Vivos Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2023; filed November 14, 2023. The unaudited statements cover a medical technology and services company selling oral appliances, sleep-testing products, provider training, VIP enrollment programs, billing and myofunctional therapy services for dentofacial conditions, snoring and mild-to-moderate obstructive sleep apnea.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $3.301 million | $4.246 million | $10.553 million | $12.074 million |
| Product revenue | $1.466 million | $2.014 million | $4.783 million | $6.357 million |
| Service revenue | $1.835 million | $2.232 million | $5.770 million | $5.717 million |
| Gross profit | $1.898 million | $2.496 million | $6.333 million | $7.635 million |
| Gross margin | 57% | 59% | 60% | 63% |
| Operating loss | $(3.489) million | $(5.407) million | $(13.012) million | $(18.968) million |
| Net loss | $(2.093) million | $(5.434) million | $(9.324) million | $(17.756) million |
| Basic and diluted loss per share | $(1.75) | $(6.40) | $(8.09) | $(20.90) |
All financial statement amounts above are in thousands unless otherwise noted. The company had $988,000 of cash and cash equivalents, $1.985 million of current assets and $7.167 million of current liabilities at September 30, 2023. Total liabilities were $10.271 million and stockholders’ equity was only $46,000, compared with $4.801 million at December 31, 2022. The accumulated deficit was $88.792 million.
The filing does not show conventional interest-bearing debt. Material obligations include a $600,000 warrant liability, $2.613 million of contract liabilities, employee retention credit liability of $1.220 million, and operating lease liabilities totaling approximately $2.104 million. Future minimum lease payments totaled approximately $2.507 million before imputed interest.
Net cash used in operating activities was $9.198 million for the first nine months of 2023, compared with $16.587 million in the prior-year period. Investing cash use was $688,000, primarily for internally developed software and an intellectual property purchase. Financing provided $7.355 million, consisting primarily of approximately $8.0 million of January 2023 private-placement proceeds less issuance costs.
Material changes versus the prior comparable period
- Third-quarter revenue declined 22% to $3.301 million. Product revenue decreased 27%, while service revenue decreased 18%.
- Nine-month revenue declined 13% to $10.553 million, primarily because appliance revenue fell $1.205 million and VIP revenue fell $419,000. Service revenue increased slightly because of higher sleep-testing revenue, partly offset by lower billing-services revenue.
- Q3 VIP enrollments declined to 29 from 56, and nine-month enrollments declined to 110 from 146. The company cited lower-priced new entry programs, market disruption and provider caution.
- Q3 appliance arches sold declined to 1,809 from 3,057; nine-month arches declined to 6,261 from 9,343.
- Gross margin declined by two percentage points in Q3 and three percentage points for the first nine months, reflecting revenue mix and operating costs.
- Cost reductions materially lowered general and administrative expense and sales and marketing expense. Nine-month G&A decreased 23% and sales and marketing decreased 53%.
- The net loss improvement included significant non-operating warrant accounting effects. A $6.453 million day-one expense arose from the January private-placement warrant valuation, partly offset by a $10.362 million gain from subsequent warrant fair-value changes.
- The company adopted the current expected credit loss standard on January 1, 2023 without a material impact.
Guidance, outlook, risks and unusual items
Management previously targeted cash-flow positivity from operations by the first quarter of 2024 without additional financing. Because sales did not grow as anticipated, management now expects additional financing will be required and is evaluating equity financing and other alternatives. The filing states that existing cash will not fund operations and strategic objectives for the next twelve months and raises substantial doubt about the company’s ability to continue as a going concern.
- The company attributed weaker enrollment and appliance sales partly to continuing dental workforce uncertainty and confusion following publicity concerning the unrelated, non-FDA-cleared AGGA appliance. Management reported partial recovery but said provider caution continued through September 30.
- Lincare completed a pilot program and was appointed exclusive U.S. DME distributor for certain products for six months. The company also announced a Middle East-North Africa distribution agreement, subject to regulatory approvals.
- A sponsored Stanford study is planned to compare the FDA-cleared DNA appliance with CPAP in 150 patients with moderate-to-severe sleep apnea. The study may not meet its endpoints or result in additional FDA clearances.
- On October 25, 2023, the company completed a 1-for-25 reverse stock split to address Nasdaq’s minimum bid-price requirement. Shares began trading on a post-split basis October 27.
- Nasdaq had also identified a stockholders’ equity deficiency. The company appealed potential delisting and presented a plan involving additional equity financing. Continued listing was not assured as of the filing.
- On November 2, 2023, the company completed a private placement for gross proceeds of approximately $4.0 million and net proceeds of approximately $3.5 million. The transaction included 980,393 shares or pre-funded warrants and substantial Series A and Series B warrant coverage. It also reduced the exercise price of certain January 2023 warrants from $30.00 to $3.83 per share, creating significant potential dilution.
- The company recorded approximately $1.2 million of employee retention credit funds as a long-term liability while it evaluates IRS guidance and related uncertainty.
- Disclosure controls were ineffective because of a previously reported material weakness in internal control over financial reporting, including weaknesses related to revenue recognition and technical accounting review. Remediation was ongoing and not yet complete.
- Outstanding legal matters include litigation involving Ortho-Tain and arbitration with a former executive. The filing does not provide a clear estimate of potential losses.
Important facts for investors to verify
- Whether the November 2023 financing, cost reductions and distributor agreements provide sufficient liquidity to reach positive operating cash flow.
- The Nasdaq Hearing Panel’s decision and the company’s ability to satisfy the $2.5 million minimum stockholders’ equity requirement and maintain listing.
- The extent of dilution from the November 2023 shares, pre-funded warrants and Series A, Series B and amended January 2023 warrants.
- Whether revenue growth resumes through higher VIP enrollments, active provider case starts, appliance volumes and Lincare distribution.
- The status and outcome of the Stanford clinical study and any resulting FDA clearances.
- Progress in remediating the material weakness in internal controls and whether additional accounting or revenue-recognition adjustments arise.
- The resolution and potential financial exposure from pending litigation and arbitration.
- The company’s ability to resolve the going-concern uncertainty, given $988,000 of cash at quarter-end, $9.198 million of nine-month operating cash burn and continuing operating losses.