on health improvement and aesthetics.
Competition
The dental industry is in
a period of immense and rapid digital transformation involving products, technologies, distribution channels and business models. We
face competition in the market for our Platform from the clear aligners market and we expect competition from existing competitors and
new companies that may enter the market or introduce new technologies in the future. We compete with several well-established companies
both in the traditional orthodontic industry and the direct-to-consumer clear aligner industry, including Align Technologies, Dentsply
Sirona (Byte), 3M Clarity Aligners, and Straumann Group. Although these companies offer clear aligner solutions, and thus do not use
technologies similar to the Platform, we expect that potential patients will view clear aligner products as alternatives to the Platform.
For this reason, we view any company in the clear aligners market as a potential competitor.
We believe that the principal
competitive factors in the market for orthodontic appliances include:
● price
and financing options;
● access
and convenience;
● aesthetic
appeal of the treatment method;
● comfort
associated with the treatment method;
● duration
and effectiveness of treatment;
● ease
of use; and
● orthodontist
chair time.
We believe that our Platform
will compare favorably with respect to each of these factors.
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Government Regulation
Our products (including the
currently cleared version, as well as the next generation Platform for which we have not yet submitted the requisite 510(k) application
to FDA) are considered medical devices, and, accordingly, are subject to rigorous regulation by government agencies in the United States
and other countries in which we intend to sell our products. These regulations vary from country to country but cover, among other things,
the following activities with respect to medical devices:
● design,
development and manufacturing;
● testing,
labeling, content and language of instructions for use and storage;
● product
storage and safety;
● marketing,
sales and distribution;
● pre-market
clearance and approval;
● record
keeping procedures;
● advertising
and promotion;
● recalls
and field safety corrective actions;
● post-market
surveillance;
● post-market
approval studies; and
● product
import and export
FDA Regulation
In the U.S., numerous laws
and regulations govern the processes by which medical devices are developed, manufactured, brought to market and marketed. These include
the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and its implementing regulations issued by FDA, among others. Unless
an exemption applies, each medical device commercially distributed in the United States requires FDA clearance of a 510(k) premarket
notification (“510(k) clearance”), granting of a de novo request, or approval of an application for premarket approval
(“PMA”). In general, under the FD&C Act, medical devices are classified in one of three classes on the basis of the controls
necessary to reasonably assure their safety and effectiveness. A medical device’s classification determines the level of FDA review
and approval to which the device is subject before it can be marketed to consumers:
● Class
I devices, the lowest-risk FDA device classification, include devices with the lowest risk to the patient and are those for which safety
and effectiveness can be assured by adherence to FDA’s medical device general controls, including labeling, establishment registration,
device product listing, adverse event reporting, and, for some products, adherence to good manufacturing practices through FDA’s
Quality System Regulations.
● Class
II devices, moderate-risk devices, also require compliance with general controls and in some cases, special controls as deemed necessary
by FDA to ensure the safety and effectiveness of the device. These special controls may include performance standards, particular labeling
requirements, or post-market surveillance obligations. While most Class I devices are exempt from the 510(k) premarket notification requirement,
typically a Class II device also requires pre-market review and 510(k) clearance as well as adherence to the Quality System Regulations/good
manufacturing practices for devices.
●
Class III devices, high-risk
devices that are often implantable or life-sustaining, also require compliance with the medical device general controls and Quality
System Regulations, and generally must be approved by FDA before entering the market through a PMA application. Approved PMAs can
include post-approval conditions and post-market surveillance requirements, analogous to some of the special controls that may be
imposed on Class II devices.
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Our manufacturing quality
system is required to be in compliance with the Quality System Regulations enforced by FDA and similar regulations enforced by other
worldwide regulatory authorities. FDA’s Quality System Regulations require manufacturers to follow stringent design, testing, process
control, documentation, and other quality assurance procedures.
Our first generation Aerodentis
System is a Class II medical device, which was cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process
for movement and alignment of teeth during orthodontic treatment of malocclusion in April 2020. We are preparing to apply for 510(k)
clearance for the updated version of the currently cleared device. Such updated Platform contains new and/or different components than
the original device, which is why a new 510(k) clearance is required prior to marketing the Platform in the U.S. We have not yet filed
a 510(k) submission for the Platform, and it has, thus, not been found by the FDA to be substantially equivalent to the first generation
Aerodentis System. The manufacture, marketing and distribution of the Aerodentis System, as well as our next-generation Platform once
cleared by FDA, if ever, is subject to continuing regulation and enforcement by FDA and other government authorities, which includes
routine FDA inspections of our facilities to determine compliance with facility registration requirements, product listing requirements,
medical device reporting regulations, and Quality System Regulations, among others. If FDA finds that we have failed to comply with Quality
System Regulations or other legal or regulatory requirements, it or other government agencies may institute a wide variety of enforcement
actions against us, ranging from Warning Letters to more severe sanctions, including but not limited to financial penalties, withdrawal
of 510(k) clearances already granted, and criminal prosecution. We have passed our International Organization for Standardization (“ISO”)
and Medical Device Single Audit Program (“MDSAP”) certification process and have added the U.S. to our ISO/MDSAP certification
in 2019.
The 510(k) Process
Under the 510(k) process,
the manufacturer must submit to FDA a premarket notification demonstrating that the device is “substantially equivalent”
to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted,
and for which a PMA is not required, a device that has been reclassified from Class III to Class II or Class I, or another commercially
available device that was cleared through the 510(k) process. To be “substantially equivalent,” the proposed device must
have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or
have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device.
Clinical data is sometimes required to support substantial equivalence.
After a 510(k) premarket
notification is submitted, FDA determines whether to accept it for substantive review. If it lacks necessary information for substantive
review, FDA will refuse to accept the 510(k) notification. If it is accepted for filing, FDA begins a substantive review. By statute,
FDA is required to complete its review of a 510(k) notification within 90 days of receiving the 510(k) notification. As a practical matter,
clearance often takes longer, and clearance is never assured. FDA may require further information, including clinical data, to make a
determination regarding substantial equivalence, which may significantly prolong the review process. If FDA agrees that the device is
substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device.
Post-Market Regulation
After a device is cleared
or approved for marketing, numerous and extensive regulatory requirements may continue to apply. These include but are not limited to:
● annual
and updated establishment registration and device listing with FDA;
● Quality
System Regulation requirements, which require manufacturers to follow stringent quality assurance procedures during all aspects of the
design and manufacturing process;
● restrictions
on sale, distribution, or use of a device;
● labeling,
advertising, promotion, and marketing regulations, which require that promotion is truthful, not misleading, and provide adequate directions
for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label”
uses (i.e., indications that are inconsistent with or beyond the scope of the applicable FDA approval or clearance) and impose other
restrictions on labeling;
● clearance
or approval of product modifications to legally marketed devices that could significantly affect safety or effectiveness or that would
constitute a major change in intended use;
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● medical
device reporting regulations, which require that a manufacturer report to FDA if a device it markets may have caused or contributed to
a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute
to a death or serious injury if the malfunction were to recur;
● correction,
removal, and recall reporting regulations, and FDA’s recall authority;
● complying
with the federal law and regulations requiring Unique Device Identifiers on devices; and
● post-market
surveillance activities and regulations, which apply when deemed by FDA to be necessary to protect the public health or to provide additional
safety and effectiveness data for the device.
FDA has broad regulatory
compliance and enforcement powers. If FDA determines that we failed to comply with applicable regulatory requirements, it can take a
variety of compliance or enforcement actions, which may result in any of the following sanctions:
● warning
letters, untitled letters, fines, injunctions, consent decrees, and civil penalties;
● recalls,
withdrawals, or administrative detention, or seizure of our products;
● operating
restrictions or partial suspension or total shutdown of production;
● refusing
or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;
● withdrawing
510(k) clearances or PMA approvals that have already been granted;
● refusal
to grant export or import approvals for our products; or
● criminal
prosecution.
International Regulation
Many countries throughout
the world have established regulatory frameworks for marketing and commercialization of medical devices. As a designer, manufacturer,
and marketer of medical devices, we are obligated to comply with the respective frameworks of these countries to obtain and maintain
access to these global markets. The frameworks often define requirements for marketing authorizations which vary by country. Failure
to obtain appropriate marketing authorization and to meet all local requirements, including specific quality and safety standards in
any country in which we currently market our products, could cause commercial disruption and/or subject us to sanctions and fines. Delays
in receipt of, or a failure to receive, such marketing authorizations, or the loss of any previously received authorizations, could have
a material adverse effect on our business, financial condition and results of operations.
There is currently no
premarket government review of medical devices in the European Economic Area (“EEA”). However, all medical devices
placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning
medical devices, or the Medical Devices Directive. The most fundamental essential requirement is that a medical device must be
designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and
health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed,
manufactured, and packaged in a suitable manner. The European Commission has adopted various standards applicable to medical
devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment,
and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture.
While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a
practical matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption
that the device satisfies that essential requirement.
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On April 5, 2017, the European
Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the E.U. Medical Device Directive
and became effective on May 26, 2021. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent,
predictable, and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while
supporting innovation. The new regulations, among other things:
● strengthen
the rules on placing devices on the market and reinforce surveillance once they are available;
● establish
explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance, and safety of devices placed
on the market;
● improve
the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
● set
up a central database to provide patients, healthcare professionals, and the public with comprehensive information on products available
in the E.U.; and
● strengthen
rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before
they are placed on the market.
We received our European
CE mark and ISO/MDSAP certification in 2019. In light of our ISO/MDSAP certification, we believe that we are in substantial compliance
with applicable E.U. regulations and do not anticipate having to make any material expenditures as a result of E.U. or other currently
applicable regulatory requirements. Under Medical Devices Regulation, manufacturing facilities are subject to periodic inspections by
regulatory authorities and must comply with device safety and effectiveness requirements as set forth therein. To that end, we have implemented
controls and procedures intended to ensure that our Access Dental Lab Quality System meets FDA’s and ISO requirements. We passed
our audit to renew our ISO/MDSAP certification in April 2023.
Quality System Regulations
Our manufacturing quality
system is required to be in compliance with the Quality System Regulations enforced by FDA and similar regulations enforced by other
worldwide regulatory authorities. FDA’s Quality System Regulations require manufacturers to follow stringent design, testing, process
control, documentation, and other quality assurance procedures. If FDA finds that we have failed to comply with Quality System Regulations
or other legal or regulatory requirements, it or other government agencies may institute a wide variety of enforcement actions against
us, ranging from Warning Letters to more severe sanctions, including but not limited to financial penalties, withdrawal of 510(k) clearances
already granted, and criminal prosecution. In addition, under Canadian regulation, manufacturing facilities are subject to periodic inspections
by regulatory authorities and must comply with device safety and effectiveness requirements as required by the Medical Devices Regulation.
State Professional Regulation
Our ability to conduct
business in each state is dependent in part upon that particular state’s treatment of remote healthcare delivery under such
state’s laws, rules and policies governing the practice of dentistry, which are subject to changing political, regulatory and
other influences. Orthodontists and dentists who provide professional services to a patient via teledentistry must, in most
instances, hold a valid license to practice or to provide treatment in the state in which the patient is located. In addition,
certain states require an orthodontist or dentist providing telehealth services to be physically located in the same state as the
patient. Failure to comply with these laws and regulations can give rise to civil or criminal penalties.
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Other U.S. Federal and State Laws
We are also subject to various
laws inside and outside the U.S. concerning our relationships with healthcare professionals and government officials, price reporting
and regulation, the promotion, sales and marketing of our products and services, the importation and exportation of our products, reimbursement
for our products and services, the operation of our facilities, and the distribution of our products. Initiatives sponsored by government
agencies, legislative bodies, and the private sector regarding these matters, including efforts to limit the growth of healthcare expenses
generally, are ongoing in markets where we do business. It is not possible to predict at this time the long-term impact of such cost
containment and other measures on our future business.
We intend to enter into contracts
with orthodontists, dentists, or professional corporations to deliver our products and services to their patients. Such contractual relationships
will be subject to various state laws that prohibit the practice of dentistry by lay entities or persons and are intended to prevent
unlicensed persons from interfering with or influencing the orthodontist’s or dentist’s professional judgment. In addition,
laws in various states also generally prohibit the sharing of professional services income with nonprofessional or business interests.
Activities other than those directly related to the delivery of healthcare may be considered an element of the practice of dentistry
in many states. Under the corporate practice of dentistry restrictions of certain states, non-clinical decisions and activities may implicate
the restrictions on the corporate practice of dentistry. We will continually monitor state requirements as to what constitutes the practice
of dentistry and take steps to ensure that the orthodontists and dentists who utilize our services and teledentistry platform handle
all clinical aspects of their patients’ care to ensure we do not violate those laws and regulations.
As a participant in the health
care industry we are subject to extensive and frequently changing regulation under many other laws administered by governmental entities
at the federal, state, and local levels, some of which are, and others of which may be, applicable to our business. Laws regulating medical
device manufacturers and health care providers cover a broad array of subjects.
Several states have fraud
and abuse and consumer protection laws that apply to healthcare items or services reimbursed by any third-party payor, including commercial
insurers, not just those reimbursed by a federally funded healthcare program, or apply regardless of payor. The scope of these laws and
the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion.
A determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these
jurisdictions.
Health Information Privacy and Security
Laws
There are numerous U.S. federal
and state laws and regulations related to the privacy and security of PII, including health information. Among others, the federal Health
Insurance Portability and Accountability Act of 1996, as amended by HITECH, and their implementing regulations, which we collectively
refer to as HIPAA, establish privacy and security standards that limit the use and disclosure of PHI and require covered entities and
business associates to implement administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability
of individually identifiable health information in electronic form, among other requirements.
Violations of HIPAA may
result in civil and criminal penalties. We must also comply with HIPAA’s breach notification rule which requires notification
to affected individuals and HHS, and in certain cases to media outlets, in the case of a breach of unsecured PHI. The regulations
also require business associates of covered entities to notify the covered entity of breaches by the business associate.
State attorneys general also
have the right to prosecute HIPAA violations committed against residents of their states, and HIPAA standards have been used as the basis
for the duty of care in state civil suits, such as those for negligence or recklessness in misusing personal information. In addition,
HIPAA mandates that HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance.
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Many states also have laws
that protect the privacy and security of sensitive and personal information, including health information. These laws may be similar
to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of California, are more restrictive
than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA.
California passed the California Consumer Privacy Act or CCPA on June 28, 2018, which went into effect January 1, 2020. On November 3,
2020, the California Privacy Rights Act of 2020 (“CPRA”), which amends the CCPA and adds new privacy protections that became
effective on January 1, 2023, was enacted through a ballot initiative. While information we maintain that is covered by HIPAA may be
exempt from the CCPA, other records and information we maintain on our patients may be subject to the CCPA. In certain cases, it may
be necessary to modify our planned operations and procedures to comply with these more stringent state laws. Not only may some of these
state laws impose fines and penalties upon violators, but also some, unlike HIPAA, may afford private rights of action to individuals
who believe their personal information has been misused. In addition, state and federal privacy laws subject to frequent change.
In addition to HIPAA and
state health information privacy laws, we may be subject to other state and federal privacy laws, including laws that prohibit unfair
privacy and security practices and deceptive statements about privacy and security, laws that place specific requirements on certain
types of activities, such as data security and texting, and laws requiring holders of personal information to maintain safeguards and
to take certain actions in response to a data breach.
Foreign data protection,
privacy, and other laws and regulations are often more restrictive than those in the U.S. The E.U., for example, traditionally has imposed
stricter obligations under its laws and regulations relating to privacy, data protection and consumer protection than the U.S. In May
2018, the General Data Protection Regulation (the “GDPR”), which governs data practices and privacy in the E.U., became effective
and replaced the data protection laws of the individual member states. GDPR requires companies to meet stringent requirements regarding
the handling of personal data of individuals in the E.U. These more stringent requirements include expanded disclosures to inform members
about how we may use their personal data, increased controls on profiling members, and increased rights for members to access, control
and delete their personal data. In addition, there are mandatory data breach notification requirements. The law also includes significant
penalties for non-compliance, which may result in monetary penalties of up to 20 million Euros or 4% of a company’s worldwide turnover,
whichever is higher. GDPR and other similar regulations require companies to give specific types of notice and informed consent is required
for the placement of a cookie or similar technologies on a user’s device for online tracking for behavioral advertising and other
purposes and for direct electronic marketing, and the GDPR also imposes additional conditions in order to satisfy such consent, such
as a prohibition on pre-checked consents. It remains unclear how the U.K. data protection laws or regulations will develop in the medium
to longer term and how data transfer to the U.K. from the E.U. will be regulated. Outside of the E.U., there are many other countries
with data protection laws, and new countries are adopting data protection legislation with increasing frequency. Many of these laws may
require consent from individuals for the use of data for various purposes, including marketing, which may reduce our ability to market
our products.
There is no harmonized
approach to these laws and regulations globally. Consequently, we increase our risk of non-compliance with applicable foreign data
protection laws and regulations when we expand internationally. We may need to change and limit the way we use personal information
in operating our business and may have difficulty maintaining a single operating model that is compliant. Compliance with such laws
and regulations will result in additional costs and may necessitate changes to our business practices and divergent operating
models, limit the effectiveness of our marketing activities, adversely affect our business, results of operations, and financial
condition, and subject us to additional liabilities.
Environmental Matters
We have no material expenditures
for compliance with Federal, State or local provisions regulating the discharge of materials into the environment, or otherwise relating
to the protection of the environment.
Employees
As of December 31, 2024,
we had 3 full-time employees and 1 part-time employee.
Company Information
Our principal executive offices
are located at Shatner Street 3, Jerusalem, Israel, and our telephone number is +972 (0)74-700-6700. Our web page address is www.ZSmile.com.
References to our website address do not constitute incorporation by reference of the information contained on the website, and the information
contained on the website is not part of this document or any other document that we file with or furnish to the SEC.
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