UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No.1)
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) | |
| Registrant’s telephone number, including area code: |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller
reporting company |
Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of May 16, 2022, the registrant had shares of common stock, $0.0001 par value per share, outstanding.
EXPLANATORY NOTE
Reference is made to the Company’s Current Report on Form 8-K, filed with the SEC on November 22, 2022 (the “Non-Reliance 8-K”), wherein the Company provided background and details on the determination of the Audit Committee of the Company’s Board of Directors that the financial statements for the Restated Period included in the Original Report should no longer be relied upon. Further to the matters described in the Non-Reliance 8-K, this Amendment amends and restates Items 1, 2, and 4 of Part I and Item 6 of Part II of the Original Report. In Item 1, this Amendment includes our restated unaudited consolidated balance sheets, unaudited consolidated statements of operations, unaudited consolidated statements of stockholders’ equity and unaudited consolidated statements of cash flows as of and for the Restated Period to correct the revenue recognition error discussed in the Non-Reliance 8-K and below.
As described further in the Non-Reliance 8-K, on August 22, 2022, the Company announced that it had been advised by Plante & Moran, PLLC, the Company’s independent registered public accounting firm, about a potential need to reevaluate how and when the Company recognizes enrollment fees charged to new Vivos Integrated Providers (“VIPs”) and the related performance obligations that are included in VIP enrollments as revenue under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Prior to and since that announcement, the Company has diligently performed a review of its revenue recognition policies under ASC 606 as well as the applicable provisions of ASC Topic 842, Leases (“ASC 842”) and the Company’s other internal accounting policies and practices.
After analyzing its VIP enrollment contracts in detail, the management and the Audit Committee of the Board of Directors of the Company determined that the appropriate accounting treatment should be to recognize certain revenue streams over the customer life as opposed to a one-year period as was previously done. In summary, the cumulative net effect of this determination for the Restated Period is as follows:
| 1. | Increasing total revenue and decreasing net loss on the condensed consolidated statements of operations and related footnotes by approximately $0.2 million; and | |
| 2. | Decreasing the contract liability and accumulated deficit by approximately $0.2 million. |
While the erroneous accounting was used in periods prior to the Restated Period, the impact for the periods ended December 31, 2019, December 31, 2020, and December 31, 2021 are immaterial. Therefore, the cumulative effect of the error will be corrected in the Restated Period, with no restatement of prior period financial statements. These corrections do not relate to or have any impact on the Company’s cash flows, and the liquidity of the Company remains unchanged.
This Amendment also amends and restates Item 2 of Part I, Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes our revised discussion of operating results for the Restated Period to reflect the impact of the revenue recognition-related correction discussed above.
Management’s analysis further resulted in the identification of an additional material weakness in our internal control over financial reporting for the Restated Period related to revenue recognition. Accordingly, Item 4 of Part I of this Amendment includes our revised assessment of the effectiveness of our disclosure controls and procedures for the Restated Period.
In addition, the Exhibits index in Item 6 of Part II of the Original Report is hereby amended and restated in its entirety, and new certifications of the Company’s principal executive officer and principal financial officer required under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, dated as of the filing of this Amendment, are filed and furnished, as applicable, as exhibits to this Amendment.
Except as described above, no other changes have been made to the Original Report. This Amendment continues to speak as of the date of the Original Report and does not reflect events occurring after the filing of the Original Report.
TABLE OF CONTENTS
| 1 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned that known and unknown risks, uncertainties and other factors, including those over which we may have no control and others listed in the “Risk Factors” section of this Quarterly Report on Form 10-Q, may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs.
These forward-looking statements include statements relating to:
| ● | our ability to continue to refine and execute our business plan, including the recruitment of dentists to enroll in our Vivos Integrated Practice (VIP) program and utilize The Vivos Method; | |
| ● | the understanding and adoption by dentists and other healthcare professionals of The Vivos Method as a treatment for dentofacial abnormalities and/or mild to moderate obstructive sleep apnea (OSA) and snoring in adults; | |
| ● | our expectations concerning the effectiveness of treatment using The Vivos Method and patient relapse after completion of treatment; | |
| ● | the potential financial benefits to VIP dentists from treating patients with The Vivos Method; | |
| ● | our potential profit margin from the enrollment of VIPs, VIP service fees, sales of The Vivos Method treatments and appliances and leases of SleepImage® home sleep testing rings; | |
| ● | our ability to properly train VIPs in the use of The Vivos Method inclusive of the services we offer independent dentist for use in treating their patients in their dental practices; | |
| ● | our ability to formulate, implement and modify as necessary effective sales, marketing and strategic initiatives to drive revenue growth (including, for example, our Medical Integration Division and SleepImage home sleep apnea test); | |
| ● | the viability of our current intellectual property and intellectual property created in the future; | |
| ● | acceptance by the marketplace of the products and services that we market; | |
| ● | government regulations and our ability to obtain applicable regulatory approvals and comply with government regulations including under healthcare laws and the rules and regulations of the U.S. Food and Drug Administration; | |
| ● | our ability to retain key employees; | |
| ● | adverse changes in general market conditions for medical devices and the products and services we offer; | |
| ● | our ability to generate cash flow and profitability and continue as a going concern; | |
| ● | our future financing plans; and | |
| ● | our ability to adapt to changes in market conditions (including as a result of the COVID-19 pandemic) which could impair our operations and financial performance. |
These forward-looking statements involve numerous risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results of operations or the results of other matters that we anticipate herein could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this Quarterly Report on Form 10-Q. You should thoroughly read this Quarterly Report on Form 10-Q and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Quarterly Report on Form 10-Q and the documents that we refer to in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect.
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VIVOS THERAPEUTICS INC.
Unaudited Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
| March 31,
2022 (Restated) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Tenant improvement allowance receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Goodwill | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Intangible assets, net | ||||||||
| Deposits and other | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of contract liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of operating lease liability | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Contract liability, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred Stock, $ par value per share. Authorized shares; shares issued and outstanding | ||||||||
| Common Stock, $ par value per share. Authorized shares; issued and outstanding shares as of March 31, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ deficit Total liabilities and stockholders’ equity | $ | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
VIVOS THERAPEUTICS INC.
Unaudited Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
| Three Months Ended March 31, | ||||||||
2022 (Restated) | 2021 | |||||||
| Revenue | ||||||||
| Product revenue | $ | $ | ||||||
| Service revenue | ||||||||
| Total revenue | ||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Non-operating income (expense) | ||||||||
| Other expense | ( | ) | ( | ) | ||||
| PPP loan forgiveness | ||||||||
| Other income | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to common stockholders (basic and diluted) | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of Common Stock outstanding (basic and diluted) | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
VIVOS THERAPEUTICS INC.
Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)
(In Thousands)
| Three Months Ended March 31, 2022 and 2021 | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balances, December 31, 2020 | ( | ) | ||||||||||||||||||
| Issuance of Common Stock: | ||||||||||||||||||||
| To consultants for services | ||||||||||||||||||||
| Fair value of warrants issued: | ||||||||||||||||||||
| To consultants for services | - | |||||||||||||||||||
| For purchase of assets | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balances, December 31, 2021 | ( | ) | ||||||||||||||||||
| Fair value of warrants issued: | ||||||||||||||||||||
| To consultants for services | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss (restated) | - | ( | ) | ( | ) | |||||||||||||||
| Balances, March 31, 2022 (restated) | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
VIVOS THERAPEUTICS INC.
Unaudited Consolidated Statements of Cash Flows
(In Thousands)
| Three Months Ended March 31, | ||||||||
2022 (Restated) | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Fair value of warrants issued for services | ||||||||
| Common stock issued for services | ||||||||
| Accretion of discount on note receivable | ( | ) | ||||||
| Forgiveness of indebtedness income | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Operating lease assets and liabilities, net | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Deposits | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ||||||||
| Contract liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisitions of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Principal payments on debt | ( | ) | ||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of year | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Fair value of warrants issued in asset purchase | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
VIVOS THERAPEUTICS INC.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2022
(Restated)
NOTE 1 - ORGANIZATION, DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
BioModeling Solutions, Inc. (“BioModeling”) was organized on March 20, 2007 as an Oregon limited liability company, and subsequently incorporated in 2013. On August 16, 2016, BioModeling entered into a share exchange agreement (the “SEA”) with First Vivos, Inc. (“First Vivos”), and Vivos Therapeutics, Inc. (“Vivos”), a Wyoming corporation established on July 7, 2016 to facilitate this share exchange combination transaction. Vivos was formerly named Corrective BioTechnologies, Inc. until its name changed on September 6, 2016 to Vivos Biotechnologies and on March 2, 2018 to Vivos Therapeutics, Inc. and had no substantial pre-combination business activities. First Vivos was incorporated in Texas on November 10, 2015. Pursuant to the SEA, all of the outstanding shares of common stock and warrants of BioModeling and all of the shares of commons stock of First Vivos were exchanged for newly issued shares of common stock and warrants of Vivos, the legal acquirer.
The transaction was accounted for as a reverse acquisition and recapitalization, with BioModeling as the acquirer for financial reporting and accounting purposes. Upon the consummation of the merger, the historical financial statements of BioModeling became the Company’s historical financial statements and recorded at their historical carrying amounts.
On August 12, 2020, Vivos reincorporated from Wyoming to become a domestic Delaware corporation under Delaware General Corporate Law. Accordingly, as used herein, the term “the Company,” “we,” “us.” “our” and similar terminology refer to Vivos Therapeutics, Inc., a Delaware corporation and its consolidated subsidiaries. As used herein, the term “Common Stock” refers to the common stock, $ par value per share, of Vivos Therapeutics, Inc., a Delaware corporation.
Description of Business
The Company is a medical technology company focused on the development and commercialization to dental practices of a patented oral appliance technology and related treatments and training called The Vivos Method. The Company believes The Vivos Method represents the first non-surgical, non-invasive and cost-effective treatment for people with dentofacial abnormalities and/or mild to moderate OSA and snoring in adults. The Company’s business model is focused around dentists, and the Company’s program to train dentists and offer them other value-added services in connection with their ordering and use of The Vivos Method for patients is called the Vivos Integrated Practice (“VIP”) program. Dentists enrolled in the VIP Program are referred to as “VIPs”.
In
addition to providing VIPs with appliances for use with their patients, the Company provides other products and services to VIPs, including
(i) SleepImage® home sleep apnea test rings (“SleepImage”), which can be leased to VIPs for use with patients; (ii)
training and continuing education at the Company’s Vivos Institute training center, (iii) the Billing Intelligence Service (“BIS”),
a subscription-based billing solution for VIPs, (iv) the Company’s Medical Integration Division, which manages independent medical
practices under management and development agreement which pays the Company six (
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries (BioModeling, First Vivos, Vivos Therapeutics (Canada) Inc., Vivos Management and Development, LLC and Vivos Del Mar Management, LLC), are prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation.
| 7 |
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company currently expects to retain its status as an emerging growth company until the year ending December 31, 2026, but this status could end sooner under certain circumstances.
Revenue Recognition (restated)
The Company generates revenue from the sale of products and services. A significant majority of the Company’s revenues are generated from enrolling dentists in the VIP program and sales of products and services to VIPs. Revenue is recognized when control of the products or services is transferred to customers (i.e., VIP dentists ordering such products or services for their patients) in a way that reflects the consideration the Company expects to be entitled to in exchange for those products and services.
Following the guidance of ASC 606 and the applicable provisions of ASC Topic 842, Leases (“ASC 842”), the Company determines revenue recognition through the following five-step model, which entails:
| 1) | identification of the promised goods or services in the contract; | |
| 2) | determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; | |
| 3) | measurement of the transaction price, including the constraint on variable consideration; | |
| 4) | allocation of the transaction price to the performance obligations; and | |
| 5) | recognition of revenue when, or as the Company satisfies each performance obligation. |
Service Revenue
VIP Enrollment Revenue
The
Company reviews its VIP enrollment contracts from a revenue recognition perspective using the 5-step method outlined above. Once it
is determined that a contract exists, service revenue related to VIP enrollments is recognized when the underlying training or other
services are performed. The price of the standard VIP enrollment that the VIP pays upon execution of the contract is significant,
running at approximately $
| 8 |
The Company enters into programs that may provide for multiple performance obligations. Commencing in 2018, the Company began enrolling medical and dental professionals in a one-year program (later known as the VIP Program) which includes training in a highly personalized, deep immersion workshop format which provides the VIP dentist access to a team who is dedicated to creating a successful integrated practice. The key topics covered in training include case selection, clinical diagnosis, appliance design, adjunctive therapies, instructions on ordering the Company’s products, guidance on pricing, instruction on insurance reimbursement protocols and interacting with our proprietary software system and the many features on the Company’s website. The initial training and educational workshop is typically provided within the first 30 to 45 days that a VIP enrolls. Ongoing support and additional training is provided throughout the year and includes access to the Company’s proprietary Airway Intelligence Service (“AIS”) which provides the VIP with resources to help simplify the diagnostic and treatment planning process. AIS is provided as part of the price of each appliance and is not a separate revenue stream. Following the year of training and support, a VIP may pay for seminars and training courses that meet the Provider’s needs on a subscription or a course-by-course basis.
The VIP enrollment includes multiple performance obligations which vary on a contract by contract basis. The performance obligations included with enrollments may include sleep apnea rings, six or twelve months Billing Intelligence Service subscription, a marketing package, lab credits and the right to sell.
The Company allocates the transaction price of the VIP enrollment contract to each performance obligation using the relative standalone selling price method. The relative standalone price method is based on the proportion of the standalone selling price of each performance obligation to the sum of the total standalone selling prices of all the performance obligations in the contract. The right to sell performance obligation includes the Vivos training and enrollment materials which prepares the provider for patient treatment using The Vivos Method. The right to sell is similar to a license of intellectual property because without it the VIP cannot purchase appliances from the Company.
Because the right to sell is never sold outside of VIP contracts, and VIP contracts are sold for varying prices, the Company believes that it is appropriate to estimate the standalone selling price of this performance obligation using the residual method. As such, the observable prices of other performance obligations will be deducted from the contract price, with the residual allocation to the right to sell performance obligation.
The Company uses significant judgements in revenue recognition including an estimation of customer life over which it recognizes the right to sell. The Company has determined that VIPs who do not complete sessions 1 and 2 of training rarely complete training at all and fail to participate in the program long term . Since the beginning of the VIP program, just under one-third of new VIP members fall into this category, and the revenue allocated to the right to sell for those VIPs is recognized over 3 months. Those VIPs that do complete training typically remain active for a much longer period, and revenue from the right to sell for those VIPs is recognized over the estimated period of which those members will remain active. Because of various factors occurring year to year, the Company has estimated customer life for each year a contract is initiated and is assessed on a contract by contract basis. The estimated customer lives are calculated separately for each year and are estimated at 15 months for 2020, 14 months for 2021 and 18 months for 2022. The right to sell is recognized on a sum of the years’ digits method over the estimated contract life for each year as this approximates the rate of decline in VIPs purchasing behaviors we have observed.
Other Service Revenue
In addition to VIP enrollment service revenue, in 2020 the Company launched BIS, an additional service on a monthly subscription basis, which includes the Company’s AireO2 medical billing and practice management software. Revenue for these services is recognized monthly during the month the services are rendered.
Also, the Company offers its VIPs the ability to provide MyoCorrect to the VIP’s patients as part of treatment with The Vivos Method. Revenue for MyoCorrect services is recognized at the time training is booked and payment is collected.
Allocation of Revenue to Performance Obligations
The Company identifies all goods and services that are delivered separately under a sales arrangement and allocates revenue to each performance obligation based on relative fair values. Fair values approximates the prices for relevant training that would be charged if those services were sold separately, and are recognized over the relevant service period. In general, revenues are separated between durable medical equipment (product revenue) and education and training services (service revenue). The allocated revenue for each deliverable is then recognized ratably based on relative fair values of the components of the sale. Revenue from training is recognized over the relevant service period (i.e., as the Company satisfies its performance obligations and creates value for the VIP dentist). The Company also evaluates the impact of undelivered items on the functionality of delivered items for each sales transaction and, where appropriate, defers revenue on delivered items when that functionality has been affected. Functionality is determined to be met if the delivered products or services represent a separate earnings process.
| 9 |
Treatment of Discounts and Promotions
From time to time, the Company offers various discounts to its customers. These include the following:
| 1) | Discount for cash paid in full | |
| 2) | Conference or trade show incentives, such as subscription enrollment into the SleepImage home sleep test program, or free trial period for the SleepImage lease program | |
| 3) | Negotiated concessions on annual enrollment fee | |
| 4) | Credits/rebates to be used towards future product orders such as lab rebates |
The amount of the discount is determined up front prior to the sale. Accordingly, measurement is determined before the sale occurs and revenue is recognized based on the terms agreed upon between the Company and the customer over the performance period. In rare circumstances, a discount has been given after the sale during a conference which is offering a discount to full price. In this situation revenue is measured and the change in transaction price is allocated over the remaining performance obligation.
The amount of consideration can vary by customer due to promotions and discounts authorized to incentivize a sale. Prior to the sale, the customer and the Company agree upon the amount of consideration that the customer will pay in exchange for the services the Company provides. The net consideration that the customer has agreed to pay is the expected value that is recognized as revenue over the service period. At the end of each reporting period, the Company updates the transaction price to represent the circumstances present at the end of the reporting period and any changes in circumstances during the reporting period.
Product Revenue
In addition to revenue from services, the Company also generates revenue from the sale of its patented oral devices and preformed guides (known as appliances or systems) to its customers, the VIP dentists. Revenue from the appliance sale is recognized when control of product is transferred to the VIP in an amount that reflects the consideration it expects to be entitled to in exchange for those products. The VIP in turn charges the VIP’s patient and or patient’s insurance a fee for the appliance and for his or her professional services in measuring, fitting, installing the appliance and educating the patient as to its use. The Company is contracted with VIPs for the sale of the appliance and is not involved in the sale of the products and services from the VIP to the VIP’s patient.
The appliance is similar to a retainer that is worn after braces are removed. Each appliance is unique and is fitted to the patient. The Company utilizes its network of certified VIPs throughout the United States and in some non-U.S. jurisdictions to sell the appliances to their customers as well as in two centers that the Company operates. The Company utilizes third party contract manufacturers or labs to produce its unique, patented appliances and preformed guides. The manufacturer designated by the Company produces the appliance in strict adherence to the Company’s patents, design files, protocols, processes and procedures and under the direction and specific instruction of the Company, ships the appliance to the VIP who ordered the appliance from the Company. All of the Company’s contract manufacturers are required to follow the Company’s master design files in production of appliances or the lab will be in violation of the FDA’s rules and regulations. The Company performed an analysis under ASC 606-10-55-36 through 55-40 and concluded it is the principal in the transaction and is reporting revenue gross. The Company bills the VIP the contracted price for the appliance which is recorded as product revenue. Product revenue is recognized once the appliance ships to the VIP under the direction of the Company.
| 10 |
Within each center, the Company utilizes a team of medical professionals to measure, order and fit each appliance. Upon scheduling the patient (which is the Company’s customer in this case), the center takes a deposit and reviews the patient’s insurance coverage. Revenue is recognized differently for Company owned centers than for revenue from VIPs. The Company recognizes revenue in the centers after the appliance is received from the manufacturer and once the appliance is fitted and provided to the patient.
The Company offers certain dentists (known as Clinical Advisors) discounts from standard VIP pricing. This is done to help encourage Clinical Advisors, who help the VIPs with technical aspects of the Company’s products, to purchase Company products for their own practices. In addition, from time to time, the Company offers credits to incentivize VIPs to adopt the Company’s products and increase case volume within their practices. These performance obligations are recorded as revenue in future periods over the life of the credit.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. The Company bases its estimates and assumptions on existing facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s significant accounting estimates include, but are not necessarily limited to, assessing collectability on accounts receivable, the determination of customer life and breakage related to recognizing revenue for VIP contracts, notes receivable, impairment of goodwill and long-lived assets; valuation assumptions for assets acquired in business combinations; valuation assumptions for stock options, warrants and equity instruments issued for goods or services; deferred income taxes and the related valuation allowances; and the evaluation and measurement of contingencies. Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operations will be affected.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of three months or less that are freely available for the Company’s immediate and general business use are classified as cash and cash equivalents.
Accounts Receivable, Net
The accounts receivable in the accompanying financial statements are stated at the amounts management expects to collect. The Company performs credit evaluations of its customers’ financial condition and may require a prepayment for a portion of the services to be performed. The Company reduces accounts receivable by estimating an allowance that may become uncollectible in the future. Management determines the estimated allowance for uncollectible amounts based on its judgements in evaluating the aging of the receivables and the financial condition of our clients.
Property and Equipment, Net
Property
and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which ranges from
Intangible Assets, Net
Intangible
assets consist of assets acquired from First Vivos and costs paid to (i) MyoCorrect, LLC (“MyoCorrect LLC”), from whom
the Company acquired certain assets related to its OMT service in March 2021 and (ii) Lyon Management and Consulting, LLC and its
affiliates (“Lyon Dental”), from whom the Company acquired certain medical billing and practice management software,
licenses and contracts in April 2021 (including the software underlying AireO2) for work related to the Company’s acquired
patents, intellectual property and customer contracts. The identifiable Intangible assets acquired from First Vivos and Lyon Dental
for customer contracts are amortized using the straight-line method over the estimated life of the assets, which approximates 5
years (See Note 6). The costs paid to MyoCorrect LLC and Lyon Dental for patents and intellectual property are amortized over the
life of the underlying patents, which approximates
| 11 |
Goodwill
Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. Goodwill is not amortized but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. We test for impairment annually after the close of the year. There was no impairment of goodwill recognized at December 31, 2021. There were no indicators of impairment that occurred for the three months ended March 31, 2022 and accordingly, no impairment was required.
Impairment of Long-lived Assets
We review and evaluate the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to, (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an adverse action or assessment by a regulator. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. Our evaluation of long-lived assets completed for the years ended December 31, 2021 resulted in no impairment loss. No triggering events indicating potential impairment were identified for the three months ended March 31, 2022.
Equity Offering Costs
Commissions, legal fees and other costs that are directly associated with equity offerings are capitalized as deferred offering costs, pending a determination of the success of the offering. Deferred offering costs related to successful offerings are charged to additional paid-in capital in the period it is determined that the offering was successful. Deferred offering costs related to unsuccessful equity offerings are recorded as expense in the period when it is determined that an offering is unsuccessful.
Accounting for Payroll Protection Program Loan
The
Company is accounting for its U.S. Small Business Administration’s (“SBA”) Payroll Protection Program (“PPP”)
loan as a debt instrument under ASC 470, Debt. The Company recognized the original principal balance as a financial liability
with interest accrued at the contractual rate over the term of the loan. On January 21, 2022 the PPP loan received by the Company on
May 8, 2020 was forgiven by the SBA in its entirety, which includes approximately $
| 12 |
Loss and Gain Contingencies
The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. An estimated loss contingency is accrued when it is probable that an asset has been impaired, or a liability has been incurred, and the amount of loss can be reasonably estimated. If some amount within a range of loss appears to be a better estimate than any other amount within the range, the Company accrues that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the Company accrues the lowest amount in the range. If the Company determines that a loss is reasonably possible and the range of the loss is estimable, then the Company discloses the range of the possible loss. If the Company cannot estimate the range of loss, it will disclose the reason why it cannot estimate the range of loss. The Company regularly evaluates current information available to it to determine whether an accrual is required, an accrual should be adjusted and if a range of possible loss should be disclosed. Legal fees related to contingencies are charged to general and administrative expense as incurred. Contingencies that may result in gains are not recognized until realization is assured, which typically requires collection in cash.
The Company measures the cost of employee and director services received in exchange for all equity awards granted, including stock options, based on the fair market value of the award as of the grant date. The Company computes the fair value of stock options using the Black-Scholes-Merton (“BSM”) option pricing model. The Company estimates the expected term using the simplified method which is the average of the vesting term and the contractual term of the respective options. The Company determines the expected price volatility based on the historical volatilities of shares of the Company’s peer group as the Company does not have a sufficient trading history for its Common Stock. Industry peers consist of several public companies in the bio-tech industry similar to the Company in size, stage of life cycle and financial leverage. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of the Company’s own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. The Company recognizes the cost of the equity awards over the period that services are provided to earn the award, usually the vesting period. For awards granted which contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award were, in substance, a single award. The Company recognizes the impact of forfeitures in the period that the forfeiture occurs, rather than estimating the number of awards that are not expected to vest in accounting for stock-based compensation. Prior to public trading of the Company’s shares which commenced in December 2020, the Company estimated fair value of its shares based on the most recent sales to third parties.
Research and Development
Costs
related to research and development are expensed as incurred and include costs associated with research and development of new products
and enhancements to existing products. Research and development costs incurred were approximately $
Leases
Operating leases are included in operating lease right-of-use (“ROU”) asset, accrued expenses, and operating lease liability – current and non-current portion in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of our incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our balance sheets.
| 13 |
Income Taxes
The
Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes, under which
deferred income taxes are recognized based on the estimated future tax effects of differences between the financial statement and tax
bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes
to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions
in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating
results, or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities
may be required. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. The
recorded valuation allowance is based on significant estimates and judgments and if the facts and circumstances change, the valuation
allowance could materially change. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit
of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an
audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than
Basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for each period presented. Diluted net loss per common share is computed by giving effect to all potential shares of Common Stock, including stock options, convertible debt, Preferred Stock, and warrants, to the extent dilutive.
Recent Accounting Pronouncements
Presented below is a discussion of new accounting standards including deadlines for adoption assuming that the Company retains its designation as an EGC.
Standards Required to be Adopted in Future Years. The following accounting standards are not yet effective as of March 31, 2022.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This guidance requires use of an impairment model (known as the “current expected credit losses”, or CECL model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. ASU 2016-13 is effective for the Company beginning in the first quarter of 2023. The Company is still evaluating the impact the adoption of ASU 2016-13 will have on its results of operations or financial position.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not currently expected to have a material impact on the Company’s financial statements upon adoption.
Recently Adopted Standards. The following recently issued accounting standards were adopted by the Company during the period ended March 31, 2022:
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842). This ASU requires the Company to recognize lease assets and lease liabilities on the balance sheet and also
disclose key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11 Targeted Improvements, which
provides lessees the option to adopt either (i) retrospectively to each prior reporting period presented upon initial adoption, or (ii)
apply the new leasing standard to all open leases as of the adoption date by recognizing a cumulative-effect adjustment to accumulated
deficit in the period of adoption without restating prior periods. The Company adopted the new accounting standard on January 1, 2022,
this adoption required the company to recognize a current and long-term lease liability of approximately of $
| 14 |
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for the Company beginning in the first quarter of 2022. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
NOTE 2 – RESTATEMENT OF INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On November 18, 2022, management and the Audit Committee of the Board of Directors of the Company concluded (a) the Company would restate its financial statements for the three months ended March 31, 2022 (the “Restated Period”), and (b) the Company’s previously issued unaudited interim consolidated financial statements for the Restated Period included in its Quarterly Report on Form 10-Q, as originally filed with the Securities and Exchange Commission on May 16, 2022, should no longer be relied upon.
In connection with the Company’s review of its revenue recognition policies in accordance with ASC 606 and 842, management performed a review of the policies and presentation of revenue generated through its provider enrollments. After a detailed review, the Company updated its ASC 606 and 842 revenue recognition policy. Previously the Company recognized 50% of enrollment revenue in the month following the enrollment and the other 50% over the following 11 months. This has been the practice since the VIP program started in 2018 as the Company estimated that this adequately approximated the rate at which value was transferred to the VIP. Effective January 1, 2019, we adopted ASC 606 and continued to use the same revenue recognition method for VIP contracts, as we believed the method at the time was still appropriate under ASC 606.
In August 2022, the Company determined that its existing revenue recognition method was not consistent with the guidance provided in ASC 606. After analyzing its contracts in detail, the Company determined it needed to recognize certain revenue streams over the customer life as opposed to a one-year period as was previously done, and to reclassify certain aspects of revenue between product and service revenue. .
The corrections have a cumulative net effect through March 31, 2022 of:
| 1. | Increasing
total revenue and decreasing net loss on the consolidated statements of operations and related
footnotes by approximately $ | |
| 2. | Decreasing
contract liability and accumulated deficit by approximately $ |
Management evaluated and determined the impact to the audited financial statements for the fiscal years ended December 31, 2019, December 31, 2020, and December 31, 2021 was immaterial. These corrections do not relate to or have any impact on the Company’s cash flows, and the liquidity of the Company remains unchanged.
The following table summarizes the impact of the restatements on select unaudited consolidated statements of operations line items:
| Three Months Ended March 31, 2022 | ||||||||||||
| Reported | Adjustment | Restated | ||||||||||
| Revenue | ||||||||||||
| Product revenue: | ||||||||||||
| Appliance sales to VIPs* | $ | $ | $ | |||||||||
| Center revenue | ||||||||||||
| Total product revenue | ||||||||||||
| Service revenue | ||||||||||||
| VIP | ( | |||||||||||
| Billing intelligence services | ||||||||||||
| Management service revenue (MID related) | ||||||||||||
| Sponsorship/seminar/other | ||||||||||||
| Total service revenue | ( | ) | ||||||||||
| Total revenue | $ | $ | $ | |||||||||
| Net Loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Net loss per share (basic and diluted) | $ | ( | ) | $ | $ | ( | ) | |||||
| (*) |
The adjustments in the table above also affect the tables and disclosures within Note 1 – Organization, Description and Significant Accounting Policies of these financial statements.
NOTE 3 – LIQUIDITY AND ABILITY TO CONTINUE AS A GOING CONCERN
The financial statements have been
prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.
The Company has incurred losses since inception, including $
As
of March 31, 2022, the Company had an accumulated deficit of approximately $
As
of March 31, 2022, the Company has cash and cash equivalents of approximately $
The Company will be required to obtain additional financing and expects to satisfy its cash needs primarily from the issuance of equity securities or indebtedness in order to sustain operations until it can achieve profitability and positive cash flows, if ever. There can be no assurances, however, that adequate additional funding will be available on favorable terms, or at all. If such funds are not available in the future, the Company may be required to delay, significantly modify or terminate its operations, all of which could have a material adverse effect on the Company.
The Company does not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
| 15 |
NOTE 4 – REVENUE, CONTRACT ASSETS AND CONTRACT LIABILITIES
Net Revenue
For the three months ended March 31, 2022 and 2021, the components of revenue from contracts with customers and the related timing of revenue recognition is set forth in the table below (in thousands):
| Three Months Ended March 31, | ||||||||
2022 (Restated) | 2021 | |||||||
| Product revenue: | ||||||||
| Appliance sales to VIPs | $ | (1) | $ | (1) | ||||
| Center revenue | ||||||||
| Total product revenue | ||||||||
| Service revenue | ||||||||
| VIP | (3) | |||||||
| Billing intelligence services | (2) | (2) | ||||||
| Management service revenue (includes MID) | ||||||||
| Sponsorship/seminar/other | ||||||||
| Total service revenue | ||||||||
| Total revenue | $ | $ | ||||||
| (1) | ||
| (2) | ||
| (3) |
Changes in Contract Liabilities
The key components of changes in contract liabilities for the three months ended March 31, 2022 and 2021 are as follows (in thousands):
| March 31, | ||||||||
2022 (Restated) | 2021 | |||||||
| Balance at beginning of year | $ | $ | ||||||
| New contracts, net of cancellations | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Balance at end of period | $ | $ | ||||||
Current
portion of deferred revenue is approximately $
| 16 |
Shipping Costs
Shipping
costs for product deliveries to customers are expensed as incurred and totaled approximately $
NOTE 5 - PROPERTY AND EQUIPMENT, NET
As of March 31, 2022 and December 31, 2021, property and equipment consist of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Furniture and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Molds | ||||||||
| Gross property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net Property and equipment | $ | $ | ||||||
Leasehold
improvements relate to the Vivos Institute (the Company’s
| 17 |
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill by reporting unit consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
| March 31, | December 31, | |||||||
| Reporting Unit | 2022 | 2021 | ||||||
| BioModeling | $ | $ | ||||||
| Empowered Dental | ||||||||
| Lyon Dental | ||||||||
| Total goodwill | $ | $ | ||||||
As described in
Note 1 above, in August 16, 2016, BioModeling entered into the SEA) with First Vivos and Vivos. The transaction was accounted for as a reverse acquisition and recapitalization, with BioModeling as the
acquirer for financial reporting and accounting purposes. As a result of the transaction, we identified intangible assets of $
In November 2018,
the Company entered into an asset purchase agreement with Empowered Dental Lab, LLC, a Utah limited liability company (“Empowered
Dental”), under which the Company agreed to purchase certain inventory and assets from Empowered Dental in exchange for total consideration
of $
On
April 14, 2021, the Company acquired certain assets of Lyon Dental. The business acquisition allowed the Company to expand and
enhance its current medical billing practice services under the name AireO2, which services are provided through the Company’s
BIS offering. The consideration transferred includes $
Intangible Assets
As of March 31, 2022 and December 31, 2021, identifiable intangible assets were as follows (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Patents and developed technology | $ | $ | ||||||
| Trade name | ||||||||
| Other | ||||||||
| Total intangible assets | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net intangible assets | $ | $ | ||||||
| 18 |
Amortization
expense of identifiable intangible assets was less than $
| Three Months Ending March 31, | ||||
| 2022 (remaining nine months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 7 – OTHER FINANCIAL INFORMATION
Accrued Expenses
Accrued expenses consist of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued legal and other | ||||||||
| Lab rebate liabilities | ||||||||
| Total accrued liabilities | $ | $ | ||||||
NOTE 8 - DEBT
PPP Loan
On
May 8, 2020, the Company received approximately $
NOTE 9 – PREFERRED STOCK
The Company’s Board of Directors has authority to issue up to shares of Preferred Stock. At December 31, 2020, all previously issued shares of Preferred Stock had been redeemed or converted to shares of Common Stock. As of March 31, 2022, the Company’s Board of Directors has authority to designate up to an additional million shares of Preferred Stock in various series that provide for liquidation preferences, and voting, dividend, conversion, and redemption rights as determined at the discretion of the Board of Directors.
NOTE 10 – COMMON STOCK
The Company is authorized to issue shares of Common Stock. Holders of Common Stock are entitled to one vote for each share held. The Company’s Board of Directors may declare dividends payable to the holders of Common Stock.
| 19 |
NOTE 11 – STOCK OPTIONS AND WARRANTS
Stock Options
In 2017, the Company’s shareholders approved the adoption of a stock and option award plan (the “2017 Plan”), under which shares were reserved for future issuance for Common Stock options, restricted stock awards and other equity awards. The 2017 Plan permits grants of equity awards to employees, directors, consultants and other independent contractors. The Company’s shareholders have approved a total reserve of million shares of Common Stock for issuance under the 2017 Plan.
In April 2019, the Company’s shareholders approved the adoption of a stock and option award plan (the “2019 Plan”), under which shares were reserved for future issuance for Common Stock options, restricted stock awards and other equity awards. The 2019 Plan permits grants of equity awards to employees, directors, consultants and other independent contractors. The Company’s shareholders originally approved a total reserve of shares of Common Stock for issuance under the 2019 Plan. At each of the Company’s annual meeting of stockholders held in 2020 and 2021, the Company’s stockholders approved amendments to the 2019 Plan to increase the number of shares of Common Stock available for issuance thereunder by an aggregate of shares of Common Stock such that, after such amendments, and prior to any grants, shares of Common Stock were available for issuance.
During the three months ended March 31, 2022 and 2021, the Company issued stock options to purchase and shares of Common Stock at a weighted average exercise price of $and $per share, respectively, to certain members of the Board of Directors, employees and consultants. The stock options allow the holders to purchase shares of Common Stock at prices between $ and $per share. Options for the purchase of shares of Common Stock expired as of March 31, 2022. The following table summarizes all stock options as of March 31, 2022 and 2021 (shares in thousands):
| 2022 | ||||||||||||
| Shares | Price (1) | Term (2) | ||||||||||
| Outstanding, beginning of year | $ | |||||||||||
| Grants | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding, at March 31 | (3) | |||||||||||
| Exercisable, at March 31 | (4) | |||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
For the three months ended March 31, 2022 and 2021, the valuation assumptions for stock options granted under the 2017 Plan and the 2019 Plan were estimated on the date of grant using the BSM option-pricing model with the following weighted-average assumptions:
| 2022 | ||||
| Grant date closing price of Common Stock | $ | |||
| Expected term (years) | ||||
| Risk-free interest rate | % | |||
| Volatility | % | |||
| Dividend yield | % | |||
| 20 |
Based on the assumptions set forth above, the weighted-average grant date fair value per share for stock options granted for the three months ended March 31, 2022 and 2021 was $and $, respectively.
For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ million and $ million, respectively, of share-based compensation expense relating to the vesting of stock options. Unrecognized expense relating to these awards as of March 31, 2022 was approximately $ million, which will be recognized over the weighted average remaining term of years as of March 31, 2022.
Warrants
The following table sets forth activity with respect to the Company’s warrants to purchase Common Stock for the three months ended March 31, 2022 and 2021 (shares in thousands):
| 2022 | ||||||||||||
| Shares | Price (1) | Term (2) | ||||||||||
| Outstanding, beginning of year | $ | |||||||||||
| Grants of warrants: | ||||||||||||
| Consultants for services | (3) | |||||||||||
| Acquisition of assets | ||||||||||||
| Outstanding, March 31 | (4) | |||||||||||
| Exercisable, March 31 | (5) | |||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
For the three months ended March 31, 2022 and 2021, the valuation assumptions for warrants issued were estimated on the measurement date using the BSM option-pricing model with the following weighted-average assumptions:
| 2022 | ||||
| Measurement date closing price of Common Stock (1) | $ | |||
| Contractual term (years) (2) | ||||
| Risk-free interest rate | % | |||
| Volatility | % | |||
| Dividend yield | % | |||
| (1) | ||
| (2) |
| 21 |
NOTE 12 - RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2022 and 2021, options for the purchase of and , respectively, of common stock were granted to the Company’s directors, officers, employees and consultants.
NOTE 13 - INCOME TAXES
Income
tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any
significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the
three months ended March 31, 2022 and 2021 differs from the amount that would be provided by applying the statutory U.S. federal income
tax rate of
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred since inception. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded at March 31, 2022 and December 31, 2021 to record the deferred tax asset that is not likely to be realized.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgement including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus resulted in a world-wide pandemic. By March 2020, the U.S. economy had been largely shut down by mass quarantines and government mandated stay-in-place orders (the “Orders”) to halt the spread of the virus. Many of these Orders have been relaxed or lifted in jurisdictions where large portions of the population have been vaccinated, but there is considerable uncertainty about whether the Orders will need to be reinstated due to the ongoing spread of new variants of COVID-19. A significant portion of the worldwide population remains unvaccinated, and uncertainty also exists about whether existing vaccines will be effective as new variants of COVID-19 emerge. Accordingly, the overall impact of COVID-19 continues to have an adverse impact on global business activities.
Many of our VIPs and potential VIPs closed their offices during 2020 as a result of COVID-19, although some remained open to specifically provide patients our products as our appliances and VIPs were deemed an essential business for health considerations in many jurisdictions. In the face of the pandemic and the results potential for revenue reduction, we worked diligently to reduce expenses and maintain revenues during 2020. While revenue growth flattened in March and April 2020, expenses were reduced and we aggressively expanded our network of healthcare providers familiar with our products by offering online continuing education courses which introduced many in the medical and dental communities to our product line. As businesses continued to reopen through 2021, the impact of COVID-19 on our company began to diminish, although we continue to closely monitor the potential impact of COVID-19 variants on our business. Of note, during the second half of 2021, many of our Canadian VIPs have not traveled to the U.S. for training in light of travel restrictions. As of August 9, 2021, the Government of Canada imposed further restrictions on unvaccinated travelers, which has caused delays with some of our Canadian VIPs receiving required training and commencing Vivos Method cases.
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In addition, our fourth quarter 2021 revenue growth was impacted by lower VIP enrollments due largely to the COVID-19 Omicron variant resurgence. We achieved sales growth despite seeing significant headwinds throughout our core customer base, mostly driven by COVID-19 Delta and Omicron variant resurgences in the middle and latter part of the year. In December 2021, the American Dental Association reported that just 60% of dental practices were open and operating with business as usual. Another industry source reported 92% of dental practices were struggling to hire or replace hygienists, and 77% reported difficulty hiring front desk positions. These challenges across the dental community have impacted both VIP enrollments and patient case starts, as replacement dental personnel must be trained in the proper use of The Vivos Method. The world-wide response to the pandemic resulted in a significant downturn in economic activity, which continued into 2022 as a new variant (called B.A.2) has emerged and there remains is a risk that new variant outbreaks will cause additional disruptions and slowdowns in the economy.
As such, the long-term financial impact on our business of COVID-19 as well as these other matters cannot reasonably be fully estimated at this time.
Inflation and War in Ukraine
The Company believes the U.S. has entered a period of inflation which has increased (and may continue to increase) the Company and its suppliers’ costs as well as the end cost of the Company’s products to consumers. To date, the Company been able to manage inflation risk without a material adverse impact on its business or results of operations. However, inflationary pressures (including increases in the price of raw material components of the Company’s appliances) made it necessary for the Company to adjust its standard pricing for its appliance products effective May 1, 2022. The full impact of such price adjustments on sales or demand for the Company’s products is not fully known at this time and may require the Company to adjust other aspects of its business as it seek to grow revenue and, ultimately, achieve profitability and positive cash flow from operations.
In addition, worldwide supply chain constraints due in part to Russia’s invasion of Ukraine in February 2022, have emerged as new barriers to long-term economic recovery.
These conditions could cause an economic recession or depression to commence, and if such recession or depression is sustained, it could have a material adverse effect on the Company business as demand for its products could decrease. Such conditions have also had, and may continue to have, an adverse effect on the capital markets, with public stock price decreases and volatility, which could make it more difficult for the Company to raise needed capital at the appropriate time.
Operating Leases
The Company has entered into various operating lease agreements for certain offices, medical facilities and training facilities. These leases have original lease periods expiring between 2022 and 2029. Most leases include an option to renew and the exercise of a lease renewal option typically occurs at the discretion of both parties. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease until it is reasonably certain that the Company will exercise that option.
In
January 2017, the Company entered into a commercial lease agreement for
In
May 2018, the Company entered into a commercial lease agreement for
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In
October 2020, the Company entered into a commercial lease agreement for
In
April 2019, the Company entered into a commercial lease agreement for
In
April 2019, the Company entered into a commercial lease agreement for
For the three months ended March 31, 2022 and 2021. the components of lease expense are as follows:
| Lease cost: | 2022 | |||
| Operating lease cost | $ | |||
| Total net lease cost | $ | |||
Rent
expense, including real estate taxes and related costs, for the three months ended March 31, 2022 and 2021 aggregated approximately $
For the three months ended March 31, 2022 and 2021, the remaining lease terms and discount rate used are as follows:
| 2022 | ||||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
As of March 31, 2022, the maturities of the Company’s future minimum lease payments were as follows:
| Twelve Months Ending March 31, | ||||
| 2022 (remaining nine months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
401(k) Plan
The
Company has a defined contribution employee benefit plan under section 401(k) of the Code (the “401(k) Plan”). The 401(k)
Plan covers all eligible U.S. employees that are entitled to participate at the beginning of the first full quarter following commencement
of employment.
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Basic and diluted net loss per share of Common Stock (“EPS”) is computed by dividing (i) net loss (the “Numerator”), by (ii) the weighted average number of shares of Common Stock outstanding during the period (the “Denominator”).
The calculation of diluted EPS is also required to include the dilutive effect, if any, of stock options, unvested restricted stock awards, convertible debt and Preferred Stock, and other Common Stock equivalents computed using the treasury stock method, in order to compute the weighted average number of shares outstanding. For the three months ended March 31, 2022 and 2021, all Common Stock equivalents were antidilutive.
2022 (Restated) | 2021 | |||||||
| Calculation of Numerator: | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Loss applicable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Calculation of Denominator: | ||||||||
| Weighted average number of shares of Common Stock outstanding | ||||||||
| Net loss per share of Common Stock (basic and diluted) | $ | ( | ) | $ | ( | ) | ||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Common stock warrants | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
NOTE 16 - FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
Fair Value Measurements
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the measurement of fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date
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Level 2—Other than quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly through market collaboration, for substantially the full term of the asset or liability
Level 3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any market activity for the asset or liability at measurement date
As of March 31, 2022 and December, 31 2021, the fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximated their carrying values due to the short-term nature of these instruments.
Recurring Fair Value Measurements
For the three months ended March 31, 2022 and 2021, the Company did not have any recurring measurements for the fair value of assets and liabilities.
The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the three months ended March 31, 2022 and 2021, the Company had no transfers of its assets or liabilities between levels of the fair value hierarchy.
Significant Concentrations
Financial
instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, and
accounts receivable. The Company maintains its cash, cash equivalents and restricted cash at high-quality financial institutions. Cash
deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. As
of March 31, 2022, the Company had cash and cash equivalents with two financial institutions in the United States with an aggregate balance
of $
Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer base and their dispersion across different geographies and industries. The Company performs ongoing credit evaluations on certain customers and generally does not require collateral on accounts receivable. The Company maintains reserves for potential bad debts.
NOTE 17 – SUBSEQUENT EVENTS
On May 9, 2022, the Company collected a tenant
improvement allowance receivable shown on the accompanying balance sheet in full for $
On November 3, 2022, the Company initiated arbitration with the American Arbitration Association against Dr. Gurdev Dave Singh (“Dr. Singh”). The Company’s Demand for Arbitration (“Arbitration Demand”) alleged that Dr. Singh’s behaviors and actions constituted a breach of his employment agreement as well as a breach of a fiduciary duty to which he owed the Company. Additionally, the Arbitration Demand requests that the arbiter declare that Dr. Singh’s sole remedy or relief against the Company is what was agreed upon in his employment agreement. Prior to filing the Arbitration Demand, the Company engaged in voluntary mediation, but the parties were unable to reach a resolution. It is expected that an arbiter will soon be selected after which time the parties will confer on discovery parameters as well as setting an arbitration date.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a revenue stage medical technology company focused on the development and commercialization of innovative treatment alternatives for patients with dentofacial abnormalities and/or patients diagnosed with mild to moderate obstructive sleep apnea (OSA) and snoring in adults. We believe our technologies and conventions represent a significant improvement in the treatment of mild to moderate OSA versus other treatments such as continuous positive airway pressure (or CPAP) or palliative oral appliance therapies. Our alternative treatments are part of The Vivos Method.
The Vivos Method is an advanced therapeutic protocol, which often combines the use of customized oral appliance specifications and proprietary clinical treatments developed by our company and prescribed by specially trained dentists in cooperation with their medical colleagues. Published studies have shown that using our customized appliances and clinical protocols led to significantly lower Apnea Hypopnea Index scores and improve other conditions associated with OSA. Our patented oral appliances have proven effective (within the scope of the U.S. Food and Drug Administration (or FDA) cleared uses) in approximately 28,000 patients treated worldwide by more than 1,600 trained dentists.
Our business model is focused around dentists, and our program to train independent dentists and offer them other value-added services in connection with their ordering and use of The Vivos Method for patients is called the Vivos Integrated Practice (“VIP”) program.
Impact of COVID-19
In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus resulted in a world-wide pandemic. By March 2020, the U.S. economy had been largely shut down by mass quarantines and government mandated stay-in-place orders (the “Orders”) to halt the spread of the virus. Many of these Orders have been relaxed or lifted in jurisdictions where large portions of the population have been vaccinated, but there is considerable uncertainty about whether the Orders will need to be reinstated due to the ongoing spread of new variants of COVID-19. A significant portion of the worldwide population remains unvaccinated, and uncertainty also exists about whether existing vaccines will be effective as new variants of COVID-19 emerge. Accordingly, the overall impact of COVID-19 continues to have an adverse impact on global business activities.
Many of our VIPs and potential VIPs closed their offices during 2020 as a result of COVID-19, although some remained open to specifically provide patients our products as our appliances and VIPs were deemed an essential business for health considerations in many jurisdictions. In the face of the pandemic and the results potential for revenue reduction, we worked diligently to reduce expenses and maintain revenues during 2020. While revenue growth flattened in March and April 2020, expenses were reduced and we aggressively expanded our network of healthcare providers familiar with our products by offering online continuing education courses which introduced many in the medical and dental communities to our product line. As businesses continued to reopen through 2021, the impact of COVID-19 on our company began to diminish, although we continue to closely monitor the potential impact of COVID-19 variants on our business. Of note, during the second half of 2021, many of our Canadian VIPs have not traveled to the U.S. for training in light of travel restrictions. As of August 9, 2021, the Government of Canada imposed further restrictions on unvaccinated travelers, which has caused delays with some of our Canadian VIPs receiving required training and commencing Vivos Method cases.
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In addition, our fourth quarter 2021 revenue growth was impacted by lower VIP enrollments due largely to the COVID-19 Omicron variant resurgence. We achieved sales growth despite seeing significant headwinds throughout our core customer base, mostly driven by COVID-19 Delta and Omicron variant resurgences in the middle and latter part of the year. In December 2021, the American Dental Association reported that just 60% of dental practices were open and operating with business as usual. Another industry source reported 92% of dental practices were struggling to hire or replace hygienists, and 77% reported difficulty hiring front desk positions. These challenges across the dental community have impacted both VIP enrollments and patient case starts, as replacement dental personnel must be trained in the proper use of The Vivos Method. The world-wide response to the pandemic resulted in a significant downturn in economic activity, which continued into 2022 as new variants of COVID-19 have emerged, and there remains a risk that new variant outbreaks will cause additional disruptions and slowdowns in the economy.
As such, the long-term financial impact on our business of COVID-19 as well as these other matters cannot reasonably be fully estimated at this time.
Material Items, Trends and Risks Impacting Our Business
We believe that the following items and trends may be useful in better understanding our results of operations.
New VIP Enrollments (Service Revenue). Enrolling denta1 practices as VIPs is the first step in our ability to generate new revenue. As part of the VIP enrollment fee, we enter into a service contract with VIPs under which they receive training on the use of the Vivos treatment protocol. VIPs have the ability to start generating revenue for us and themselves after this training. To entice dentists to enroll as VIPs, we have worked with different marketing programs (which we generally call a “discovery track”) with respect to the payment of VIPs enrollment fee, including discounts and payment plans. Once VIPs execute their VIP enrollment agreement, the discovery track allows the VIP 45 to 60 days to obtain financing and pay the enrollment fee. Ongoing support and additional training is provided throughout the year under the services contract, which includes access to our proprietary Airway Intelligence Services, which provides the VIP with resources to help simplify the sleep apnea diagnostic and Vivos treatment planning process.
In addition to enrollment service revenue, we offer additional services, such as our Billing Intelligence Services offering, and MyoCorrect orofacial myofunctional therapy services, which was introduced in April 2021. Revenue for these services is recognized monthly during the month the services are rendered.
We are also engaging in strategic collaborations to market the benefits of the Vivos treatment protocol and VIP enrollment to dentists, including our cooperative relationships with various medical providers to deliver diagnostic and medical consultation services to people across North America who suffer from OSA and our October 2021 cross marketing collaboration with Candid Care, the maker of the CandidPro clear aligner for straightening teeth.
Historically, we commenced the recognition of VIP enrollment revenue once the contract was signed. Due to some dentists not fulfilling their obligation, we are now recognizing revenue on VIP enrollments once the contract is executed and payment is received in full.
New VIP Case Starts (Product Revenue). Enrolling new VIPs is key to our ability to generate revenue, but equally as important is the number of Vivos treatment case starts that our VIPs commence, as these lead to appliance orders and related revenue. Once a VIP is fully trained, we encourage them to start cases. However, our experience has been that VIPs typically start slowly as they introduce The Vivos Method into their practices. While we work with VIPs to screen their patients for OSA with our SleepImage home sleep apnea ring test (which we expect will encourage Vivos Method case starts), not all VIPs incorporate our The Vivos Method into their practices at the same rate. We utilize Practice Advisors to help VIPs with onboarding and starting and increasing case starts over time. We believe VIPs can recoup their investment in VIP enrollment with approximately eight Vivos Method case starts, but as noted above, many VIPs start and also maintain their case starts at a significantly slower rate. We presently have a concentration of active VIPs who regularly start new Vivos Method treatment cases, with approximately thirty-six percent (36%) of VIPs accounting for all new case starts during the quarter ended March 31, 2022. We are working not only to increase the number of VIPs overall, but the number of active VIPs in terms of case starts. More active VIPs are also more likely to take advantage of our other service revenue generating offerings such as MyoCorrect orofacial myofunctional therapy and medical Billing Intelligence Services.
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Marketing to DSOs. During the second half of 2021, we increased our efforts to market The Vivos Method and related products and services to larger dental support organizations (“DSOs”). Marketing to DSOs creates an opportunity to enroll and onboard multiple dental practices as VIPs under one common ownership structure. This would allow us to leverage training and support across multiple VIP practices and gain economies of scale with the goal of faster growth, both in VIP enrollments and in Vivos case starts. Our other dentist enrollment program, which we refer to as the Airway Alliance Program (“AAP”), was also established in the fourth quarter of 2021 and launched in the first quarter of 2022. This program is designed to attract the vast majority of the estimated 200,000 U.S. and Canadian dentists who are being strongly encouraged by the American Dental Association to screen their patients for sleep apnea. The AAP gives these dentists the simple yet profitable way to screen their patients for mild to moderate OSA using the SleepImage home sleep test. Patients with mild to moderate OSA can be referred to a fully trained local VIP dentist for treatment.
Inflation. We believe the U.S. has entered a period of inflation which has increased (and may continue to increase) our and our suppliers’ costs as well as the end cost of our products to consumers. To date, we have been able to manage inflation risk without a material adverse impact on our business or results of operations. However, inflationary pressures (including increases in the price of raw material components of our appliances) made it necessary for us to adjust our standard pricing for our appliance products effective May 1, 2022. The full impact of such price adjustments on sales or demand for our products is not fully known at this time and may require us to adjust other aspects of our business as we seek to grow revenue and, ultimately, achieve profitability and positive cash flow from operations.
Supply Chain. From time to time, we may experience supply chain challenges due to forces beyond our control. For example, the Suez Canal blockage earlier in 2021 caused some delay in shipments of SleepImage rings from China. Overall, however, as our appliances are made in the U.S., we have not experienced significant supply chain issues as a result of COVID-19 or otherwise, although this may change in future periods.
Seasonality. We believe that the patient volumes of our VIPs will be sensitive to seasonal fluctuations in urgent care and primary care activity. Typically, winter months see a higher occurrence of influenza, bronchitis, pneumonia and similar illnesses; however, the timing and severity of these outbreaks vary dramatically. Additionally, as consumers shift toward high deductible insurance plans, they are responsible for a greater percentage of their bill, particularly in the early months of the year before other healthcare spending has occurred, which may lead to lower than expected patient volume or an increase in bad debt expense during that period. Our quarterly operating results may fluctuate significantly in the future depending on these and other factors.
Cybersecurity. We have established procedures to escalate enterprise level issues, including cybersecurity matters, to the appropriate management levels within our organization and our board of directors, or members or committees thereof, as appropriate. Under our framework, cybersecurity issues, including those involving vulnerabilities introduced by our use of third-party software, are analyzed by subject matter experts for potential financial, operational, and reputational risks, based on, among other factors, the nature of the matter and breadth of impact. Matters determined to present potential material impacts to our financial results, operations, and/or reputation are immediately reported by management to the board of directors, or individual members of committees thereof, as appropriate, in accordance with our escalation framework. In addition, we have established procedures to ensure that members of management responsible for overseeing the effectiveness of disclosure controls are informed in a timely manner of known cybersecurity risks and incidents that may materially impact our operations and that timely public disclosure is made, as appropriate.
War in Ukraine. In addition, worldwide supply chain constraints and economic and capital markets uncertainty arising out of Russia’s invasion of Ukraine in February 2022 have emerged as new barriers to long-term economic recovery. If an economic recession or depression commences and is sustained, it could have a material adverse effect on our business as demand for our products could decrease. Capital markets uncertainty, with public stock price decreases and volatility, could make it more difficult for us to raise needed capital at the appropriate time.
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Key Components of Consolidated Statements of Operations
Net revenue. We recognize revenue when we satisfy our performance obligations over time as our customer receive the benefit of training and/or we transfer control of the promised products to our customers, which generally occurs over a very short period of time. Performance obligations are typically satisfied by shipping or delivering products to customers, or customers receiving training, which is also the point when title transfers and/or training occurs. Revenue consists of the gross sales price, net of estimated allowances, discounts, and personal rebates that are accounted for as a reduction from the gross sale price.
Cost of sales. Cost of goods sold primarily consists of direct costs attributable to the purchase from third party suppliers and related products. It also includes freight costs, fulfillment, distribution, and warehousing costs related to products sold.
Sales and marketing. Sales and marketing costs primarily consist of personnel costs for employees engaged in sales and marketing activities, commissions, advertising and marketing costs, website enhancements, and conferences for our sales and marketing staff.
General and administrative expenses. General and administrative (“G&A”) expenses consist primarily of personnel costs for our administrative, human resources, finance and accounting employees, and executives. General and administrative expenses also include contract labor and consulting costs, travel-related expenses, legal, auditing and other professional fees, rent and facilities costs, repairs and maintenance, and general corporate expenses.
Depreciation and amortization expense. Depreciation and amortization expense is comprised of depreciation expense related to property and equipment, amortization expense related to leasehold improvements, and amortization expense related to identifiable intangible assets.
Other income. Other income relates to the PPP loan forgiven in January 2022 by the SBA.
Results of Operations
Comparison of the three months ended March 31, 2022 and 2021
Our restated unaudited consolidated statements of operations for the three months ended March 31, 2022 and 2021 are presented below (dollars in thousands):
| 2022 | 2021 | Change | ||||||||||
| Revenue | ||||||||||||
| Product revenue | $ | 2,049 | $ | 1,387 | $ | 662 | ||||||
| Service revenue | 1,595 | 2,061 | (466 | ) | ||||||||
| Total revenue | 3,644 | 3,448 | 196 | |||||||||
| Cost of sales (exclusive of depreciation and amortization shown | ||||||||||||
| separately below) | 1,093 | 758 | 335 | |||||||||
| Gross profit | 2,551 | 2,690 | (139 | ) | ||||||||
| Gross profit % | 70 | % | 78 | % | ||||||||
| Operating expenses | ||||||||||||
| General and administrative | 8,275 | 5,059 | 3,215 | |||||||||
| Sales and marketing | 753 | 860 | (107 | ) | ||||||||
| Depreciation and amortization | 162 | 177 | (15 | ) | ||||||||
| Operating loss | (6,639 | ) | (3,406 | ) | (3,233 | ) | ||||||
| Non-operating income (expense) | ||||||||||||
| Other expense | (38 | ) | (1 | ) | (37 | ) | ||||||
| PPP loan forgiveness | 1,287 | - | 1,287 | |||||||||
| Other income | 59 | 8 | 51 | |||||||||
| Net loss | $ | (5,331 | ) | $ | (3,399 | ) | $ | (1,932 | ) | |||
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Revenue
Revenue increased by $0.2 million, to $3.6 million for the three months ended March 31, 2022 compared to $3.4 million for the three months ended March 31, 2021. Revenue during the first quarter of the year was impacted by a cumulative adjustment from year ended 2019, 2020 and 2021 as disclosed in Note 2, “Restatement of Consolidated Financial Statements” to the accompanying financial statements, this includes a decrease of approximately $0.4 million to VIP revenue and an increase of approximately $0.1 million to BIS. Additionally, revenue was impacted due to an increase of approximately $0.6 million attributable to higher appliance sales to VIPs, (ii) an increase of approximately $0.1 million in revenue from our two company-owned dental centers, (iii) and an increase of approximately $0.3 million in BIS revenue and myofunctional therapy service revenue, offset by a decrease of approximately $.5 million in VIP enrollment revenue.
During the three months ended March 31, 2022, we enrolled 32 VIPs and recognized VIP revenue of approximately $1.3 million, a decrease of 29% compared to the three months ended March 31, 2021, when we enrolled 53 VIPs for a total of approximately $1.7 million. Revenue growth was impacted by the COVID-19 Delta and Omicron variant resurgences towards the end of 2021 and through the first quarter of 2022. In December 2021, the American Dental Association reported that just 60% of dental practices were open and operating with business as usual. Another industry source reported 92% of dental practices were struggling to hire or replace hygienists, and 77% reported difficulty hiring front desk positions. These challenges across the dental community have impacted both doctor enrollments and patient case starts, as replacement dental personnel must be trained in The Vivos Method.
For the three months ended March 31, 2022, we sold 2,965 oral appliance arches for a total of approximately $1.8 million, a 43% increase from the three months ended March 31, 2021 when we sold 2,570 total oral appliance arches for a total of approximately $1.3 million. Lastly, for the three months ended March 31, 2022 we had approximately $0.2 million in center revenue, compared to approximately $0.1 million for the three months ended March 31, 2021, and approximately $0.2 million in our orofacial myofunctional therapy revenue, compared to almost none for the three months ended March 31, 2021 due to the introduction of these services late in the first quarter of 2021.
Cost of Sales and Gross Profit
Cost of sales increased by approximately $0.3 million to approximately $1.1 million for the three months ended March 31, 2022 compared to approximately $0.8 million for the three months ended March 31, 2021. This increase was primarily due to product and services costs associated with higher sales volume of our appliances, additional costs associated with VIP enrollments, and billing and myofunctional therapy revenue. Cost of sales includes approximately $0.2 million related to costs associated with appliances and approximately $0.1 million increase related to our new program (started in 2022) related to the sale and leasing of SleepImage rings.
For the three months ended March 31, 2022, gross profit decreased by approximately $0.1 million to $2.6 million. This decrease was attributable to an increase in cost of sales of $0.3 million. Gross margin decreased to 70% for the three months ended March 31, 2022 compared to 78% for the three months ended March 31, 2021, primarily driven by a cumulative adjustment from year ended 2019, 2020 and 2021 as disclosed in Note 2, “Restatement of Consolidated Financial Statements” to the accompanying financial statements, coupled with the higher costs associated with appliances due to increase in cost of raw materials and VIP enrollments due to new incentives deployed to increase VIP enrollments.
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General and Administrative Expenses
General and administrative expenses increased approximately $3.2 million, or approximately 64%, to approximately $8.3 million for the three months ended March 31, 2022, as compared to $5.1 million for the three months ended March 31, 2021. The primary driver of this increase was an increase in personnel and related compensation of approximately $1.3 million, including salaries, bonuses, paid time off, stock-based compensation, and other employee-related expenses. The increase in payroll related costs were mainly a result of increased headcount (from 110 employees at March 31, 2021 to 165 employees at March 31, 2022). Other drivers of the increase in general and administrative expenses included an increase of approximately $0.8 million to general corporate costs such as director and officer insurance premiums and professional fees, an increase of approximately $0.5 million for information and technology supplies and equipment, as well as corporate expenses such as filing fees, subscriptions, and office expenses. These increases were due to the growth of the company combined with higher headcount and expenses associated with being a public company.
Sales and Marketing
Sales and marketing expense decreased by $0.1 million to $0.8 million for the three months ended March 31, 2022, compared to $0.9 million for the three months ended March 31, 2021. This decrease was primarily due to a decrease in sales commissions of approximately $0.3 million, offset by an increase of approximately $0.2 million in new marketing campaigns, updating marketing materials for investors and consumers, improving the Vivos website. The main driver to the decrease in commissions is due to the decrease in VIP enrollments.
Depreciation and Amortization
Depreciation and amortization expense was approximately $0.2 million for the three months ended March 31, 2022 and 2021. The insignificant change in depreciation expense is related to new assets placed into service which was offset by lower depreciation expense related to legacy assets that were retired during the year.
PPP Loan Forgiveness
PPP loan forgiveness is approximately $1.3 million for the three months ended March 31, 2022 when compared to none for the three months ended March 31, 2021. The increase is due to the PPP loan being forgiven by the SBA in its entirety.
Liquidity and Capital Resources
The financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has incurred losses since inception, including $20.3 million for the year ended December 31, 2021, resulting in an accumulated deficit of $55.6 million as of December 31, 2021. As of March 31, 2022, we had an accumulated deficit of approximately $61 million. We had approximately $17.8 million of cash and cash equivalents compared to cash and cash equivalents of $14.1 million as of March 31, 2021, which may not be sufficient to fund the operations and strategic objectives of the Company over the next twelve months from the date of issuance of these financial statements. Without additional financing, these factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
The Company will be required to obtain additional financing and expects to satisfy its cash needs primarily from the issuance of equity securities or indebtedness in order to sustain operations until it can achieve profitability and positive cash flows, if ever. There can be no assurances, however, that adequate additional funding will be available on favorable terms, or at all. If such funds are not available in the future, the Company may be required to delay, significantly modify or terminate its operations, all of which could have a material adverse effect on the Company.
We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
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Cash Flows
The following table presents a summary of our cash flow for the three months ended March 31, 2022 and 2021 (in thousands):
| 2022 | 2021 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (6,082 | ) | $ | (3,861 | ) | ||
| Investing activities | (120 | ) | (262 | ) | ||||
| Financing activities | - | (25 | ) | |||||
Net cash used in operating activities of approximately $6.1 million for the three months ended March 31, 2022 is an increase of more than $2.2 million compared to net cash used in operating activities of approximately $3.9 million for the three months ended March 31, 2021. This increase is due primarily to the increase in our net loss of approximately $2.0 million, offset by a decrease of approximately $1.4 million in accounts payable, an increase of approximately $0.4 million in accounts receivable related to a decrease in VIP enrollments, and a decrease of approximately $0.3 million in accrued expenses due to increase in consulting fees, legal fees, third party lab fees associated with the production of our appliances, an increase of approximately $0.1 million in prepaid expenses and current assets primarily driven by annual renewals of subscriptions and other paid services, and an increase of approximately $1.3 attributable to PPP loan forgiveness on January 21, 2022.
For the three months ended March 31, 2022, net cash used in investing activities consisted of capital expenditures for property and equipment of $0.1 million. Capital expenditures for property and equipment were primarily attributable to leasehold improvements for The Vivos Institute that opened in August 2021.
For the three months ended March 31, 2022, there was no cash used in financing activities.
Critical Accounting Policies Involving Management Estimates and Assumptions
Our critical accounting policies and estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We have reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the three months ended March 31, 2022.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed in Note 1 to the accompanying consolidated financial statements included in this Report, we believe that the impact of recently issued standards that are not yet effective could have a material impact on our financial position or results of operations upon adoption. For additional information on recently issued accounting standards and our plans for adoption of those standards, please refer to the section titled Recent Accounting Pronouncements under Note 1 to the accompanying consolidated financial statements included in this Report.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Trade Policy Risk. Certain of our products or components are manufactured outside the United States. Most products imported into the United States is subject to duty and restrictive quotas on the amount of products that can be imported from certain countries into the United States each year. Because of the duty rates and quotas, changes in U.S. trade policy as reflected in various legislation, trade preference programs and trade agreements have the potential to materially impact our sourcing strategy and the competitiveness of its contract manufacturers. We manage this risk by continually monitoring U.S. trade policy, analyzing the impact of changes in such policy and adjusting its manufacturing and sourcing strategy accordingly.
Foreign Currency Risk. We receive United States dollars for all of our product sales. Currently, all inventory purchases from our non-U.S. contract manufacturers are also denominated in United States dollars; however, should we make purchases in foreign currencies in the future, purchase prices for our products may be impacted by fluctuations in the exchange rate between the United States dollar, which may have the effect of increasing our cost of goods in the future.
Commodity Price Risk. We are subject to commodity price risk arising from price fluctuations in the market prices of sourced titanium and steel products or the various raw materials components of its manufactured products. We are subject to commodity price risk to the extent that any fluctuations in the market prices of its purchased titanium and steel products and raw materials are not reflected by adjustments in selling prices of its products or if such adjustments significantly trail changes in these costs. We neither enter into significant long-term sales contracts nor enter into significant long-term purchase contracts. We do not engage in hedging activities with respect to such risk.
Credit Risk. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. Certain financial instruments potentially subject our company to a concentration of credit risk. These financial instruments consist primarily of cash and cash equivalents and accounts and vendor receivables. We place our cash and cash equivalents with high-credit, quality financial institutions. The balances in these accounts exceed the amounts insured by the Federal Deposit Insurance Corporation.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. As of the end of the period covered by this quarterly report, we, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective because of (i)our previously reported material weakness in our internal control over financial reporting, which we describe in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) and (ii) the additional weakness related to revenue recognition described below.
As described in the Explanatory Note of this Amendment and Note 2, “Restatement of Consolidated Financial Statement,” in Item 1 of Part 1 of this Amendment, the Company determined it was necessary to restate its financial statements for the three months ended March 31, 2022. The restatement of the previously filed financial statements was due to the Company’s management (with the concurrent of the Audit Committee of the Company’s Board of Directors) determining that its existing revenue recognition policy was not consistent with the guidance in ASC 606. After analyzing its contracts using the five-step process in ASC 606, we have determined that for VIP enrollment contracts, it is necessary for us to separately identify the performance obligations and recognize the revenue as the performance obligations are satisfied or over the customer life as applicable. We identified a material weakness related to the operating effectiveness of our review controls in that we did not put the appropriate resources in place to be able to identify technical accounting issues and perform review functions appropriately for the revenue recognition issue described above and for those items which we had previously identified in Part II, Item 9A of our 2021 Form 10-K. We have developed a remediation plan for these material weaknesses as described below.
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Remediation of Material Weakness
We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that significant deficiencies contributing to the material weakness are remediated as soon as possible. We believe we have made progress towards remediation and continue to implement our remediation plan for the previously reported material weakness in internal control over financial reporting, described in Part II, Item 9A of our 2021 Form 10-K, and for the material weakness described above related to the restatement as described in the Explanatory Note of this Amendment and Note 2, “Restatement of Consolidated Financial Statement,” in Item 1 of Part 1 of this Amendment. These steps include the involvement of two third-party consulting firms as part of the review of the policies and presentation of revenue generated through its provider enrollments. Additionally, we plan to increase dedicated personnel, improve reporting processes, design and implement new controls, and enhance related supporting technology. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.
Changes in Internal Control over Financial Reporting
As outlined above, due to the identification of certain material weaknesses, we continue to work on strengthening our internal control structure by involving third-party consulting firms to assist in the review and presentation of revenue, adding accounting personnel, adjusting segregation of duties, adding additional levels of review, and adding technical support. We made no other changes in internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of our legal proceedings, see the information in Part I, “Part I, Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes to the legal proceedings disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. Other than the items disclosed in our Annual Report Form 10-K for the fiscal year ended December 31, 2021 in Part I, “Part I, Item 3, Legal Proceedings,” there are no other legal proceedings currently pending against us, or known to be contemplated by any governmental agency, which we believe would have a material effect on our business, financial position or results of operations.
On April 13, 2021, the Washington State Department of Financial Institutions (“WSDFI”) sent a letter and subpoena requesting that we produce certain documents and records. WSDFI is investigating certain sales of our common stock by a previous employee and independent contractor in Washington prior to our initial public offering. This subject matter in general (including activities of such previous employee and independent contractor) had been among the issues previously investigated by a joint committee of our board of directors and internal and external legal counsel that commenced in February 2020 and, pursuant to the findings and recommendations of the joint committee, led to the company implementing in April 2020 certain enhanced corporate governance policies (in the form of a formal written policy on private stock sales requiring prior approval of our internal or external legal counsel and changes to certain organizational matters). We have cooperated with WSDFI regarding this investigation, but during and subsequent to the year ended December 31, 2021, we have not been made aware of any developments with the investigation.
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On June 5, 2020, we filed suit against Ortho-Tain, Inc.(“Ortho-Tain”) in the United States District Court for the District of Colorado seeking relief from certain false, threatening, and defamatory statements to our business affiliate, Benco Dental (“Benco”). We believe such statements have interfered with our business relationship and contract, causing harm to our reputation, loss of goodwill, and unspecified monetary damages. On February 12, 2021, we amended our complaint to add claims for false advertising and unfair business practices, as well as additional variants of the original claims to address Ortho-Tain’s alleged false advertising campaign against us in the fall of 2020. Our amended complaint seeks permanent injunctive relief to prevent what we believe are defamatory statements and interference with our business relationships by Ortho-Tain. We further seek declaratory relief to refute the defendant’s false allegations, as well as monetary damages. Prior to filing suit, we worked collaboratively with legal counsel at Benco to address and resolve this matter. Such efforts were unsuccessful. On February 26, 2021, Ortho-Tain, Inc. filed a motion to dismiss the amended complaint. We opposed the motion. On September 3, 2021, the District Court denied the motion to dismiss on all grounds and lifted the stay of discovery. On September 7, 2021, Ortho-Tain filed a notice of appeal of the District Court’s order to the United States Court of Appeals for the Tenth Circuit. On September 21, 2021, we filed a motion to dismiss the appeal for lack of jurisdiction. On October 12, 2021, the Court of Appeals referred the motion to dismiss the appeal to the merits panel for decision along with the merits. The appeal is now fully briefed and awaiting decision form the Tenth Circuit.
On July 22, 2020 Ortho-Tain, Inc. filed a complaint in the United States District Court for the Northern District of Illinois naming our company, along with our Chairman and Chief Executive Officer, R. Kirk Huntsman, Benco Dental Supply Co., Dr. Brian Kraft, Dr. Ben Miraglia, and Dr. Mark Musso (the “Illinois Ortho-Tain Case”). The complaint in the Illinois Ortho-Tain Case addresses the same events as the suit we filed against Ortho-Tain, Inc. in June 2020 as described above. The complaint in the Illinois Ortho-Tain Case alleges violation of the Lanham Act and an alleged civil conspiracy among the defendants to violate the Lanham Act by an alleged false designation of origin related to a presentation given by Dr. Brian Kraft at an event sponsored by us and Benco Dental. Ortho-Tain also alleges that the actions of the defendants, including our company, diverted sales from Ortho-Tain, deprived Ortho-Tain of advertising value and resulted in a loss of goodwill to Ortho-Tain. Ortho-Tain also alleges two separate breach of contract actions against Dr. Brian Kraft and Mr. Huntsman. Ortho-Tain’s allegation of breach of contract against Mr. Huntsman, relates to a Non-Disclosure Agreement entered into in October 2013 with Mr. Huntsman’s prior entity, Xenith Practices, LLC, which Non-Disclosure Agreement expired pursuant to its terms in October 2016. We continue to evaluate the allegations, although we believe they lack merit and think Ortho-Tain will be unable to establish actionable damages. On September 9, 2020, we moved to dismiss the claims against us in the Illinois Ortho-Tain Case. On October 23, 2020, we filed a motion requesting, in the alternative, that if the case is not dismissed, it be transferred to the Colorado action described above or stayed. On May 14, 2021, the Court granted our motion to stay the Illinois Ortho-Tain Case, pending resolution of the Colorado action described above. On September 3, 2021 on December 2, 2021, and on April 4, 2022, the Court extended the stay. The case remains stayed.
On May 17, 2021, plaintiff Steven Rospond (“Rospond”) filed a lawsuit against Proceed Finance asserting claims for breach of contract and violation of the Kansas Consumer Protection Act against Defendants Proceed Finance and Security First Bank regarding a $50,000 loan Rospond took to pay for services provided by our company. Rospond sent us a subpoena seeking various documents relating to the services provided by us to which it responded and provided documents on December 21, 2021. In an Order dated October 26, 2021, the court granted Rospond an extension of up to seven days after we delivered documents to Rospond within which to amend his lawsuit, including to assert claims against us. To date, we have no knowledge of Rospond asserting any claims against us. According to the court’s docket, this lawsuit is still pending and has not been dismissed.
There are no other legal proceedings currently pending against us, or known to be contemplated by any governmental agency, which we believe would have a material effect on our business, financial position or results of operations.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules.
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Vivos Therapeutics, Inc. | |||
| Date: | November 25, 2022 | By: | /s/ R. Kirk Huntsman |
| R. Kirk Huntsman | |||
| Chairman of the Board and Chief Executive Officer | |||
| (principal executive officer) | |||
| Date: | November 25, 2022 | By: | /s/ Bradford Amman |
| Bradford Amman | |||
| Chief Financial Officer and Secretary | |||
| (principal accounting officer) | |||
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