UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(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. ☒ NO ☐
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). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” or “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO
The registrant had shares of its common stock, $par value per share, outstanding as of November 14, 2024.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the section entitled “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 this Report and our other public filings, 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,” “hope,” “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; | |
| ● | our ability to establish and grow our new marketing and distribution model where we create contractual alliances with operators of multiple sleep testing and treatment centers as a means of driving sales of our appliances; | |
| ● | the understanding and adoption by dentists and other healthcare professionals of The Vivos Method, including our proprietary oral appliances, as a treatment for dentofacial abnormalities and/or mild to severe obstructive sleep apnea (“OSA”) and snoring in adults and moderate to severe OSA and snoring in children; | |
| ● | 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 revenues and profit margin from the enrollment of VIPs, VIP service fees, sales of The Vivos Method treatments and appliances, leases of SleepImage® home sleep testing rings and from our strategic alliance marketing and distribution model; | |
| ● | our ability to properly train VIPs in the use of The Vivos Method inclusive of the services we offer independent dentists 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 new strategic alliance marketing and distribution model, our Medical Integration Division, SleepImage® home sleep apnea test, arrangements with durable medical equipment companies (“DMEs”) and other third-party collaborations; | |
| ● | 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 (“FDA”) and non-U.S. equivalent regulatory bodies as well as laws, rules and regulations related to the practice of medicine or dentistry; | |
| ● | 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 outbreaks of disease such as COVID-19, inflation and volatile geopolitical and capital markets) which could impair our operations, financial performance and ability to raise new capital. |
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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” “Business” and other sections in this Report as well as the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and our other public filings. You should thoroughly read this Report 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 Report relate only to events or information as of the date on which the statements are made in this Report. 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 Report and the documents that we refer to in this Report and have filed as exhibits to this Report and our other public filings, completely and with the understanding that our actual future results may be materially different from what we expect.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VIVOS THERAPEUTICS INC.
Unaudited Condensed Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
| September 30, 2024 | December 31, 2023 | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ | ||||||||
| 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 operating lease liability | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Contract liabilities, net of current portion | ||||||||
| Employee retention credit liability | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| 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 September 30, 2024 and shares as December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VIVOS THERAPEUTICS INC.
Unaudited Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Excess warrant fair value | ( | ) | ||||||||||||||
| Change in fair value of warrant liability, net of issuance costs of $ | ||||||||||||||||
| Other income | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share (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 condensed consolidated financial statements.
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VIVOS THERAPEUTICS INC.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Common Stock Amounts)
| Nine Months Ended September 30, 2024 and 2023 | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock in private placement, net of issuance costs | ||||||||||||||||||||
| Issuance of common stock for purchase of assets | ||||||||||||||||||||
| Issuance of commons stock upon exercise of warrants | ||||||||||||||||||||
| Issuance of warrants to consultants for services | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Fair value of warrants issued: | ||||||||||||||||||||
| To consultants for services | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Fair value of warrants issued: | ||||||||||||||||||||
| To consultants for services | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balances, December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of commons stock upon exercise of warrants, net of issuance costs | ||||||||||||||||||||
| Issuance of warrants to consultants for services | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock and warrants in private placement, net of issuance costs | ||||||||||||||||||||
| Issuance of commons stock upon exercise of warrants, net of issuance costs | ||||||||||||||||||||
| Issuance of common stock to consultants for services | ||||||||||||||||||||
| Issuance of warrants to consultants for services | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock and warrants in private placement, net of issuance costs | ||||||||||||||||||||
| Issuance of warrants to consultants for services | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VIVOS THERAPEUTICS INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 common stock issued for services | ||||||||
| Fair value of warrants issued for services | ||||||||
| Change in fair value of warrant liability, net of issuance costs of $ | ( | ) | ||||||
| Excess warrant fair value | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Operating lease liabilities, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Deposits | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Employee retention credit liability | ||||||||
| Other liabilities | ( | ) | ||||||
| Contract liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisitions of property and equipment | ( | ) | ( | ) | ||||
| Payment for asset purchase | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of pre-funded warrants | ||||||||
| Payments for issuance costs | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (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 | $ | | $ | |||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Fair value of warrants issued in asset purchase | $ | $ | ||||||
| Fair value of warrants issued in private placement | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VIVOS THERAPEUTICS INC.
Notes to Unaudited Condensed Consolidated Financial Statements
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., a Texas corporation (“First Vivos”), and Vivos Therapeutics, Inc., a Wyoming corporation (“Vivos”), which was established on July 7, 2016 to facilitate the SEA transaction. Pursuant to the SEA, all of the outstanding shares of common stock and warrants of BioModeling and all of the shares of common 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.
Reverse Stock Split
On
October 25, 2023, the Company effected a reverse stock split of its outstanding shares of common stock at a ratio of
Description of Business
We are a medical technology and services company that features a comprehensive suite of proprietary oral appliances and therapeutic treatments. Our products non-surgically treat certain maxillofacial and developmental abnormalities of the mouth and jaws that are closely associated with breathing and sleep disorders such as mild to severe obstructive sleep apnea (“OSA”) and snoring in adults. The Company offers three separate clinical pathways or programs to providers—Guided Growth and Development, Lifeline, and Complete Airway Repositioning and Expansion (“CARE”). Each program features certain oral appliances coupled with specific therapeutic treatments, and each clinical pathway is intended to address the specific needs of a diverse patient population with different patient needs. For example, the Guided Growth and Development program features the Vivos Guide and PEx appliances along with adjunctive, non-Company therapies used by a dentist (such as CO2 laser treatments and other therapies) designed for treating palatal growth (growth of the mouth roof) and expansion in pediatric patients as they grow. The mid-range priced Lifeline program features a selection of mandibular advancement devices (“MADs”) such as the Versa and Vida Sleep which are FDA 510(k) cleared for mild-to-moderate OSA in adults, along with the patented Vida appliance, which is FDA 510(k) cleared as unspecified classification for the alleviation of Temporomandibular Joint Dysfunction (“TMD”) symptoms, bruxism, migraine headaches, and nasal dilation.
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The
Company’s flagship CARE program, which is part of The Vivos Method, features the Company’s patented DNA, mRNA and mmRNA appliances,
which are also FDA 510(k) cleared for mild-to-severe OSA and snoring in adults. The Vivos Method may also include adjunctive myofunctional,
chiropractic/physical therapy, and laser treatments that, when properly used with the CARE appliances, constitute a powerful non-invasive
and cost-effective means of reducing or eliminating OSA symptoms. In a small subset of a study, the data has actually shown that The
Vivos Method can reverse OSA symptoms in a large portion (up to
The
Company also offers a suite of diagnostic and support products and services to dental and medical providers and distributors who treat
patients with OSA or related conditions. Such products and services include (i) VivoScore home sleep screenings and tests (powered by
SleepImage® technology), (ii) AireO2 (an electronic health record program designed specifically for use by dentists treating
sleep patients), (iii) Treatment Navigator (a concierge service to assist a provider in educating and supporting the doctors as they
navigate insurance coverage, diagnostic indications and treatment options), (iv) Billing Intelligence Services (“BIS”) (which
optimizes medical and dental reimbursement), (v) advanced training and continuing education courses at the Company’s Vivos Institute
in Denver, Colorado, (vi) MyoCorrect, a service through which Vivos-trained providers can provide orofacial myofunctional therapy (“OMT”)
to patients via a telemedicine platform, and (vii) the Company’s Medical Integration Division (“MID”), which manages
independent medical practices under management and development agreements which pays the Company from six (
Another aspect of the Company’s business model is to teach, train, and support dentists, medical doctors, and distributors in the use of the Company’s products and services. Dentists who use the Company’s products and services typically enroll in a variety of live or online training and educational programs offered through the Company’s Vivos Institute—an 18,000 sq. ft. facility located near the Denver International Airport. Dentists are able to select the specific program or clinical pathway that they want to focus on, such as Guided Growth and Development or Lifeline or both. Dentists may also enroll in the VIP program for the complete set training, educational, and support services available in all three clinical pathway programs. Dentists enrolled in the VIP Program are referred to as “VIPs.” The Company charges upfront enrollment fees to educate and train new providers. The Company also charges for the ancillary support services listed above and views each product and service as a revenue/profit center.
Further, in an effort to expand its potential for revenue generation, in June 2024, the Company entered into a strategic marketing and distribution alliance with an operator of multiple sleep testing and treatment centers in Colorado, under which each party’s products and services will be offered together as a comprehensive solution to OSA patients seeking obstructive sleep apnea treatment. Under this model, the Company will invoice patients (rather than dentists), for treatment by Vivos employed dentists. The Company anticipates this will be the first of a series of similar alliances across the country, marking an important pivot in the Company’s marketing and distribution model for treating patients and distributing its cutting edge OSA appliances.
Basis of Presentation and Consolidation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company’s financial position, results of operations, and cash flows. The condensed consolidated balance sheet at December 31, 2023 has been derived from audited financial statements at that date. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission (“SEC”).
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The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the December 31, 2023 audited consolidated financial statements contained in the Company’s 2023 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 28, 2024.
Emerging Growth Company Status
The Company is an “emerging growth company” (an “EGC”), 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 as a result, the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. These include, but are 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 EGCs 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-EGC but any such election to opt out is irrevocable. The Company currently expects to retain its status as an EGC until the year ending December 31, 2026, but this status could end sooner under certain circumstances.
Revenue Recognition
The Company generates revenue from the sale of products and services. A significant majority of the Company’s revenues are generated from enrolling dentists as either (i) Guided Growth and Development VIPs; (ii) Lifeline VIPs; (iii) combined Guided Growth and Development and Lifeline VIPs; or Premier Vivos Integrated Providers (“Premier VIPs”). Prior to the second quarter of 2023, the majority of VIP enrollments were Premier VIPs. The other, lower priced enrollments were piloted in prior fiscal quarters on a limited basis. They were officially adopted during the second quarter of 2023. For each VIP program, 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 manner that reflects the consideration the Company expects to be entitled to in exchange for those products and services.
Following the guidance of ASC Topic 606, Revenue from Contracts with Customers (“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. |
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Service Revenue
VIP Enrollment Revenue
The
Company reviews its VIP enrollment contracts from a revenue recognition perspective using the 5-step method outlined above. All program
enrollees, irrespective of their level of enrollment, are commonly referred to as VIPs, unless it is necessary to specify their particular
program. Once it is determined that a contract exists (i.e., a VIP enrollment agreement is executed and payment is received), service
revenue related to VIP enrollments is recognized when the underlying services are performed. The price of the Premier VIP enrollment
that the VIP pays upon execution of the contract is significant, running at approximately $
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 (now known as the Premier VIP Program) which includes training in a highly personalized, deep immersion workshop format which provides the Premier VIP dentist access to a team who is dedicated to creating a successful integrated practice.
VIP enrollment fees include multiple performance obligations which vary on a contract-by-contract basis. The performance obligations included with enrollments may include sleep apnea rings, a six or twelve month BIS subscription, a marketing package, lab credits and the right to sell our appliances. The Company allocates the transaction price of a VIP enrollment contract to each performance obligation under such contract 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 is similar to a license of intellectual property because without it the VIP cannot purchase appliances from the Company. The right to sell performance obligation includes the Vivos training and enrollment materials which prepare dentists for treating their patients using The Vivos Method.
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 under a VIP contract will be deducted from the contract price, with the residual being allocated 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 Premier VIPs who do not complete sessions 1 and 2 of training rarely complete training at all and fail to participate in the Premier VIP program long term. Since the beginning of the Premier 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 accelerated at the time in which it becomes remote that a VIP will continue in the program. Revenue is recognized in accordance with each individual performance obligation unless it becomes remote the VIP will continue, at which time the remainder of revenue is accelerated and recognized in the following month. Those VIPs who 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 VIPs will remain active. Because of various factors occurring year to year, the Company has estimated customer life for each year a contract is initiated. The estimated customer lives are calculated separately for each year and have been estimated at 15 months for 2020, 14 months for 2021, 18 months for 2022, 23 months for 2023, and 27 months in 2024, as a result of customers staying active for longer periods of time. The right to sell is recognized on a sum of the years’ digits method over the estimated customer 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.
The Company also offers its VIPs the ability to provide MyoCorrect to the VIP’s patients as part of treatment with The Vivos Method. The program includes packages of treatment sessions that are sold to the VIPs and resold to their patients. Revenue for MyoCorrect services is recognized over the 12-month performance period as therapy sessions occur.
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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. These fair values approximate the prices for the relevant performance obligation that would be charged if those services were sold separately, and are recognized over the relevant service period of each performance obligation. After allocation to the performance obligations, any remainder is allocated to the right to sell under the residual method and is recognized over the estimated customer life. In general, revenues are separated between durable medical equipment (product revenue) and education and training services (service revenue).
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 a 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 line of oral devices and preformed guides (known as appliances or systems) to its customers, the VIP dentists or OSA patients. These include the DNA appliance®, mRNA appliance®, the mmRNA appliance, the Versa, the Vida, the Vida Sleep and others. The Company expanded its product offerings in the first quarter of 2023 via the acquisition of certain U.S. and international patents, product rights, and other miscellaneous intellectual property from Advanced Facialdontics, LLC, a New York limited liability company (“AFD”). Revenue from appliance sales is recognized when the control of a 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, and installing the appliance and educating the patient as to its use. The Company contracts 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 Company’s appliances are similar to a retainer that is worn in the mouth 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 (notably Canada and Australia) to sell the appliances to their customers as well as in two dental centers that the Company operates. The Company utilizes third party contract manufacturers or labs to produce its patient-customized, patented appliances and its preformed guides. The manufacturer designated by the Company produces the appliance in strict adherence to the Company’s patents, design files, treatments, 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 and concluded it is the principal in the transaction since it has control of the product 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.
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In support of the VIPs using the Company’s appliances for their patients, the Company utilizes a team of trained technicians to measure, order and fit each appliance. Revenue is recognized differently for Company owned centers and distribution alliances with third party sleep centers than it does for revenue from VIPs. 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. 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 to 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 incentives are recorded as a liability at issuance and are deducted from the related product sale at the time the credit is used.
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, determining customer life and breakage related to recognizing revenue for VIP contracts, impairment of goodwill and long-lived assets; valuation assumptions for assets acquired in asset acquisitions; valuation assumptions for stock options, warrants, warrant liabilities and equity instruments issued for goods or services; deferred income taxes and the related valuation allowances; and the evaluation and measurement of contingencies. The Company believes it 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
Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Accounts receivable are stated at the net amount expected to be collected, using an expected credit loss methodology to determine the allowance for expected credit losses. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for expected credit losses based on a combination of factors, including the aging of the receivables, historical collection trends, and charge-offs. When the Company is aware of a customer’s inability to meet its financial obligation, the Company may individually evaluate the related receivable to determine the allowance for expected credit losses. The Company uses specific criteria to determine uncollectible receivables to be charged-off, including bankruptcy filings, the referral of customer accounts to outside parties for collection, and the length that accounts remain past due.
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
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Intangible Assets, Net
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 as of December 31. There were no quantitative or qualitative indicators of impairment that occurred for the year ended December 31, 2023, or for the three and nine months ended September 30, 2024, accordingly no impairment was required.
Intangible
assets consist of assets acquired from First Vivos and costs paid to (i) MyoCorrect, from whom the Company acquired certain assets related
to its OMT service in March 2021, (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 and (iii) AFD,
from whom the Company acquired certain U.S. and international patents, trademarks, product rights, and other miscellaneous intellectual
property in March 2023. 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
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. There were no quantitative or qualitative indicators of impairment that occurred for the year ended December 31, 2023, or for the three and nine months ended September 30, 2024, accordingly no impairment was required.
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 an expense in the period when it is determined that an offering is unsuccessful.
Employee Retention Tax Credit
The employee retention tax credit (“ERTC”) for 2020 was established under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) and amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the “Relief Act”). The ERTC provided for changes in the employee retention credit for 2020 and provided an additional credit for the first, second and third calendar quarters of 2021. Employers are eligible for the credit if they experienced either a full or partial suspension of operations during any calendar quarter because of governmental orders due to the COVID-19 pandemic or if they experienced a significant decline in gross receipts based on a comparison of quarterly revenue results for 2020 and/or 2021 and the corresponding quarters in 2019. The ERTC is a refundable credit that employers can claim on qualified wages paid to employees, including certain health insurance costs.
| 14 |
According
to the Internal Revenue Service (“IRS”) Notice 2021-20, “Guidance on the Employee Retention Credit under Section 2301
of the Coronavirus Aid, Relief, and Economic Security Act,” the period during which there is a significant decline in gross receipts
is determined by identifying the first quarter in 2020 in which the gross receipts are less than
Section 2301(c)(3)(A)(ii) of the CARES Act also provides that if an eligible employer averaged 100 or fewer employees in 2019 (a “small eligible employer”), qualified wages are those wages paid by the eligible employer with respect to an employee during any period described in section 2301(c)(2)(A)(ii)(I) of the CARES Act (relating to a calendar quarter for which the operation of a trade or business is fully or partially suspended due to a governmental order) or during a calendar quarter within the period described in section 2301(c)(2)(A)(ii)(II) of the CARES Act (relating to a significant decline in gross receipts). The Company averaged fewer than 80 employees in 2019 and is therefore considered a small eligible employer under the CARES Act.
For
2021, the ERTC was
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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 expenses 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 and cancellations in the period that the forfeiture or cancellation occurs, rather than estimating the number of awards that are not expected to vest in accounting for stock-based compensation.
Leases
Operating leases are included in operating lease right-of-use (“ROU”) assets, 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.
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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
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 the same are dilutive.
Warrant Accounting
The Company accounts for its warrants and financial instruments as either equity or liabilities based upon the characteristics and provisions of each instrument, in accordance with ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as liabilities and other financial instruments that require separate accounting as liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. Management estimates the fair value of these liabilities using the Black-Scholes model and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate.
Segment Information
We manage our business within one reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker (“CODM”), reviews financial information presented on a consolidated basis, accompanied by information about operations for purposes of making operating decisions and assessing financial performance.
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.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The standard requires disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. This authoritative guidance will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the effect of this new guidance on our consolidated financial statements and disclosures.
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In November 2, 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”). The standard’s purpose is “to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development).” Public companies will be required to disclose in the notes to financial statements specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to:
| 1. | Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption. | |
| 2. | Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. | |
| 3. | Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. | |
| 4. | Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. |
The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the effect of this new guidance on our consolidated financial statements and disclosures.
We have reviewed and considered all other recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially have a material impact on our business practices, financial condition, results of operations, or disclosures.
NOTE 2 - 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 $
Net
cash used in operating activities amounted to approximately $
As
of September 30, 2024, the Company had approximately $
Until a state of cash flow positivity is reached, management is reviewing all options to obtain additional financing to fund operations. This financing is expected to come primarily from the issuance of equity securities in order to sustain operations until the Company 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 some or all of its operations, all of which could have a material adverse effect on the Company and its stockholders.
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.
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NOTE 3 - REVENUE, CONTRACT ASSETS AND CONTRACT LIABILITIES
Net Revenue
For the three and nine months ended September 30, 2024 and 2023, 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product revenue | ||||||||||||||||
| Appliances | ||||||||||||||||
| Guides | ||||||||||||||||
| Total product revenue | (1) | (1) | (1) | (1) | ||||||||||||
| Service revenue | ||||||||||||||||
| VIP | ||||||||||||||||
| Billing intelligence services | (2) | (2) | (2) | (2) | ||||||||||||
| Sleep testing services | ||||||||||||||||
| Myofunctional therapy services | ||||||||||||||||
| Sponsorship/seminar/other | ||||||||||||||||
| Total service revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| (1) | |
| (2) |
Changes in Contract Liabilities
The key components of changes in contract liabilities for the three and nine months ended September 30, 2024 and 2023 are as follows (in thousands):
| 2024 | 2023 | |||||||
| Beginning balance, December 31 | $ | $ | ||||||
| New contracts, net of cancellations | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Ending balance, March 31 | $ | $ | ||||||
| New contracts, net of cancellations | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Ending balance, June 30 | $ | $ | ||||||
| New contracts, net of cancellations | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Ending balance, September 30 | $ | $ | ||||||
The
current portion of deferred revenue is approximately $
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Changes in Accounts Receivable
Our
customers are billed based on fees agreed upon in each customer contract. Receivables from customers were $
NOTE 4 - PROPERTY AND EQUIPMENT, NET
As of September 30, 2024 and December 31, 2023, property and equipment consist of the following (in thousands):
September 30, 2024 | December 31, 2023 | |||||||
| Furniture and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Software | ||||||||
| Molds | ||||||||
| Gross property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net Property and equipment | $ | $ | ||||||
Leasehold
improvements relate to the Vivos Institute (the Company’s
NOTE 5 - GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill
of $
| Acquisitions | September 30, 2024 | December 31, 2023 | ||||||
| BioModeling | $ | $ | ||||||
| Empowered Dental | ||||||||
| Lyon Dental | ||||||||
| Total goodwill | $ | $ | ||||||
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Intangible Assets
As of September 30, 2024 and December 31, 2023, identifiable intangible assets were as follows (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Patents and developed technology | $ | $ | ||||||
| Trade name | ||||||||
| Other | ||||||||
| Total intangible assets | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net intangible assets | $ | $ | ||||||
Amortization
expense of identifiable intangible assets was less than $
Nine Months Ending September 30,
| 2024 (remaining three months) | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ |
NOTE 6 – OTHER FINANCIAL INFORMATION
Accrued Expenses
As of September 30, 2024 and December 31, 2023, accrued expenses consist of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued legal and other | ||||||||
| Lab rebate liabilities and gift cards | ||||||||
| Total accrued liabilities | $ | $ | ||||||
NOTE 7 – PREFERRED STOCK
The Company’s Board of Directors has the 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 September 30, 2024, the Company’s Board of Directors continues to have the authority to designate up to 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.
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NOTE 8 – 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.
Common Stock Transactions During the Periods Presented
On
January 9, 2023, the Company closed a private placement (the “January 2023 Private Placement”) pursuant to which the Company
agreed to issue and sell shares of Common Stock, Pre-Funded Warrants to purchase up to an aggregate of
On
February 28, 2023, the Company acquired certain U.S. and international patents, patent applications, trademarks, product rights, and
other miscellaneous intellectual property from AFD. Pursuant to the asset acquisition, the Company agreed to issue shares of Common
Stock in addition to cash consideration of $
In
addition, the Company entered into an employment agreement with Dr. Scott Simonetti, DDS, the founder and Chief Executive Officer of
AFD, as part-time Senior Director of Research and Development for an annual salary of approximately $
As
disclosed above, on October 25, 2023 (the “Effective Date”), the Company effected a Reverse Stock Split of its outstanding
shares of common stock at a ratio of
On
November 2, 2023, the Company closed a private placement (the “November 2023 Private Placement”) with an institutional investor
pursuant to which the Company sold an aggregate of $
In
December 2023,
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On
February 14, 2024, the Company entered into a warrant inducement letter agreement (the “Inducement Agreement”) with the same
institutional investor in the November 2023 Private Placement pursuant to which the investor agreed to exercise for cash the entirety
of the Series B Warrant at an exercise price of $
On
June 10, 2024, the Company, entered into a securities purchase agreement (the “SPA”) with V-CO Investors LLC, a Wyoming limited
liability company (“V-CO”). V-CO is an affiliate of New Seneca Partners Inc., a Michigan corporation (“Seneca”),
an independent private equity firm. Pursuant to the SPA, the Company sold to V-CO in a private placement offering (the “Private
Placement”): (i) shares (the “Shares”) of the Company’s Common Stock, (ii) a pre-funded warrant to purchase
V-CO
paid a purchase price of $ for each Share and Pre-Funded Warrant Share and associated Common Stock Purchase Warrant, with such price
being established for purposes of compliance with the listing rules of the Nasdaq Stock Market LLC. The Private Placement closed on September
10, 2024. The Company received gross proceeds of $
The SPA provides that for a period of three (3) years from the closing of the offering, Seneca shall be entitled to (i) receive notice of any regular or special meeting of the Company’s board of directors (the “Board”) at the time such notice is provided to the members of the Board, (ii) receive copies of any materials delivered to the Company’s directors in connection with such meetings and (iii) allow one Seneca representative (who shall be an officer or employee of Seneca) to attend and participate (but not vote) in all such meetings of the Board. The SPA also includes standard representations, warranties, indemnifications, and covenants of the Company and V-CO.
The terms of the SPA require the Company to file a registration statement on Form S-3 or other appropriate form (the “Resale Registration Statement”) registering the Shares, the PFW Shares and the Warrant Shares (collectively, the “Registerable Securities”) for resale. Such Resale Registration Statement was filed with the SEC on July 30, 2024, and was declared effective by the SEC on August 7, 2024. Pursuant to the SPA, the Company must also use its commercially reasonable efforts to keep the Resale Registration Statement continuously effective (including by filing a post-effective amendment to the Resale Registration Statement or a new registration statement if the Resale Registration Statement expires) for a period of three (3) years after the date of effectiveness of the Resale Registration Statement or for such shorter period as such securities no longer constitute Registrable Securities, subject to certain limitations specified in the SPA.
On
September 18, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain
institutional investors in connection with a registered direct offering (the “Offering”), priced at-the-market under
Nasdaq Stock Market rules, to purchase
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H.C. Wainwright
& Co., LLC, pursuant to an engagement agreement with the Company, dated May 2, 2024 and amended on August 2, 2024 (as amended,
the “Engagement Agreement”), acted as the exclusive placement agent (the “Placement Agent”) for the
Offering. Pursuant to the Engagement Agreement, the Company has paid the Placement Agent
The
gross proceeds to the Company from the Offering were approximately $
The Shares were issued pursuant to an effective shelf registration statement on Form S-3 that was filed with the SEC (File No. 333-262554) on February 7, 2022 and declared effective on February 14, 2022. A prospectus supplement relating to the Offering has been filed with the SEC.
The Purchase Agreement contains customary representations, warranties and agreements of the Company and the investors and customary indemnification rights and obligations of the parties. Pursuant to the terms of the Purchase Agreement, the Company agreed to certain restrictions on the issuance and sale of its shares of Common Stock and securities convertible into shares of Common Stock for a period of 30 days following the closing of the Offering. The Company also agreed not to effect or agree to effect any Variable Rate Transaction (as defined in the Purchase Agreement) until one year following the closing of the Offering, subject to certain exceptions.
NOTE 9 – 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 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.
On September 22, 2023, stockholders approved an amendment to the Company’s 2019 Plan to increase the number of shares of Company common stock authorized to be issued pursuant to the 2019 Plan by shares from an aggregate of shares to an aggregate of shares.
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During the nine months ended September 30, 2024, and 2023 the Company granted stock options for the purchase of and shares of Common Stock at a weighted average of $ and $ respectively. Options for the purchase of and shares of common stock expired during the nine months ended September 30, 2024, and 2023, respectively. The following table summarizes all stock options from December 31, 2023 to September 30, 2024 (shares in thousands):
| 2024 | ||||||||||||
| Shares | Price (1) | Term (2) | ||||||||||
| Outstanding, at December 31, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding, at September 30 | (3) | |||||||||||
| Exercisable, at September 30 | (4) | |||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
For the nine months ended September 30, 2024, there were options granted under the 2017 and the 2019 Plans at an exercise price of per share. For the nine months ended September 30, 2024 and 2023, 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:
| 2024 | ||||
| Grant date closing price of Common Stock | $ | |||
| Expected term (years) | ||||
| Risk-free interest rate | % | |||
| Volatility | % | |||
| Dividend yield | % | |||
For the three months ended September 30, 2024 and 2023, the Company recognized approximately $ million and $ million, respectively, and for the nine months ended September 30, 2024 and 2023, 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 September 30, 2024 was approximately $ million, which will be recognized over the weighted average remaining term of years.
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Warrants
The following table sets forth activity with respect to the Company’s warrants to purchase Common Stock for the nine months ended September 30, 2024 (shares in thousands):
| 2024 | ||||||||||||
| Shares | Price (1) | Term (2) | ||||||||||
| Outstanding, at December 31 | $ | |||||||||||
| Grants of warrants: | ||||||||||||
| Private placement | (3) | |||||||||||
| Consultants for services | (4) | |||||||||||
| Warrant inducement | (5) | |||||||||||
| Exercised | ( | )(6) | ||||||||||
| Forfeited | ( | ) | ||||||||||
| Outstanding, at September 30 | (7) | $ | ||||||||||
| Exercisable, at September 30 | (8) | $ | ||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) | |
| (8) |
For the nine months ended September 30, 2024, the valuation assumptions for warrants issued were estimated on the measurement date using the BSM option-pricing model with the following weighted-average assumptions:
| 2024 | ||||
| Measurement date closing price of Common Stock (1) | $ | |||
| Contractual term (years) (2) | ||||
| Risk-free interest rate | % | |||
| Volatility | % | |||
| Dividend yield | % | |||
| (1) | ||
| (2) |
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NOTE 10 - 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 and nine months ended September 30, 2024 and 2023 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 September 30, 2024 and December 31, 2023 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 11 - COMMITMENTS AND CONTINGENCIES
COVID-19 Pandemic
Our business was materially impacted by COVID-19 in 2020 and to some extent thereafter and through the early part of 2023 due to the actions of governmental bodies that mandated quarantines and lockdowns that resulted in many of our VIPs and potential VIPs having to close their offices. The impact of COVID-19 on our business diminished somewhat as 2023 progressed. However, the residual effects of the pandemic on dental workforce availability as well as patient precautionary measures continued to negatively impact our VIP dental practices and our revenue across the U.S. and Canada during 2022 and into 2023. We believe new enrollments during at least the first half of 2023 continued to be negatively impacted by the ongoing overall workforce uncertainties in the dental market. Thus far in 2024, we do not believe COVID-19 issues are impacting our business in any material way. We continue to monitor the overall landscape of potential viral or other diseases which may pose a threat, and we will respond appropriately should any such threats materialize.
Inflation, the War in Ukraine and Middle East Hostilities
The Company believes that as the U.S. experiences a persistent and protracted 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 may also increase. In the early part of 2024, there is considerable economic and capital markets uncertainty arising out of several global factors, including but not limited to, Russia’s ongoing war in Ukraine, the Hamas attacks on Israel in October of 2023, Israel’s response to those attacks, (including military engagement in Lebanon and with Iran) have emerged as potential barriers to both near and long-term economic recovery.
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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. To date, the Company has 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, and we may have to do so again in 2024. 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 seeks to grow revenue and, ultimately, achieve profitability and positive cash flow from operations.
An additional inflation-related risk is the Federal Reserve’s response, which included significant increases, and more recently decreases, in interest rates. Such actions have, in times past, created unintended consequences in terms of the impact on housing starts, overall manufacturing, capital markets, and banking. If such disruptions become systemic, like in the recession of 2008, then the impact on the Company’s revenue, earnings potential and access to capital of both inflation and inflation-fighting responses would be impossible to know or calculate.
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’s 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.
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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. As of September 30, 2024 and 2023, all Common Stock equivalents were antidilutive.
For the Three Months Ended September 30, | For The Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 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) | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Common stock warrants | ||||||||
| Common stock options | ||||||||
| Total | ||||||||
NOTE 13 - 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
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
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As of September 30, 2024 and 2023, the fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities approximated their carrying values due to the short-term nature of these instruments.
As
discussed in Note 8, on January 9, 2023, the Company closed on a Private Placement for the sale by the Company of shares of the Company’s
common stock and the issuance of pre-funded warrant to purchase up to an aggregate of
On
November 2, 2023, the Company closed a private placement (the “November 2023 Private Placement”) with an institutional investor
pursuant to which the Company sold an aggregate of $
In
addition, as part of the November 2023 Private Placement, we agreed to amend the existing outstanding common stock purchase warrant held
by the purchaser and issued in January 2023 to purchase up to an aggregate of
Recurring Fair Value Measurements
For
the three and nine months ended September 30, 2024, the Company did not have any assets and liabilities classified as Level 1, Level
2 or Level 3. The Company concluded that the warrants issued in connection with the private placement, met the definition of a liability
under ASC 480, Distinguishing Liabilities from Equity and classified the liability as Level 3. For the nine months ended September
30, 2023, the Company did not have any assets and liabilities classified as Level 1 or Level 2, and had a warranty liability measured
at fair value using significant unobservable inputs (Level 3) of approximately $
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 and nine months ended September 30, 2024, and 2023 the Company had no transfers of its assets or liabilities between levels of the fair value hierarchy.
Significant Concentrations
Credit Risk
Financial
instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents on
deposit with financial institutions, the balances of which frequently exceed federally insured limits. Management monitors the soundness
of these financial institutions and believes the Company’s risk is negligible. The Company has not experienced any losses in such
accounts. If any of the financial institutions with whom the Company does business was to be placed into receivership, the Company may
be unable to access the cash they have on deposit with such institutions. If the Company were unable to access cash and cash equivalents
as needed, the financial position and ability to operate the business could be adversely affected. As of September 30, 2024, the Company
had cash and cash equivalents with three 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. No single customer represented more than 10% of our accounts receivable as of September 30, 2024. The Company maintains reserves for potential bad debts.
Supplier Concentration
As previously disclosed, the Company relies on third-party suppliers and contract manufacturers for the raw materials and components used in our appliances and to manufacture and assemble our products. As of September 30, 2024, the Company had five suppliers that accounted for approximately 80% of the Company’s total purchases during the year. The Company expects to maintain existing relationships with these vendors.
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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 severe obstructive sleep apnea (“OSA”) and snoring in adults. We believe our technologies and conventions represent a significant improvement in the treatment of mild to severe OSA versus other treatments such as continuous positive airway pressure (“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 treatments led to significantly lower Apnea Hypopnea Index scores and have improved other conditions associated with OSA. Over 47,000 patients have been treated to date, worldwide, with our entire current suite of products by more than 2,000 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.
Strategic Alliance Agreement. We have historically sought to generate revenues based on enrollments of dentists in our VIP program and sales of Vivos Method appliances and devices and services to our VIPs. In June 2024, we announced an important pivot in the way we market and distribute our Vivos Method appliances and devices. This new strategy is seeking to drive revenue by entering into contractual alliances with dentists, sleep center operators and other healthcare providers.
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This strategy pivot was accompanied by a $7.5 million equity growth investment V-CO Investors LLC, a Wyoming limited liability company (“V-CO”), which is an affiliate of New Seneca Partners, Inc. (“Seneca”), a leading North American private equity sponsor based in Southfield, Michigan. This investment materially bolstered our cash on hand and stockholders’ equity and has facilitated the launch of the new strategic alliance described below. We hope this will lead to other similar alliances, which would positively impact our revenue growth.
On June 12, 2024, VSI Providers, PLLC, a wholly-owned subsidiary of the Company (“VSI”), and Rebis Health Holdings, LLC (“Rebis”), entered into a strategic alliance agreement (the “SAA”) providing for a joint marketing and distribution arrangement under which each party’s products and services will be offered together as a comprehensive solution to patients seeking sleep apnea treatment. Rebis and its affiliates operate multiple sleep testing and treatment centers in Colorado. VSI has a network of licensed dental professionals trained in providing various sleep apnea treatment-related services and, through its affiliates, access to additional products and services related to sleep apnea treatment. The Company and V-CO are third-party beneficiaries of the SAA. Under the SAA VSI is providing Rebis with access to licensed dental professionals trained in providing certain dental services (each a “VSI Dental Provider”) to provide such dental services in designated practice locations (as described in the SAA); provided, that nothing in the SAA restricts Rebis’ right to utilize the dental services of its own employees in a similar capacity as the VSI Dental Providers. Pursuant to the SAA, Rebis will be entitled to receive from VSI an agreed upon percentage of patient payments collected by VSI Dental Providers, less certain administrative fees charged by VSI and agreed to direct cost deductions.
The term of the SAA commences as of June 10, 2024, and continues for a period of two (2) years unless sooner terminated. At the end of the initial term of the agreement, the SAA will automatically renew for additional one (1) year terms unless either party gives written notice of its intent not to renew at least sixty (60) days prior to the end of the then-current term. VSI and Rebis each may terminate the SAA (subject to applicable notice and cure periods) on breaches of the SAA, bankruptcy, and similar events. The SAA contains standard covenants regarding compliance with applicable laws, a two year non-solicitation of personnel provision, intellectual property, insurance and maintaining the confidentiality of communications and proprietary information. The SAA also contains customary representations and warranties of the parties, indemnification, and liability limitations.
We are aiming to replicate the marketing and distribution alliance memorialized by the SAA with other healthcare professionals as part of a growing network of providers who offer The Vivos Method as an alternative treatment for mild to severe OSA. We believe this will provide us with an important opportunity to increase our revenues going forward.
Management Services Agreement. Airway Integrated Management Company, LLC, a Colorado limited liability company and a wholly owned subsidiary of the Company (“AIM”), and V-CO entered into a management services agreement (the “MSA”). The purpose of the MSA is to create an incentive for V-CO to assist in establishing and growing our strategic alliance with Rebis.
Pursuant to the MSA, V-CO will provide certain management, consulting, and advisory services to the Company related to the SAA. The term of the MSA commences on June 10, 2024, and continues until the later of (i) June 10, 2027 or (ii) such time as V-CO has received two (2) times its original investment in the Private Placement (the “MSA Term”). The MSA will automatically renew for additional terms of one (1) year unless any party sooner terminates the agreement in accordance with the terms of the MSA. During the MSA Term, V-CO will provide to the Company and AIM oversight, management consulting and advisory services, including, without limitation: (i) management of general and administrative expenses of the SAA, (ii) advice on strategy of the SAA with a view towards maximizing the revenue and profit generated by the SAA, (iii) searches for additional potential sleep center operators to form strategic alliances with, (iv) making introductions to industry contacts of V-CO and its affiliates (including Seneca) for purposes of expanding the business and opportunities of the Company, AIM, VSI and the SAA, and (v) performing other services as may be reasonably requested from time to time by the Company, VSI or the AIM, and agreed to by V-CO, taking into account the level of compensation for services and other engagements that V-CO and its affiliates may have (collectively, the “Management Services”). As consideration for the Management Services, AIM has agreed to pay to V-CO for three (3) years a management fee equal to $37,500 per quarter, payable quarterly in arrears, with a minimum of $25,000 per quarter paid in cash and the remaining up to $12,500 per quarter paid in the form of cash or restricted Common Stock, as decided by V-CO (the “Management Fee”). The value of restricted Common Stock, if any, paid as part of the Management Fee will be calculated based upon the average 5-day closing price of the Common Stock ending as of the end of each applicable quarter (or, if the Common Stock is not then publicly listed, as determined in good faith by the Board using industry standard valuation metrics).
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In addition to the Management Fee, V-CO will also receive a quarterly cash participation payment from AIM (the “Participation Payment”) equal to an agreed upon percentage of the net positive cash flow (as determined in accordance with U.S. generally accepted accounting principles) generated by the operations of the SAA and received by VSI pursuant to the SAA (“Net Cash Flow”). The Participation Payment shall accrue (the “Accrued Amount”) and not be paid until the Company on a consolidated basis is cash flow positive from operations, as reported in its SEC filings (the “Participation Trigger Event”) (meaning the Company shall receive all Net Cash Flow (if any) from VSI until the occurrence of the Participation Trigger Event). The Profit Participation shall continue to be earned quarterly until the later of such time as (i) V-CO receives an amount equal to two (2) times its investment in the Private Placement; or (ii) or June 10, 2027. The MSA contains customary covenants regarding confidentiality and indemnification. Under the MSA, V-CO will also assign to AIM or its affiliates V-CO’s entire right, title, and interest in any intellectual property it creates while working for or on behalf of AIM.
See Note 1 to the accompanying financial statements for additional background information on our Company and current product and service offerings.
Impact of COVID-19
Our business was materially impacted by COVID-19 in 2020 and to some extent thereafter and through the early part of 2023 due to the actions of governmental bodies that mandated quarantines and lockdowns that resulted in many of our VIPs and potential VIPs having to close their offices. The impact of COVID-19 on our business diminished somewhat through 2023. However, the residual effects of the pandemic on dental workforce availability as well as patient precautionary measures continued to negatively impact our VIP dental practices and our revenue across the U.S. and Canada during 2022 and into 2023. Thus far in 2024, we do not believe COVID-19 issues are impacting our business in any material way. We continue to monitor the overall landscape of potential viral or other diseases which may pose a threat, and we will respond appropriately should any such threats materialize.
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.
Establishment and Growth of Our New Strategic Alliance Model. We are placing significant emphasis on our new provider-based marketing and distribution model to grow our revenues. In June 2024, we announced the execution of a strategic marketing and distribution alliance with Rebis, an operator of multiple sleep testing and treatment centers in Colorado. This alliance, which we hope will be the first of a series of similar alliances across the country, marks an important pivot in our marketing and distribution model for our cutting edge OSA appliances. Under the new alliance, we are collaborating with Rebis to offer OSA patients a full spectrum of evidence-based treatments such as CPAP machines, and our own advanced, proprietary and FDA-cleared CARE oral medical devices, oral appliances and additional adjunctive therapies and methods. This new model differs from our current model which emphasizes a subscription-based relationship with our VIP dentists together with sales of our OSA devices to VIPs and the provision of services to VIPs. The new marketing and distribution strategic alliance is based on a revenue-sharing model between us and Rebis.
We are placing significant emphasis on establishing and growing this new model as a means of increasing our revenue. However, this new model is unproven and we have no operating history associated with this new model. There is therefore a lack of information for you to evaluate our future prospects utilizing this new model. Moreover, there is a material risk that this new model will not increase our revenues or be additive to our stockholders’ equity in the manner we anticipate. Our inability to introduce and scale this marketing and distribution model would materially harm our business and operating results and likely cause our stock price to suffer.
New VIP Enrollments (Service Revenue). Enrolling dental practices as VIPs has historically been the first step in our ability to generate new revenue (although the growth of strategic partner model could lessen our dependence on VIP enrollments). 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 modalities. 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.
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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 as the Company’s performance obligations are satisfied in accordance with ASC 606.
We are also engaging in strategic collaborations to market the benefits of the Vivos treatment modalities 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.
We recognize revenue on VIP enrollments once the contract is executed, payment is received, and as the Company’s performance obligations are satisfied in accordance with ASC 606.
Product Sales Revenue. Throughout the latter part of 2023 and into the second quarter of 2024, the Company experienced a decline in Product Sales Revenue. As previously noted, we believe this decline was due in part to certain adverse events in the larger sleep apnea oral appliance market, and not specific to Vivos. Another factor contributing to the decline was our Reductions In Force (RIF) which we undertook during 2022 and 2023. However, those product sales revenue declines began to reverse somewhat in the second quarter of 2024. Enrolling new VIPs has historically been key to our ability to generate revenue from product sales, and lower VIP enrollments during 2023 and into the first quarter of 2024 also dampened product sales revenue. Equally as important, however, is the number of Vivos treatment case starts that our existing 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. Approximately 32% of our VIPs initiated a new case as of September 30, 2024. 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.
In addition, an important aspect of our strategy to increase product revenues relates to the products and related intellectual property we acquired in March 2023 from Advanced Facialdontics, LLC (“AFD”), including a custom single arch device with an FDA 510(k) clearance for treating TMD and/or Bruxism (teeth grinding or clenching). We have rebranded the AFD products as Vivos VidaTM and Vivos Vida SleepTM. During the first quarter of 2024, certain of those products were among the fastest growing segment of our entire product line, and we expect to continue to increase sales of these acquired products throughout the remainder of 2024 and beyond.
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 allows 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. As we cautioned previously, DSOs tend to move slowly when adopting new technologies or programs, and we do not expect DSO training or product sales to materially impact overall revenue in 2024. 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 subscription program was 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 program has not contributed meaningful revenue in the first nine months of 2024.
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Clinical Trial Work. Our efforts to engage in research to demonstrate the clinical efficacy of our products and obtain additional regulatory clearances for the use of our products is an important aspect of our overall strategy. In this regard, on May 29, 2023, we and Stanford University executed an agreement to commence a sponsored clinical research study to evaluate the efficacy of our FDA-cleared DNA appliance compared to the standard of care, CPAP for treatment of sleep apnea. Our DNA device is currently indicated for the treatment of mild to severe sleep apnea and jaw repositioning in adults (and in the case of severe OSA, along with positive airway pressure (PAP) and/or myofunctional therapy, as needed). Enrollment of 150 patients with moderate to severe sleep apnea (apnea-hypopnea index score of 15 or greater) will be randomly assigned to either treatment with our FDA-cleared DNA appliance or CPAP. The protocol has been finalized and the initial start-up fees have been incurred, however, the timing of the enrollment of patients is being determined. This trial may not meet its designated endpoints, and therefore additional FDA clearances for the DNA device may not be obtained.
Distribution Agreements. During 2023, we entered into distribution collaborations with third parties to expand access of our products to potential patients. For example, the SAA with Rebis is expected to deliver our proprietary treatment options and protocols to mild to severe OSA patients who have failed being candidates for CPAP. By collaborating with Rebis and other similar sleep clinics, we will be able to drive top line revenue and lower customer acquisition costs and overhead. We hope that these strategic initiatives will lead to revenue growth opportunities for us in 2024 and beyond, and our ability to capitalize on these initiatives is expected to be a material aspect of our sales and marketing program going forward.
On June 1, 2023, we entered into a non-exclusive distribution agreement with Lincare, a leading supplier in the United States of respiratory products, such as CPAP equipment. Lincare currently provides respiratory products to approximately 1.8 million patients nationwide. Pursuant to this agreement, Lincare began to distribute certain of our products in the United States, including the Vida™, VidaSleep™, and Versa®. The distribution agreement was subject to a 90-day pilot program in Colorado and Florida. Within weeks of starting the pilot program, Lincare reported an initial 36% positive patient response to our products subject to the agreement.
In October 2023, we announced an exclusive distribution agreement with NOUM DMCC, a Dubai-based company focused on diagnostic testing and treatment product distribution for healthcare providers and hospital networks treating obstructive sleep apnea patients throughout the Middle East-North Africa region. Subject to regulatory approvals, which are pending in several countries under the agreement, we could see revenue from this collaboration in the latter part of 2024.
Impact on Sales from Unregistered Oral Appliance Publicity. On or about March 1, 2023, CBS News reported the tragic case of a woman with a malocclusion and breathing problem who had received treatment via a fixed oral appliance known as the AGGA (Anterior Growth Guidance Appliance). The AGGA is a non-FDA cleared oral appliance developed by Dr. Steve Galella, a dentist from Tennessee. According to the televised CBS report, the device created serious issues with her dentition and jaws, resulting in the loss of several anterior teeth. The patient filed a $10 million lawsuit against the treating dentist.
Vivos was not named in the lawsuit, nor was our device implicated in creating the tooth displacement and other concerns that gave rise to the lawsuit. Vivos has never had any association or affiliation with the AGGA device or its promoters, nor has the Company ever endorsed these kind of counterfeit fixed oral appliances that make unproven and unsubstantiated claims.
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The FDA regulates and categorizes all medical devices claiming to treat obstructive sleep apnea (OSA) and/or TMD disorders as Class II devices and requires that they have a 510(k) clearance in order to be used with patients. The AGGA device does not have any such FDA clearance, nor are there any known peer-reviewed and published studies validating the safety and efficacy of this device. In stark contrast, all Vivos oral appliances are duly registered or cleared by the FDA according to strict FDA guidelines. Our appliances and attending protocols for proper use are also backed by extensive peer reviewed published research. Moreover, Vivos appliances operate on a completely different mechanism of action than that of the AGGA and similar devices on the market. Vivos has always maintained that such appliances tend to create inflammation and pose other risks that are unacceptable. The AGGA is a fixed appliance, whereas Vivos appliances are removable devices.
Unfortunately, and despite our best efforts to distance ourselves and our products from the AGGA device, the entire matter generated a certain amount of confusion and fear amongst both existing VIP dentists and other non-affiliated dentist prospects. Thus, new provider enrollments and sales of Vivos appliances in the first quarter 2023 decreased as word spread. By the latter part of June 2023, we began to see a partial rebound in new enrollments. Nevertheless, certain Vivos-trained providers remain very cautious and are being far more selective in their cases, which has continued to impact appliance sales through the end of 2023 and into 2024.
Our core product is The Vivos Method, not any one single device. We believe this is a key distinguishing factor for our approach. The Vivos Method involves far more than just our oral appliances. It begins with proper and thorough diagnosis and ends with a customized multidisciplinary treatment plan that likely incorporates one or more of several treatment modalities, including oral myofunctional therapy, SOT chiropractic, physical therapy, laser therapy, nutritional counseling, CPAP, mandibular advancement, CARE device therapy, and more. The Vivos Method is thus a fully integrated end-to-end diagnostic, training, and treatment platform that can adapt to the needs of virtually any and every breathing disordered sleep patient.
Inflation. The U.S. has been experiencing 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. In addition, future price adjustments may be required as we seek to grow revenue and, ultimately, achieve profitability and positive cash flow from operations.
An additional inflation-related risk is the Federal Reserve's involvement with interest rates with recent history both increasing and decreasing interest rates in order to manage inflation. Such actions have, in times past, created unintended consequences in terms of the impact on housing starts, overall manufacturing, capital markets, and banking. If such disruptions become systemic, as occurred in the recession of 2008, then the impact on our revenue, earnings and access to capital of both inflation and inflation-fighting responses would be impossible to know or calculate.
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, the fourth quarter tends to be one where we see higher enrollment levels for new VIP dentists, however, as previously mentioned reported, in the fourth quarter of 2023 we did not see that same pattern emerge. The first and second quarters of each year tend to be our weakest quarter of the year for new enrollments, and to a certain extent, appliance sales as well. This was the case in the first half of 2023 and in the first quarter of 2024. 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 in the future depending on these and other factors.
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War in Ukraine and Middle East Hostilities. In addition, worldwide supply chain constraints and economic and capital markets uncertainty arising out of Russia’s invasion of Ukraine in February 2022 and the attacks by Hamas on Israel in October of 2023 and Israel’s responses (including recent military engagement in Lebanon and with Iran) have disrupted commercial and capital markets, and emerged as potential 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 capital when needed.
Potential Nasdaq Delisting. As previously reported, on May 16, 2024, the Company received written notice from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, as of March 31, 2024, the Company failed to comply with Nasdaq Listing Rule 5550(b)(1), which requires stockholders’ equity of at least $2.5 million (the “Equity Requirement”). On June 25, 2024, the Company reported in a Current Report on Form 8-K that it believed it had stockholders’ equity of at least $2.5 million as of the date of the filing of such report as a result of the Company’s closing of a $7.5 million equity private placement on June 10, 2024.
On June 27, 2024, the Company met with a Nasdaq Hearings Panel (the “Panel”) to discuss the Company’s past, current, and anticipated future compliance with the Equity Requirement, and requested the continued listing of its securities on Nasdaq. On July 5, 2024, the Company was notified that the Panel had granted the Company’s request for continued listing on Nasdaq, subject to the Company’s filing of the Form 10-Q for the quarter ended June 30, 2024, with the SEC by August 15, 2024, evidencing the Company’s compliance with the Equity Requirement.
The Company is working diligently to ensure its continued compliance with the Equity Requirement, including its $4.3 million shelf offering in September 2024 as well as exploring potential additional equity capital financings to stay above the minimum threshold of the Equity Requirement. The Company anticipates that its previously disclosed strategic marketing and distribution alliance will also positively impact the Company’s revenue growth and stockholders’ equity in upcoming fiscal quarters. However, there is a risk that the Company will be unable to raise sufficient capital or generate sufficient revenue or operating results to maintain compliance with the Equity Requirement. If the Company fails to achieve ongoing compliance and its common stock is delisted by Nasdaq, such delisting would likely have a material adverse effect on the Company’s stock price, the ability of its stockholders to buy or sell their common stock, the ability of the Company to raise capital and on the Company’s reputation, all of which could make it significantly more difficult to operate the Company.
Key Components of Condensed Consolidated Statements of Operations
Net revenue. We recognize revenue when we satisfy our performance obligations over time as our customers receive the benefit of the promised goods and services, which generally occurs over a short period of time. Performance obligations with respect to appliance sales are typically satisfied by shipping or delivering products to our VIPs or, in the case of enrollment or service revenue, upon our satisfaction of performance obligations associated with VIP enrollments. Net 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. A prior period amount of less than $0.2 million previously classified as “Loss on inventory write-down” has been reclassified to “Cost of sales” in the current period’s financial statements to better reflect the nature of these transactions and to enhance the comparability of financial statemen line items across periods.
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.
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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 interest income in 2024, as well as excess warrant fair value and change in fair value of warrant liability in 2023.
Results of Operations
Comparison of the three and nine months ended September 30, 2024 and 2023
Our consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 are presented below (dollars in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Product revenue | $ | 1,958 | $ | 1,466 | $ | 492 | $ | 5,608 | $ | 4,783 | $ | 825 | ||||||||||||
| Service revenue | 1,902 | 1,835 | 67 | 5,725 | 5,770 | (45 | ) | |||||||||||||||||
| Total revenue | 3,860 | 3,301 | 559 | 11,333 | 10,553 | 780 | ||||||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 1,526 | 1,554 | (28 | ) | 4,411 | 4,371 | 40 | |||||||||||||||||
| Gross profit | 2,334 | 1,747 | 587 | 6,922 | 6,182 | 740 | ||||||||||||||||||
| Gross profit % | 60 | % | 53 | % | 61 | % | 59 | % | ||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| General and administrative | 4,487 | 4,596 | (109 | ) | 13,531 | 17,012 | (3,481 | ) | ||||||||||||||||
| Sales and marketing | 346 | 641 | (295 | ) | 1,319 | 1,861 | (542 | ) | ||||||||||||||||
| Depreciation and amortization | 146 | 150 | (4 | ) | 437 | 472 | (35 | ) | ||||||||||||||||
| Operating loss | (2,645 | ) | (3,640 | ) | 995 | (8,365 | ) | (13,163 | ) | 4,798 | ||||||||||||||
| Non-operating income (expense) | ||||||||||||||||||||||||
| Other expense | (18 | ) | (53 | ) | 35 | (42 | ) | (198 | ) | 156 | ||||||||||||||
| Excess warrant fair value | - | - | - | - | (6,453 | ) | 6,453 | |||||||||||||||||
| Change in fair value of warrant liability, net of issuance costs of $645 | - | 1,600 | (1,600 | ) | - | 10,362 | (10,362 | ) | ||||||||||||||||
| Other income | 47 | - | 47 | 98 | 128 | (30 | ) | |||||||||||||||||
| Net loss | $ | (2,616 | ) | $ | (2,093 | ) | $ | (523 | ) | $ | (8,309 | ) | $ | (9,324 | ) | $ | 1,015 | |||||||
Comparison of the three months ended September 30, 2024 and 2023
Revenue
Revenue increased by approximately $0.6 million, or 17%, to approximately $3.9 million for the three months ended September 30, 2024 compared to $3.3 million for the three months ended September 30, 2023. The increase in total revenue during the third quarter of 2024 due to an increase of approximately $0.5 million in product revenue due to higher product sales and an increase of approximately $0.1 million in service revenue. The increase in product revenue is attributable to an increase of approximately $0.4 million in appliances sales and approximately $0.1 million in guide sales to existing VIPs. The increase in service revenue is attributable to an increase of approximately $0.2 million in sponsorship, seminar and other service revenue, offset by a decrease of $0.1 in VIP enrollments and Myofunctional therapy revenues. Lastly, BIS and sleep testing services revenue remained flat for the three months ended September 30, 2024 and 2023.
During the three months ended September 30, 2024, we enrolled 5 VIPs and recognized VIP enrollment revenue of approximately $0.9 million, a decrease of approximately 6% in enrollment revenue, compared to the three months ended September 30, 2023, when we enrolled 29 VIPs for a total of approximately $1.0 million in revenue. Revenue decrease in the third quarter of 2024 was impacted by a reduction in VIP enrollments due to a change in sales strategy and focus toward sleep center affiliations, offset by a higher incidence of breakage in contracts. This accelerated revenue recognition on several contracts for VIPs who did not complete their training during the first 90 days of their enrollment. Approximately $0.5 million in revenue was attributable to breakage during the three months ended September 30, 2024, when compared to approximately $0.3 million during the three months ended September 30, 2023.
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For the three months ended September 30, 2024, we sold 1,954 oral appliance arches for a total of approximately $2.0 million, a 34% increase in revenue from the three months ended September 30, 2023, when we sold 1,809 oral appliance arches for a total of approximately $1.5 million. The increase in revenue is directly attributable to an 83% decrease in discounts for such appliances, offered during the same period, with less than $0.1 million in discounts offered during the three months ended September 30, 2024 when compared to approximately $0.2 million during the three months ended September 30, 2024. Refer to the section “Material Items, Trends and Risks Impacting Our Business” above for events that impacted our product sales.
Cost of Sales and Gross Profit
Cost of sales remained relatively constant with a decrease of less than $0.1 million or 2% at approximately $1.5 million for the three months ended September 30, 2024, compared $1.6 million for the three months ended September 30, 2023. This was primarily related to $0.1 million decrease in sleep testing reporting and $0.1 million decrease in VIP training related costs, due to lower enrollments and fewer training sessions scheduled during the period.
For the three months ended September 30, 2024, gross profit increased by approximately $0.6 million to $2.3 million. This increase was attributable to an increase in revenue of approximately $0.6 million. Gross margin increased to 60% for the three months ended September 30, 2024, compared to 53% for the three months ended September 30, 2023, due primarily to the revenue increase.
General and Administrative Expenses
General and administrative expenses decreased approximately $0.1 million, or approximately 2%, to approximately $4.5 million for the three months ended September 30, 2024, as compared to $4.6 million for the three months ended September 30, 2023. The primary driver of this decrease was $0.1 million in employee compensation, including salaries and benefits, paid time off, stock-based compensation, and other employee-related expenses, as a result of the reduction in force implemented during the second and third quarter of 2023 and 2024. Coupled with a decrease of approximately $0.1 million in travel, meals and entertainment, and a decrease of approximately $0.1 million related to taxes, licenses and other fees. This was offset by an increase of approximately $0.2 million related to professional fees including fees for consultants and legal services.
Sales and Marketing
Sales and marketing expenses decreased by approximately $0.3 million or approximately 46%, to $0.3 million for the three months ended September 30, 2024, compared to approximately $0.6 million for the three months ended September 30, 2023. This decrease was primarily driven by lower commissions and digital media and marketing supplies.
Depreciation and Amortization
Depreciation and amortization expense was approximately $0.1 million for the three months ended September 30, 2024 and 2023. Depreciation and amortization decreased slightly during the period due to some assets being fully depreciated and a small amount of depreciable assets placed into service.
Other Income
Other income of less than $0.1 million includes interest income from financial institutions.
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Excess warrant fair value and change in fair value of warrant liability, net of issuance costs
The liability for the warrants issued in the January 9, 2023 private placement totaled approximately $14.5 million which included 186,667 pre-funded warrants with a fair value of approximately $6.7 million and 266,667 additional common stock purchase warrants with a fair value of approximately $7.7 million. The difference between the fair value of the $14.5 million liability-classified warrants and the net proceeds received of approximately $8.0 million, or approximately $6.5 million, was recognized as a day-one non-operating expense. The change in fair value of the warrant liability was $1.6 million for the three months ended September 30, 2023 was driven by a decrease of 62% in the stock price or approximately $7.95 per share during the period. The derivative warrant liability was eliminated in November 2023, and as a result, no change in fair value of warrant liability was recorded in the third quarter of 2024.
Comparison of the nine months ended September 30, 2024 and 2023
Revenue
Revenue increased approximately $0.8 million, or 7%, to approximately $11.3 million for the nine months ended September 30, 2024 compared to $10.6 million for the nine months ended September 30, 2023. The increase in revenue during the nine months of 2024 due to an increase of approximately $0.8 million in product revenue due to higher product sales. The increase in product revenue is attributable to an increase of approximately $0.5 million in appliances sales, coupled with an increase of approximately $0.3 million in guide sales to existing VIPs. The decrease in service revenue is attributable to a decrease of approximately $0.2 million in Myofunctional therapy revenues followed by a decrease of approximately $0.2 million in VIP enrollment revenue. This was offset by an increase of approximately $0.3 million in sponsorship, seminar and other service revenue, and an increase of approximately $0.1 million in sleep testing services. BIS revenue remained unchanged for the nine months ended September 30, 2024 and 2023.
During the nine months ended September 30, 2024, we enrolled 87 VIPs and recognized VIP enrollment revenue of approximately $3.0 million, a decrease of approximately 6% in enrollment revenue, compared to the nine months ended September 30, 2023, when we enrolled 110 VIPs for a total of approximately $3.2 million. Revenue decrease in the first nine months of 2024 was due to changes to key inputs in our revenue recognition methodology, primarily estimated customer lives. As part of our annual process, the estimated customer lives are calculated separately for each year and was estimated to be 27 months in 2024, an increase of 17%, compared to 23 months in 2023, and an even higher increase of 50% when compared to 18 months in 2022. Estimated customer lives impacts the amortization of revenue to be spread over a longer period of time, thus decreasing the revenue that is recognized over the same period when compared to 2023. Although such adjustment to customer lives negatively impacts our revenue recognition, increasing estimated customer lives results in customers staying active for a longer period of time, thus increasing our customer retention year-over-year. Additionally, our revenue was lowered by a sales strategy shift and focus toward sleep center affiliations, coupled with lower enrollments late 2023 and all of 2024, which resulted in lower service revenue for the nine months ended September 30, 2024. This was offset by a higher incidence of breakage in contracts, this accelerated revenue recognition on several contracts for VIPs who did not complete their training during the first 90 days of their enrollment. Approximately $1.5 million in revenue was attributable to breakage during the nine months ended September 30, 2024, when compared to approximately $0.4 million during the nine months ended September 30, 2023.
For the nine months ended September 30, 2024, we sold 5,993 oral appliance arches for a total of approximately $5.6 million, a 17% increase in revenue from the nine months ended September 30, 2023, when we sold 6,261 oral appliance arches for a total of approximately $4.8 million. The increase is directly attributable to a 66% decrease in discounts offered during the same period, with less than $0.2 million in discounts offered during the nine months ended September 30, 2024 when compared to approximately $0.6 million of discounts offered during the nine months ended September 30, 2023. Refer to the section “Material Items, Trends and Risks Impacting Our Business” above for events that impacted our product sales.
Cost of Sales and Gross Profit
Cost of sales remained relatively constant with an increase of less than $0.1 million, or 1%, at approximately $4.4 million for the nine months ended September 30, 2024, compared to slightly under $4.4 million for the nine months ended September 30, 2023. This was primarily due to $0.7 million in higher costs directly related to an increase in lab fees from our primary vendors, offset by a decrease of less than $0.3 million related to lower costs associated with the ring lease program and a decrease of slightly over $0.2 million in VIP training, and a decrease of approximately $0.2 million for inventory obsolescence expense.
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For the nine months ended September 30, 2024, gross profit increased by approximately $0.7 million to $6.9 million. This increase was attributable to an increase in revenue of approximately $0.8 million offset by an increase in cost of sales of less than $0.1 million. Gross margin increased to 61% for the nine months ended September 30, 2024, compared to 59% for the nine months ended September 30, 2023.
General and Administrative Expenses
General and administrative expenses decreased by approximately $3.5 million, or approximately 20%, to approximately $13.5 million for the nine months ended September 30, 2024, as compared to $17 million for the nine months ended September 30, 2023. The primary cause of this decrease was $1.6 million in professional fees and a change in personnel and related compensation of approximately $1.1 million, including salaries and benefits, paid time off, stock-based compensation, and other employee-related expenses, as a result of the reduction in force implemented beginning with the second and third quarter of 2023 and 2024. Other cause of the decrease in general and administrative expenses included a decrease of approximately $0.2 million related to change in allowance for credit losses, a decrease of approximately $0.3 million related to insurance, a decrease of approximately $0.2 million in travel, meals and entertainment, and a decrease of approximately $0.1 million in training and education. This was offset by an increase of approximately $0.1 million in fees related to being a public company.
Sales and Marketing
Sales and marketing expenses decreased by $0.5 million or 29% to $1.3 million for the nine months ended September 30, 2024, compared to approximately $1.9 million for the nine months ended September 30, 2023. This decrease was primarily driven by lower commissions and digital media and marketing supplies.
Depreciation and Amortization
Depreciation and amortization expense was approximately $0.4 million for the nine months ended September 30, 2024 and approximately $0.5 million for the nine months ended September 30, 2023. Depreciation and amortization decreased slightly during the period due to some assets being fully depreciated and a small amount of depreciable assets placed into service.
Other Income
Other income of less than $0.1 million includes interest income from financial institutions.
Excess warrant fair value and change in fair value of warrant liability, net of issuance costs
The liability for the warrants issued in the January 9, 2023 private placement totaled approximately $14.5 million which included 186,667 pre-funded warrants with a fair value of approximately $6.7 million and 266,667 additional common stock purchase warrants with a fair value of approximately $7.7 million. The difference between the fair value of the $14.5 million liability-classified warrants and the net proceeds received of approximately $8.0 million, or approximately $6.5 million, was recognized as a day-one non-operating expense. The change in fair value of the warrant liability was approximately $10.2 million, or $9.6 million of other income net of issuance costs of $0.6 million, for the nine months ended September 30, 2023. The net impact of the private placement warrants for the nine months ended September 30, 2023 was approximately $3.9 million of other income. The derivative warrant liability was eliminated in November 2023, and as a result, no change in fair value of warrant liability was recorded nine month ended September 30, 2024.
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 $8.3 and $9.3 million for the nine months ended September 30, 2024 and 2023, respectively, resulting in an accumulated deficit of approximately $101.4 million as of September 30, 2024.
Net cash used in operating activities amounted to approximately $9.8 and $9.2 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company had total liabilities of approximately $7.7 million.
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As of September 30, 2024, we had approximately $6.3 million in cash and cash equivalents, which will not be sufficient to fund operations and strategic objectives over the next twelve months from the date of issuance of these financial statements. Without additional financing, these factors raise substantial doubt regarding our ability to continue as a going concern.
We have implemented cost savings measures that lead to reduced impact to cash used in operations. However, sales did not grow in 2023 or in the first half of 2024 as anticipated, as our product offerings and strategies continue to be refined. As such, we have raised equity capital in late 2023 and early 2024 and will be required to obtain additional financing to satisfy our cash needs and bolster our stockholders’ equity for Nasdaq compliance purposes, as management continues to work towards increasing revenue to achieve cash flow positive operations in the foreseeable future.
Until a state of cash flow positivity is reached, management is reviewing all options to obtain additional financing to fund operations. This financing is expected to come primarily from the issuance of equity securities in order to sustain operations until we can achieve profitability and positive cash flows, if ever. We expect the SAA with Rebis to increase patient volume, drive top line revenue and lower customer acquisition costs and overhead. However, there can be no assurances that adequate additional funding will be available on favorable terms, or at all. If such funds are not available in the future, or that our SAA agreement will result in the patient volume and financial results within the expected timeline and we may be required to delay, significantly modify or terminate some or all of our operations, all of which could have a material adverse effect on us and our stockholders.
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.
Cash Flows
The following table presents a summary of our cash flow for the nine months ended September 30, 2024 and 2023 (in thousands):
| 2024 | 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (9,751 | ) | $ | (9,198 | ) | ||
| Investing activities | (403 | ) | (688 | ) | ||||
| Financing activities | 14,822 | 7,355 | ||||||
Net cash used in operating activities of approximately $9.8 million for the nine months ended September 30, 2024 is an increase of approximately $0.6 million compared to net cash used in operating activities of approximately $9.2 million for the nine months ended September 30, 2023. This increase is due primarily to a $1.2 million decrease in account payable for the nine months ended September 30, 2024, a decrease of $0.7 million of prepaid expenses and other assets, $0.5 million in accounts receivable, a decrease of approximately $0.5 million in contract liability, and a decrease of approximately $0.4 million in accrued expenses and other liabilities. This was offset by the absence of a 2023 unfavorable net change in the fair value of warrant liability of approximately $3.9 million.
For the nine months ended September 30, 2024, net cash used in investing activities consisted of capital expenditures for software of $0.4 million related to the development of software for internal use expected to be placed in service in 2024. This compares to net cash used in investing activities for the nine months ended September 30, 2023 of $0.7 million due to capital expenditures for internally developed software and an asset purchase.
Net cash provided by financing activities of $14.8 million for the nine months ended September 30, 2024, is attributable to proceeds of $15.7 million from the issuance of Common Stock and Warrants, net of approximately $0.9 million of professional fees and other issuance costs, in our February warrant inducement, as well as the June and September private placements. This compares to net cash used in investing financing for the nine months ended September 30, 2023 of $7.4 million, attributable to gross proceeds of $8.0 million from the issuance of Common Stock, net of approximately $0.6 million of professional fees and other issuance costs, from our private placement in January 2023.
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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 Involving Management Estimates and Assumptions” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as amended. 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 and nine months ended September 30, 2024.
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 condensed 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 condensed consolidated financial statements included in this Report.
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.
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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. 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 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, 2023, as amended (the “Form 10-K”).
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 Annual Report on Form 10-K. Our remediation plan, which we implemented in 2023, included: (i) increasing dedicated personnel and the use of third-party consultants with technical account expertise, (ii) improving our internal reporting processes, (iii) designing and implementing new controls, and (iv) enhancing our supporting technology. In particular, we believe we have significantly improved our revenue recognition procedures, our technical accounting capabilities, including with respect to accounting for our outstanding warrants, and process-level control activities.
As of September 30, 2024, we have taken strides to complete the full remediation of all of our internal control deficiencies and associated material weakness by undertaking the plan noted above. We believe that additional review and testing is required in the coming periods during 2024 before we can affirmatively declare that the material weakness has been fully remediated.
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. We expect to engage in this testing during 2024. However, we cannot provide assurance that these or other measures will fully remediate our material weaknesses in a timely manner. If our remediation of these material weaknesses is not effective, it may cause our company to become subject to investigation or sanctions by the SEC. It may also adversely affect investor confidence in our company and, as a result, the value of our common stock. There can be no assurance that all existing material weaknesses have been identified, or that additional material weaknesses will not be identified in the future.
Changes in Internal Control over Financial Reporting
Except as described above, 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 three and nine months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Below is a description of our outstanding pending litigation matters. Litigation is subject to inherent uncertainties and an adverse result in the below described or other matters may arise from time to time that may harm our business.
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 June 21, 2022, the Tenth Circuit entered an order and judgment. Pursuant to such order, the appeal was terminated, and the case remanded to the U.S. District Court for the District of Colorado for further proceedings. On July 13, 2022, the Clerk of Court for the Tenth Circuit transferred jurisdiction back to the District Court. On February 14, 2024, the District Court issued an order denying Ortho-Tain’s motion to dismiss after analyzing the issue of litigation privilege under the standard ordered by the Tenth Circuit. In response, Ortho-Tain filed a notice of appeal of the District Court’s order on February 14, 2024. The appeal has been docketed in the Tenth Circuit, and the record has been completed. On March 5, 2024, Vivos filed a motion to dismiss the appeal for lack of jurisdiction. Ortho-Tain filed its response to the motion to dismiss on March 19, 2024. Vivos’ reply in support of the motion to dismiss was filed on March 26, 2024. On March 20, 2024, the Court ordered that Vivos’ motion to dismiss for lack of jurisdiction would be referred to the panel of judges to be assigned to the appeal, and that no ruling on the motion to dismiss would be issued at that time. Ortho-Tain filed its opening brief on April 29, 2024. Vivos filed its Answer Brief on May 29, 2024. Ortho-Tain filed its response brief on June 20, 2024.
On July 22, 2020 Ortho-Tain filed a Complaint at Law (the “Ortho-Tain Complaint”) in the United States District Court for the Northern District of Illinois naming Vivos, along with the Company’s Chief Executive Officer, R. Kirk Huntsman, Benco Dental Supply Co., Dr. Brian Kraft, Dr. Ben Miraglia, and Dr. Mark Musso. The Ortho-Tain Complaint 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 the Company and Benco Dental. Ortho-Tain also alleges that the actions of the defendants, including the 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 the Company’s Chief Executive Officer, R. Kirk Huntsman. On September 9, 2020, the Company moved to dismiss the claims against it. On May 14, 2021, the United States District Judge entered an order granting the Company’s motion to stay this case pending the outcome of a substantially similar, first-filed suit by the Company pending in the United States District Court for the District of Colorado. In light of the stay, the Court denied, without prejudice, the Company’s pending motion to dismiss. On March 2, 2023, the Court lifted the stay.
The Defendants renewed their motions to dismiss. On August 23, 2024, the Court issued its order partially granting the motions to dismiss. Ortho-Tain subsequently sought leave to amend its Complaint to try and address the deficiencies identified by the Court in its August 23, 2024 order. The Defendants opposed the Motion for Leave to Amend, and, on October 9, 2024, the Court held a hearing to address the Motion for Leave to Amend. The Court denied Plaintiff’s Motion for Leave to File an Amended Complaint without Prejudice.
The Parties submitted a Joint Discovery Plan to the Court on October 21, 2024. On October 22, 2024, the Court ordered the parties to exchange Rule 26(a)(1) initial disclosures by November 22, 2024 and Initial Written Discovery to Be Issued by the same date. The Court set a deadline of May 16, 2025 to Amend pleadings and July 30, 2025 to complete fact discovery.
On April 13, 2023, the Court ordered the parties to exchange Rule 26(a) disclosures by May 1, 2023 and issue initial written discovery by May 15, 2023. Further, the Court referred the matter to the Magistrate Judge to conduct a settlement conference. On April 28, 2023, the Court clarified that Dr. Musso’s court ordered participation in settlement and discovery did not waive his objections to personal jurisdiction and venue, and that Defendants did not need to file a response to the Complaint at this time. On June 2, 2023, the case was reassigned to the Hon. LaShonda A. Hunt. On July 11, 2023, the Magistrate Judge scheduled a settlement conference for September 1, 2023. On August 1, 2023, Judge Hunt set a deadline to refile motions to dismiss as August 15, 2023, stayed discovery pending resolution of the motions, and authorized the parties to cancel the settlement conference. The Company filed a motion to dismiss on August 15, 2023, and a reply brief on October 3, 2023. The Parties are currently awaiting a decision on the motion to dismiss.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
February 2024 Inducement
On February 14, 2024, we entered into a warrant inducement letter agreement (the “Inducement Agreement”) with the same institutional investor in the November 2023 Private Placement pursuant to which the investor agreed to exercise for cash the entirety of the Series B Warrant at an exercise price of $4.02 per share (with such exercise price being established for purposes of compliance with the listing rules of the Nasdaq Stock Market), resulting in gross proceeds to the Company of approximately $4.0 million. Pursuant to the Inducement Agreement, in consideration for the immediate exercise of the Series B Warrant in full, we agreed to issue to the investor, in a new private placement transaction (the “Inducement Transaction”): (i) a 5-year, Series B-1 Common Stock Purchase Warrant to purchase 735,296 shares of our common stock at an exercise price of $5.05 per share, and (ii) an 18-month, Series B-2 common stock purchase warrant to purchase 735,296 shares of our common stock at an exercise price of $5.05 per share (collectively, the “Inducement Warrants” and such aggregate 1,470,592 shares of Common Stock underlying the Inducement Warrants, the “Inducement Warrant Shares”). The Inducement Warrants are identical to each other, other than their dates of expiration, and are substantially identical to the Series B Warrant.
June 2024 Private Placement
On June 10, 2024, the Company, entered into a securities purchase agreement (the “SPA”) with V-CO Investors LLC, a Wyoming limited liability company (“V-CO”). V-CO is an affiliate of New Seneca Partners Inc., a Michigan corporation (“Seneca”), a leading independent private equity firm. Pursuant to the SPA, the Company sold to V-CO in a private placement offering (the “Private Placement”): (i) 169,498 shares (the “Shares”) of the Company’s Common Stock, (ii) a pre-funded warrant to purchase 3,050,768 shares of Comon Stock (the “Pre-Funded Warrant”, with the shares of Common Stock underlying the Pre-Funded Warrant being referred to as the “PFW Shares”), and (iii) a Common Stock Purchase Warrant to purchase up to 3,220,266 shares of Common Stock (the “Common Stock Purchase Warrant, and together with the Pre-Funded Warrant, the “Warrants”, and with the shares of Common Stock underlying the Common Stock Purchase Warrant being referred to as the “Warrant Shares”).
V-CO paid a purchase price of $2.329 for each Share and Pre-Funded Warrant Share and associated Common Stock Purchase Warrant, with such price being established for purposes of compliance with the listing rules of the Nasdaq Stock Market LLC. The Private Placement closed on June 10, 2024. The Company received gross proceeds of $7,500,000 from the Private Placement. The Company intends to use the net proceeds from the Private Placement for general working capital and general corporate purposes. No placement agent was used in connection with the Private Placement. The Common Stock Purchase Warrant has a five year term, an exercise price of $2.204 per share and became exercisable immediately as of the date of issuance. The Pre-Funded Warrant has a term ending on the complete exercise of the Pre-Funded Warrant, an exercise price of $0.0001 per share and became exercisable immediately as of the date of issuance. The Warrants also contain customary stock-based (but not price-based) anti-dilution protection as well as beneficial ownership limitations that may be waived at the option of each holder upon 61 days’ notice to the Company.
The SPA provides that for a period of three (3) years from the closing of the offering, Seneca shall be entitled to (i) receive notice of any regular or special meeting of the Company’s board of directors (the “Board”) at the time such notice is provided to the members of the Board, (ii) receive copies of any materials delivered to the Company’s directors in connection with such meetings and (iii) allow one Seneca representative (who shall be an officer or employee of Seneca) to attend and participate (but not vote) in all such meetings of the Board. The SPA also includes standard representations, warranties, indemnifications, and covenants of the Company and V-CO.
The terms of the SPA require the Company to file a registration statement on Form S-3 or other appropriate form (the “Resale Registration Statement”) registering the Shares, the PFW Shares and the Warrant Shares (collectively, the “Registerable Securities”) for resale. Such Resale Registration Statement was filed with the SEC on July 30, 2024, and was declared effective by the SEC on August 7, 2024. Pursuant to the SPA, the Company must also use its commercially reasonable efforts to keep the Resale Registration Statement continuously effective (including by filing a post-effective amendment to the Resale Registration Statement or a new registration statement if the Resale Registration Statement expires) for a period of three (3) years after the date of effectiveness of the Resale Registration Statement or for such shorter period as such securities no longer constitute Registrable Securities, subject to certain limitations specified in the SPA.
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September 2024 Private Placement
On September 18, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors in connection with a registered direct offering (the “Offering”), priced at-the-market under Nasdaq Stock Market rules, to purchase 1,363,812 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”) at a purchase price of $3.15 per Share. No common stock purchase warrants were offered or issued to investors in the Offering. The Offering closed on September 20, 2024.
H.C. Wainwright & Co., LLC, pursuant an engagement agreement with the Company, dated May 2, 2024 and amended on August 2, 2024 (as amended, the “Engagement Agreement”), acted as the exclusive placement agent (the “Placement Agent”) for the Offering. Pursuant to the Engagement Agreement, the Company has paid the Placement Agent (i) a cash fee equal to 7.0% of the aggregate gross proceeds of the Offering, and (ii) a management fee of 1.0% of the aggregate gross proceeds of the Offering. The Company has also agreed to reimburse the Placement Agent for certain expenses and legal fees. In addition, the Company issued to the Placement Agent or its designees warrants (the “Placement Agent Warrants”) to purchase up to 95,467 shares of Common Stock (or 7% of the number of Shares sold in the Offering) at an exercise price of $3.9375 per share of Common Stock, exercisable beginning upon issuance until five years from the commencement of sales in the Offering.
The gross proceeds to the Company from the Offering were approximately $4.3 million, before deducting the Placement Agent’s fees and other offering expenses payable by the Company. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes.
The Shares were issued pursuant to an effective shelf registration statement on Form S-3 that was filed with the SEC (File No. 333-262554) on February 7, 2022 and declared effective on February 14, 2022. A prospectus supplement relating to the Offering has been filed with the SEC.
The Purchase Agreement contains customary representations, warranties and agreements of the Company and the investors and customary indemnification rights and obligations of the parties. Pursuant to the terms of the Purchase Agreement, the Company agreed to certain restrictions on the issuance and sale of its shares of Common Stock and securities convertible into shares of Common Stock for a period of 30 days following the closing of the Offering. The Company also agreed not to effect or agree to effect any Variable Rate Transaction (as defined in the Purchase Agreement) until one year following the closing of the Offering, subject to certain exceptions.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits, Financial Statement Schedules.
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q.
| (1) | Incorporated by reference to the Company’s Registration Statement on Form S-1, filed with the SEC on October 9, 2020. |
| (2) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 27, 2023. |
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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 14, 2024 | By: | /s/ R. Kirk Huntsman |
| R. Kirk Huntsman | ||
| Chairman of the Board and Chief Executive Officer | ||
| (principal executive officer) | ||
| Date: November 14, 2024 | By: | /s/ Bradford Amman |
| Bradford Amman | ||
| Chief Financial Officer and Secretary | ||
| (principal accounting officer) | ||
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