Vivos Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2023; filed June 8, 2023. The unaudited statements cover Vivos Therapeutics, a medical technology company commercializing oral appliances, treatments, training and related services for dentofacial abnormalities, snoring and obstructive sleep apnea through its Vivos Integrated Practice program.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $3.857 million | $3.644 million | 6% increase |
| Product revenue | $1.772 million | $2.049 million | $0.277 million decrease |
| Service revenue | $2.085 million | $1.595 million | $0.490 million increase |
| Gross profit | $2.337 million | $2.551 million | $0.214 million decrease |
| Gross margin | 61% | 70% | 9 percentage-point decrease |
| Operating loss | $5.005 million | $6.639 million | $1.634 million improvement |
| Net loss | $1.703 million | $5.331 million | $3.628 million improvement |
| Net loss per share | $0.07 | $0.25 | Improved |
| Net cash used in operating activities | $3.539 million | $6.082 million | $2.543 million improvement |
Service revenue growth was driven principally by higher VIP revenue, ring-lease revenue and conference/training revenue. Product revenue declined as oral appliance arches sold fell to 2,369 from 2,965. Cost of sales increased to $1.520 million from $1.093 million, primarily due to VIP enrollment, training, ring-lease and billing-service costs.
General and administrative expense declined 21% to $6.537 million, and sales and marketing expense declined to $0.630 million. The net loss benefited materially from noncash warrant accounting: the company recorded $9.628 million of income from the change in fair value of the warrant liability, partially offset by $6.453 million of excess warrant fair value expense. Q1 2022 included approximately $1.3 million of PPP loan-forgiveness income.
At March 31, 2023, cash and cash equivalents were $7.046 million, compared with $3.519 million at December 31, 2022. Total assets were $17.100 million, total liabilities were $10.107 million and stockholders’ equity was $6.993 million. The company reported no traditional borrowings; liabilities included $1.333 million of warrant liability, $2.897 million of contract liabilities and $2.315 million of operating lease liabilities.
Material changes versus the prior comparable period
- Total revenue increased 6%, but gross profit declined 8% and gross margin fell from 70% to 61%.
- VIP enrollment revenue increased to approximately $1.3 million; 38 VIPs were enrolled versus 32 in Q1 2022.
- Product revenue decreased approximately 14%, including lower appliance sales and lower company-owned dental-center revenue.
- Operating expenses decreased approximately $1.8 million, primarily from lower personnel-related, travel, insurance and corporate expenses.
- Operating cash burn improved, but remained substantial at $3.5 million for the quarter.
- The company completed a January 2023 private placement for gross proceeds of $8.0 million and net proceeds of approximately $7.4 million. The offering included 2.0 million common shares, pre-funded warrants for 4.667 million shares and warrants for 6.667 million shares.
- Common shares outstanding increased to 29.929 million at March 31, 2023 from 23.012 million at December 31, 2022. Potential dilution also increased materially; 12.372 million warrants and 3.119 million options were outstanding at quarter-end.
- In February 2023, the company acquired patents, product rights and other intellectual property from Advanced Facialdontics, LLC for $50,000 in cash and 250,000 shares, with additional contingent consideration possible.
Outlook, risks and unusual items
- Going concern: Management stated that $7.0 million of cash may not be sufficient to fund operations and strategic objectives for the next twelve months. The filing says substantial doubt exists regarding the company’s ability to continue as a going concern without additional financing.
- Financing dependence: Management expects it will likely need additional equity or debt financing. Availability and terms are uncertain, and additional equity financing could further dilute shareholders.
- Cash-flow objective: Management’s stated goal is to achieve positive cash-flow operations by the end of the first quarter of 2024.
- Cost reductions: Effective April 19, 2023, the company reduced its workforce by approximately 17%, or 27 employees. Management expects the action to reduce cash burn by approximately $0.5 million per quarter; severance was approximately $0.1 million.
- Product expansion: The company plans to commercialize products acquired from AFD, including the POD device. A 90-day, non-exclusive distribution trial with a respiratory-products supplier began June 1, 2023 and may be terminated by either party.
- Clinical research: A sponsored Stanford study comparing the DNA appliance with CPAP in 150 patients with moderate to severe sleep apnea is expected to begin enrollment later in 2023. The study may not meet its endpoints or lead to additional FDA clearances.
- Accounting controls: The company reported that disclosure controls were not effective because of a previously reported material weakness in internal control over financial reporting. The company also disclosed that Q1 2022 financial statements were restated because prior VIP enrollment revenue recognition was inconsistent with ASC 606.
- Operating risks: Key risks include slow adoption by dentists, low active VIP utilization, regulatory and FDA requirements, pricing and inflation pressure, supply-chain conditions, capital-market volatility, cybersecurity, and continuing effects of COVID-19 on dental staffing and patient volumes.
- Litigation: The company disclosed pending disputes involving Ortho-Tain and former executive Dr. G. David Singh, including litigation, arbitration and trade-secret claims. The filing does not provide a clear quantified exposure.
Important facts for investors to verify
- Whether the company can secure sufficient financing to address the disclosed going-concern uncertainty and fund operations until cash-flow breakeven.
- Whether the workforce reduction and other cost-saving measures achieve the expected $0.5 million quarterly cash-burn reduction.
- Whether revenue growth can continue despite declining appliance volumes and the 9 percentage-point gross-margin contraction.
- Whether the AFD products and distribution trial generate material incremental revenue and whether required regulatory clearances are obtained.
- Whether the Stanford clinical study supports additional product indications or FDA clearances.
- Whether the material weakness in internal controls is remediated and whether further revenue-recognition adjustments or restatements are required.
- The potential dilution and accounting volatility from the 12.372 million outstanding warrants, 3.119 million options and warrant-liability remeasurement.
- The status and potential financial impact of the disclosed litigation and arbitration matters.