Vivos Therapeutics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Vivos Therapeutics, Inc. is a medical technology and services company offering proprietary oral appliances, diagnostic services, training, and related therapies for dentofacial abnormalities, mild-to-moderate obstructive sleep apnea, snoring, and related conditions. The company sells products primarily through trained dental providers enrolled in its Vivos Integrated Practice program.
This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The filing was signed August 16, 2023. Vivos is a smaller reporting company and emerging growth company.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $3.395 million, down 19% | $7.253 million, down 7% |
| Product revenue | $1.546 million, down 33% | $3.318 million, down 24% |
| Service revenue | $1.849 million, down 2% | $3.935 million, up 13% |
| Gross profit | $2.098 million | $4.436 million |
| Gross margin | 62%, unchanged | 61%, versus 66% |
| Operating loss | $4.517 million | $9.521 million |
| Net loss | $5.528 million, or $0.18 per share | $7.231 million, or $0.26 per share |
| Net cash used in operating activities | Not separately provided | $6.398 million |
- Operating expenses declined to $6.615 million in the second quarter and $13.957 million for the first six months, primarily reflecting lower general and administrative and sales and marketing spending.
- Second-quarter VIP enrollments were 43, compared with 58 in the prior-year quarter. Six-month enrollments were 81, compared with 90.
- The company sold 2,083 oral appliance arches in the second quarter and 4,452 during the first six months, compared with 3,321 and 6,286, respectively, in the comparable 2022 periods.
- Approximately 31% of VIPs initiated a new case during the first six months of 2023.
Financial Position, Cash Flow, Debt and Liquidity
- Cash and cash equivalents were $3.942 million at June 30, 2023, compared with $3.519 million at December 31, 2022.
- Total assets were $13.749 million and total liabilities were $11.643 million. Stockholders’ equity was $2.106 million.
- Accumulated deficit was $86.699 million.
- The company reported no traditional debt balance in the provided balance sheet, but had a $2.200 million warrant liability and $2.211 million of operating lease liabilities.
- Operating cash use was $6.398 million, investing cash use was $0.534 million, and financing provided $7.355 million for the six months ended June 30, 2023.
- Financing cash flow primarily reflected $8.0 million of gross private-placement proceeds, less approximately $0.6 million of issuance costs.
- Management stated that existing cash is insufficient to fund operations and strategic objectives for the next twelve months and that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
Material Changes Versus the Prior Comparable Period
- Revenue declined because appliance sales fell substantially, partly offset by growth in sleep-testing services and other service revenue.
- Product revenue decreased $0.747 million in the second quarter and $1.024 million for the first six months. Service revenue increased $0.449 million for the first six months.
- Gross margin was stable at 62% in the second quarter but declined to 61% for the six-month period from 66%.
- General and administrative expense decreased $1.814 million in the second quarter and $3.083 million year to date. Sales and marketing expense decreased $1.109 million and $1.659 million, respectively.
- Net loss improved from $6.992 million to $5.528 million in the second quarter and from $12.322 million to $7.231 million for the first six months.
- The January 2023 private placement resulted in the issuance of 2.0 million common shares, pre-funded warrants for 4.667 million shares, and warrants for 6.667 million shares. The company also issued 4.667 million shares upon exercise of the pre-funded warrants.
- Warrant accounting materially affected reported results: the company recorded a $6.453 million day-one expense and $8.761 million of net income from subsequent fair-value changes for the six-month period.
- In March 2023, Vivos acquired intellectual property from Advanced Facialdontics, including patents, product rights, and other assets, for $50,000 in cash and 250,000 common shares, with potential future earnout obligations.
- The company received approximately $1.2 million of employee retention tax credit funds but recorded the amount as a long-term liability pending further IRS-related evaluation.
Guidance, Outlook, Commentary and Risks
- Management previously targeted cash-flow positivity by the first quarter of 2024, but now expects that additional financing will likely be required because sales growth has not met expectations.
- Potential financing may consist primarily of equity securities or indebtedness. The filing states that financing may not be available on favorable terms, or at all.
- Management attributed weaker sales and enrollments partly to publicity, governmental investigations, and lawsuits involving non-Vivos, non-FDA-approved oral appliances marketed for sleep apnea. The company believes the impact may be temporary but acknowledged continuing caution among providers.
- A non-exclusive distribution agreement with a respiratory-products supplier entered a 90-day trial period ending August 31, 2023. Management reported an initial 36% positive patient response and was negotiating possible exclusivity and geographic expansion, but continuation and commercial impact remained uncertain.
- Vivos and Stanford University agreed to conduct a planned 150-patient study comparing the DNA appliance with CPAP in moderate-to-severe sleep apnea. Enrollment was expected to begin later in 2023; the study may not meet its endpoints or result in additional FDA clearances.
- Key risks include ongoing losses and cash consumption, dependence on additional financing, adoption of the Vivos Method by dentists, regulatory and FDA compliance, product acceptance, litigation, inflation, capital-market volatility, supply-chain exposure, cybersecurity, and potential changes in COVID-19-related conditions.
- The company disclosed a previously reported material weakness in internal control over financial reporting related to revenue recognition and review controls. Disclosure controls and procedures remained ineffective as of June 30, 2023, while remediation efforts continued.
- Pending legal matters include disputes with Ortho-Tain and arbitration and related claims involving former executive Dr. G. Dave Singh. The filing does not provide a clear estimate of potential loss exposure.
Important Facts for Investors to Verify
- Whether Vivos can obtain sufficient financing to fund operations beyond the next twelve months and on acceptable terms.
- Whether appliance volumes, VIP enrollments, and revenue recover after the second-quarter decline.
- The commercial performance and continuation of the respiratory-products distribution agreement after the trial period.
- The effect of the warrant liability, potential warrant exercises, and related future equity dilution and fair-value volatility.
- Progress and results of the Stanford clinical study and any resulting FDA clearances.
- Whether the material weakness in financial reporting controls is remediated and whether additional accounting issues arise.
- The status and potential financial impact of the Ortho-Tain litigation, Dr. Singh arbitration, and other contingencies.
- The company’s treatment of the approximately $1.2 million employee retention tax credit liability following further IRS developments.