Business Context and Reporting Period
This Form 8-K, filed on November 22, 2022, by Vivos Therapeutics, Inc. (VVOS), addresses a material weakness in internal controls and a required restatement of financial statements for the three-month period ended March 31, 2022. The filing details an accounting error regarding revenue recognition for Vivos Integrated Provider (VIP) enrollment fees, which was inconsistent with ASC Topic 606 and ASC Topic 842.
Key Financial Metrics and Adjustments
The filing focuses on the restatement of the Q1 2022 period. The company previously reported total revenue of approximately $3.5 million for this period. The restatement adjusts revenue recognition policies to recognize certain revenues over the expected customer life rather than a one-year period.
| Line Item | Reported (Q1 2022) | Adjustment | Restated (Q1 2022) |
|---|---|---|---|
| Total Revenue | $3,460,000 | +$184,000 | $3,644,000 |
| Product Revenue | $1,722,000 | +$327,000 | $2,049,000 |
| Service Revenue | $1,738,000 | -$143,000 | $1,595,000 |
| Net Loss | Not specified | Decrease of ~$0.2M | Not specified |
| Contract Liability | Not specified | Decrease of ~$0.2M | Not specified |
The filing does not provide current cash flow, debt, or liquidity figures for the reporting date, noting only that the restatement is not expected to have an adverse effect on operations or liquidity.
Material Changes Versus Prior Period
The primary material change is the correction of the revenue recognition methodology for VIP enrollments. Previously, the company recorded 50% of enrollment revenue in the month following enrollment and the remaining 50% over the subsequent 11 months. The new policy requires recognizing revenue over the expected customer life and assessing breakage. While the error existed in periods prior to Q1 2022, the company determined the impact on fiscal years 2019, 2020, and 2021 was quantitatively and qualitatively immaterial; therefore, the cumulative effect is being corrected solely in the Q1 2022 restatement.
Outlook, Risks, and Management Commentary
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2022. An additional material weakness related to revenue recognition was identified.
- Future Filings: The company expects to file the restated Form 10-Q for Q1 2022, as well as the Q2 and Q3 2022 reports, on or before December 31, 2022.
- Uncertainty: The financial adjustments provided are preliminary. The company states it can give no assurance that no further adjustments will arise upon completion of the restatement analysis.
- Business Impact: Management asserts the restatement will not adversely affect the company's operations, liquidity, or overall business plan.
Key Facts for Investor Verification
- Verify the final restated Q1 2022 financial statements when filed to confirm the $184,000 revenue increase and corresponding net loss reduction.
- Monitor the upcoming Q2 and Q3 2022 filings for the application of the new revenue recognition policy and any further adjustments.
- Review the company's remediation plan for the identified material weakness in internal controls over financial reporting.
- Confirm that the restatement does not trigger any covenant violations or other contractual obligations related to financial metrics.