S-1 1 forms1.htm

 

As filed with the U.S. Securities and Exchange Commission on October 9, 2020

 

Registration No. 333-

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

VIVOS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   8011   81-3224056

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

9137 Ridgeline Boulevard, Suite 135,

Highlands Ranch, Colorado 80129

(866) 908-4867

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

R. Kirk Huntsman

Chief Executive Officer

Vivos Therapeutics, Inc.

9137 Ridgeline Boulevard, Suite 135,

Highlands Ranch, Colorado 80129

(866) 908-4867

(Name, address and telephone number of agent for service)

 

With copies to:

 

Barry I. Grossman, Esq.

Lawrence A. Rosenbloom, Esq.

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas, 11th Floor

New York, NY 10105

Phone: (212) 370-1300

Fax: (212) 370-1300

 

Christopher J. Barry, Esq.

David F. Marx, Esq.

Dorsey & Whitney LLP

701 Fifth Avenue, Suite 6100

Seattle, WA 98104-7043

Phone: (206) 903-8815

Fax: (206) 903-8820

 

Approximate date of proposed sale to public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [  ]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: [  ]

 

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” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
  Emerging growth company [X]

 

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 to Section 7(a)(2)(B) of the Securities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

 

Title of Class of Securities to be Registered  Amount Being Registered  Proposed Maximum Offering Price per Share (2)  Amount of Registration Fee  
Shares of common stock, par value $0.0001 per share (1)  $23,000,004.60   $   $2,509.30  
Representative’s warrant to purchase common stock (3)   1         (8)
Shares of common stock underlying representative’s warrant (4)  $2,300,000   $   $250.93  
Shares of common stock registered on behalf of certain selling stockholders (5)   

5,522,795

   $

7.00

   $

4,217.76

 
Shares of common stock registered on behalf of certain selling stockholders underlying outstanding shares of Series B Preferred Stock (6)   1,184,796  7.00   $

904.83

 
Shares of common stock registered on behalf of certain selling stockholders underlying warrants (7)   

1,184,796

    

8.75

  

$

1,131.04

 
Total            $

9,013.86

 

 

  (1) Estimated solely for the purpose of calculating the registration fee under Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”). Includes shares of common stock that are issuable upon the exercise of the underwriters’ over-allotment option.
  (2) Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
  (3) In accordance with Rule 457(g) under the Securities Act, because the shares of the registrant’s common stock underlying the representative’s warrant are registered hereby, no separate registration fee is required with respect to the warrant registered hereby.
  (4) As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrant issued to the representative of the underwriters is exercisable at a per share exercise price equal to the public offering price. As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrant is $2,300,000 (which is equal to 10% of $23,000,000).
  (5) In accordance with Rule 457(a) under the Securities Act, represents shares of common stock (i) previously issued to certain selling stockholders by the registrant in prior private placement offerings or (ii) received by certain selling stockholders pursuant to private sales or transfers.
  (6) In accordance with Rule 457(a) under the Securities Act, represents shares of common stock underlying shares of Series B Preferred Stock previously issued to certain selling stockholders (the “Series B Holders”) by the registrant in a private placement offering.
  (7) In accordance with Rule 457(g) under the Securities Act, represents shares of common stock underlying warrants issued to the Series B Holders.
  (8) No registration fee pursuant to Rule 457(g) under the Securities Act.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a) may determine.

 

 

 

 
 

 

EXPLANATORY NOTE

 

Prior to August 12, 2020, Vivos Therapeutics, Inc., the registrant whose name appears on the cover of this registration statement, was a Wyoming corporation (“Vivos WY”). On August 12, 2020, Vivos WY transferred its corporate domicile and became a Delaware corporation under the same name (“Vivos DE”) pursuant to Section 17-16-1720 of the Wyoming Business Corporation Act and Section 265 of the Delaware General Corporation Law. As a result of the transfer of corporate domicile, each share of capital stock of Vivos WY became a share of capital stock of Vivos DE on a one-to-one basis, and such shares shall carry the same terms in all material respects as the shares of Vivos WY. The transfer of corporate domicile has heretofore been approved by the board of directors and majority shareholders of Vivos WY.

 

The financial statements and summary historical financial data included in this registration statement are those of Vivos WY and do not give effect to the transfer of corporate domicile. All share amounts and related prices reflected in the accompanying prospectus give effect to the transfer of corporate domicile.

 

In addition, this registration statement contains two forms of prospectus. One form of prospectus, which we refer to as the initial public offering prospectus, is to be used in connection with an initial public offering of $20,000,000 worth of our common stock (plus an over-allotment option for an additional $3,000,000 worth of common stock). The other form of prospectus, which we refer to as the resale prospectus, is to be used in connection with the potential resale by certain selling stockholders of an aggregate of 7,892,387 shares of our common stock previously issued by us in private placement offerings or issuable upon the conversion of our outstanding Series B Preferred Stock upon the closing of the initial public offering or underlying common stock warrants issued to the holders Series B Preferred Stock. The initial public offering prospectus and the resale prospectus will be identical in all respects except for the alternate pages for the resale prospectus included herein which are labeled “Alternate Page for Resale Prospectus.”

 

 
 

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not the solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

Subject to Completion, dated October 9, 2020

 

 

3,333,334 shares

 

Vivos Therapeutics, Inc.

 

Common Stock

 

This is the initial public offering of common stock of Vivos Therapeutics, Inc., a Delaware corporation. We are offering 3,333,334 shares of our common stock in this offering. Prior to this offering, there has been no public market for our common stock. The estimated initial public offering price is between $5.00 and $7.00 per share. No public market currently exists for our common stock. We have applied to have our common stock listed on the Nasdaq Capital Market under the symbol “VVOS”.

 

The offering is being underwritten on a firm commitment basis. We have granted the underwriters an option to buy up to an additional 500,000 shares of common stock from it to cover over-allotments. The underwriters may exercise this option at any time and from time to time during the 45-day period from the date of this prospectus.

 

We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012, and will be subject to reduced public company reporting requirements.

 

      Per share       Total  
Public offering price   $            
Underwriting discounts and commissions (1)   $            
Offering proceeds to us, before expenses   $            

 

(1) Does not include additional items of compensation payable to Roth Capital Partners, the representative of the underwriters, which includes a warrant to purchase ten (10%) of the aggregate number of shares issued in this offering, with an exercise price equal to 125% of the price per share sold in this offering. We have also agreed to reimburse the underwriters for certain accountable expenses incurred by them. See “Underwriting.”

 

Investing in our common stock is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 17 of this prospectus for a discussion of information that should be considered before making a decision to purchase our common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver our shares of common stock to purchasers on or about [●], 2020.

 

Sole Bookrunning Manager

 

Roth Capital Partners

 

Co-Managers

 

Craig-Hallum Capital Group   National Securities Corporation

 

The date of this prospectus is [●], 2020

 

 
 

 

TABLE OF CONTENTS

 

  Page
Prospectus Summary 1
Risk Factors 17
Cautionary Note Regarding Forward-Looking Statements 47
Use of Proceeds 48
Dividend Policy 48
Transfer of Corporate Domicile 49
Capitalization 50
Dilution 51
Management’s Discussion and Analysis of Financial Condition and Results Of Operations 53
Management 95
Executive Compensation 101
Certain Relationships and Related Party Transactions 108
Principal Stockholders 109
Description of Capital Stock 110
Shares Eligible For Future Sale 117
Underwriting 118
Legal Matters 125
Experts 125
Where You Can Find Additional Information 125
Index to Financial Statements F-1

 

You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or any free-writing prospectus. We are offering to sell, and seeking offers to buy, our shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

 

We have not taken any action to permit a public offering of the common stock outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the common stock and the distribution of the prospectus outside the United States.

 

We are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information contained herein represents the most recently available data from the relevant sources and publications and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.

 

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products. This prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.

 

 
 

 

PROSPECTUS SUMMARY

 

This summary of the prospectus highlights material information concerning our business and this offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors” and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

Prior to August 12, 2020, Vivos Therapeutics, Inc., the registrant whose name appears on the cover of the registration statement of which this prospectus is a part, was a Wyoming corporation (which we refer to herein as Vivos WY). Effective August 12, 2020, Vivos WY transferred its corporate domicile and became a Delaware corporation under the same name (which we refer to herein as Vivos DE) pursuant to Section 17-16-1720 of the Wyoming Business Corporation Act and Section 265 of the Delaware General Corporation Law. As a result of the transfer of corporate domicile, each share of capital stock of Vivos WY became a share of capital stock of Vivos DE on a one-to-one basis, and such shares shall carry the same terms in all material respects as the shares of Vivos WY. The transfer of corporate domicile has heretofore been approved by the board of directors and majority shareholders of Vivos WY.

 

On July 30, 2020, prior to the transfer of our corporate domicile from Wyoming to Delaware, Vivos WY implemented a one-for-three reverse stock split of its outstanding common stock pursuant to which holders of Vivos WY’s outstanding common stock received one share of common stock for every three shares of common stock held. Unless the context expressly dictates otherwise, all references to share and per share amounts referred to herein reflect the reverse stock split.

 

In this prospectus, unless the context indicates otherwise, the terms “we,” “our,” “ours” “us” or similar terminology refer to Vivos DE, assuming the transfer of corporate domicile has occurred. However, the financial statements and summary historical financial data included in this prospectus are those of Vivos WY and do not give effect to the transfer of corporate domicile, but do give effect to our reverse stock split.

 

Overview

 

We are a revenue stage medical technology company focused on the development and commercialization of a highly differentiated technology offering a clinically effective non-surgical, non-invasive, non-pharmaceutical, and low-cost solution for patients with sleep disordered breathing (SDB), including mild-to-moderate obstructive sleep apnea (OSA). We offer novel and proprietary alternatives for treating mild-to-moderate OSA as well as certain craniofacial and anatomical anomalies known to be associated with mild-to-moderate OSA. We believe our products and technology represent a significant improvement in the treatment of mild-to-moderate OSA versus other treatments such as continuous positive airway pressure (or CPAP).

 

Sleep apnea is a serious and chronic disease that negatively impacts a patient’s sleep, health and quality of life. According to a 2019 article published in Chest Physician, it is estimated that OSA afflicts 54 million adults in the U.S. alone, and according to a 2016 report by Frost & Sullivan, OSA has an annual societal cost of over $149.6 billion. According to the study “Global Prevalence of Obstructive Sleep Apnea (OSA)” conducted by an international panel of leading researchers, nearly 1 billion people worldwide have sleep apnea. OSA occurs when a person’s breathing is interrupted during sleep by a partially or completely blocked airway. OSA causes breathing to repeatedly stop and start (an apnea event) during sleep and affects patients of all ages, sexes and body types. The severity of OSA is often measured by the number of partial or complete airway blockages lasting 10 seconds or longer that a patient experiences in an hour, referred to as the apnea-hypopnea index (or AHI). Left untreated, OSA may increase the risk of high blood pressure/hypertension, heart failure, stroke, coronary artery disease and other debilitating and life-threatening diseases. According to publicly available data, in up to 98% of patients with OSA, the condition is due to abnormal anatomical features of the soft tissues and/or the structures of the maxillomandibular skeleton that cause a disproportionate anatomy of the airway, or a constricted airway.

 

Our treatment for mild-to-moderate OSA involves specially designed and customized oral appliances and treatment protocols that we call the Vivos System. We believe the Vivos System technology represents the first non-surgical, non-invasive and cost-effective solution that normally does not require lifetime use or intervention for the hundreds of millions of people globally who suffer from mild-to-moderate OSA.

 

We intend to more rapidly expand the use of the Vivos System by actively recruiting dentists and training them about OSA and the use and application of our products and technology to treat mild-to-moderate OSA. Traditionally, dentists have had only a limited role in helping identify and treat sleep related breathing disorders. However, the House of Delegates of the American Dental Association in 2017 adopted a policy statement describing the important role dentists can play in helping identify patients at greater risk of sleep related breathing disorders. By focusing our business model around dentists, we are helping to assist dentists to fulfill this role.

 

 1 

 

 

We teach dentists, medical doctors and other healthcare providers about the many ways the Vivos System can help their patients. Our program to train dentists and offer them other value-added services as described below is called the Vivos Integrated Practice (VIP) program. The VIP program gives dentists the opportunity to become ambassadors of the Vivos System and offer their patients critical, and sometimes lifesaving, diagnosis and treatment of mild-to-moderate OSA through the use of the Vivos System. Importantly, the VIP program also provides dentists with a strong economic incentive to provide this treatment and prescribe the Vivos System, together with practice support services.

 

We also train our VIP dentists to identify patients that may have OSA and to discuss OSA with their patients. Trained dentists use the Vivos System to treat conditions associated with SDB and mild-to-moderate OSA. The treatment by a dentist of SBD and mild-to-moderate OSA with the Vivos System follows a required diagnosis of these conditions (typically through the use of either a polysomnogram or home sleep apnea test) by a medical doctor which is often provided by the sleep test provider.

 

In addition to the Vivos System, we also separately market our own line of pre-formed oral guides and rescue appliances used by dentists in the treatment of various developmental and orthodontic conditions, some of which have been associated with SDB or OSA (which we refer to collectively as Guides). Our clinical education and training is delivered via online and in-person training through our Institute for Craniofacial Sleep Medicine (ICSM).

 

The Vivos System combines a customized oral appliance with a proprietary therapeutic protocol. Published studies (including in the Austin Journal of Sleep Disorders by Founder and Chief Medical Officer, Dr. Dave Singh, published October 16, 2014) have shown that the patented and proprietary technologies and protocols incorporated into the Vivos System alter the size, shape and position of the tissues that comprise the human airway, leading to lower mean AHI scores by up to 65.9% in patients with mild-to-moderate OSA.

 

The Vivos System combines both patented and proprietary technologies that we believe opens airway space and can eliminate or significantly reduce symptoms and conditions associated with mild-to-moderate OSA. The Vivos System combines a customized oral appliance with a propriety therapeutic protocol. The Vivos System has been shown to significantly lower AHI scores and improve other conditions associated with mild-to-moderate OSA. Our patented oral appliances have proven effective (within the scope of the U.S. Food and Drug Administration (or FDA) cleared uses as described below) in over 15,000 patients successfully treated worldwide by more than 1,200 trained dentists.

 

 2 

 

 

The Vivos System features our patented Mandibular Repositioning Nighttime Appliance (or mRNA appliance®), which incorporates the same patented technology built into our Daytime Nighttime Appliance (DNA appliance®). The regulatory status of our products is as follows:

 

  The mRNA appliance® has 510(k) clearance from the FDA as a Class II medical device for the treatment of snoring, mild-to-moderate OSA and SDB.
     
 

The DNA appliance® is registered with the FDA as a Class I device for palatal expansion, and is currently used by Vivos-trained clinicians accordingly. The DNA appliance® also currently has a pending 510(k) application to include additional indications of use for the treatment of mild-to-moderate OSA, snoring, and SDB in adults. This use would require the DNA appliance® to be registered as a Class II device. We have validated this 510(k) request with retrospective clinical data. This DNA appliance® 510(k) review and approval process is expected to take another three to six months, meaning we would expect to hear from the FDA during the fourth quarter of 2020 or 2021. However, it is possible that we may not receive this FDA additional clearance. Nevertheless, the DNA appliance® is exempt from 510(k) clearance as a Class I device.

 

We instruct all dentists prescribing the DNA appliance about the device’s approved indications of use and of the fact that the DNA appliance is a Class I FDA registered oral appliance.  Dentists, as licensed clinicians within the scope of their practice, are free to diagnose, treat and prescribe the appropriate oral appliance therapy as they see fit, including uses which might be “off-label”, based on their professional judgement. Given the fact that our dentists regularly prescribe the DNA appliance to treat conditions closely associated with OSA, we do not believe a failure to receive FDA Class II clearance would materially impact our results or financial condition.

     
  The Guides are registered with the FDA as Class I devices for orthodontic tooth positioning.

 

We are conducting two separate Western Institutional Review Board (WIRB) approved pediatric clinical trials with seven private dental sites around the country. The purpose of the first study is to evaluate the safety and efficacy of the DNA appliance® to reduce SDB, including snoring, mild to moderate OSA, and Upper Airway Resistance Syndrome (or UARS), and to establish nasal breathing in children. The purpose of the second study is to evaluate the safety and efficacy of the Guides (which we call the Vivos Grow and Vivos Way appliances) to reduce SDB, including snoring, mild-to-moderate OSA, and Upper Airway Resistance Syndrome (or UARS). Upon completion of these WIRB pediatric clinical trials (expected to be completed in the next 12 to 18 months), we plan to submit two separate 510(k) applications to the FDA requesting additional pediatric clearances and indications of use for the DNA appliance® as well as the Guides.

 

Our Mission

 

Our mission is to rid the world of OSA. We believe we are well-positioned with what we consider to be a disruptive technology aimed at treating mild-to-moderate OSA, with a clear first-mover strategy, compelling economics at each level of the delivery chain, and a talented team of experienced professionals who are passionate about what we do and are driven to deliver results.

 

Our Market Opportunity

 

Estimates from publicly available information vary as to the extent of obstructive sleep apnea in the United States, but we believe the market is significant. According to a 2010 publicly available analysis from researchers at the Harvard Medical School Division of Sleep Medicine, mild obstructive sleep apnea is defined by an AHI between 5 and 15 and has a prevalence of 8-11% of the adult population in the United States. A 2004 study published in the Journal of the American Medical Association stated the prevalence of mild obstructive sleep apnea is one in five adults. Based on our analysis of the available public information, we estimate that approximately 15% of the adult population in the United States and Canada suffers from mild-to-moderate OSA. Based on the estimated total adult population of 284 million in the United States and Canada, we believe the total addressable United States and Canadian market is approximately 43 million adults.

 

We currently charge clinicians an average sales price of approximately $1,600 per adult case for the Vivos System. There are approximately 160,000 qualified general dentists in the United States and Canada who could potentially offer the Vivos System to their patients. Based on the addressable US and Canadian consumer market described above and average sales price, we believe the addressable consumer market for adults in the United States and Canada is approximately $69 billion.

 

In addition to recurring revenue from Vivos System appliance sales, we derive revenue from one-time enrollment and training fees charged to new VIPs, which are dental practices specially trained by us in the use of the Vivos System. We have three VIP program pricing options which we refer to as Tier 1, Tier 2 and Tier 3. Our Tier 1 fees are currently set at $62,500 for the main practice provider plus $10,000 for each associate doctor (although such fees for the main practice provider are typically discounted to as low as $40,000, while the associate fees are not typically discounted and are the same across all tiers). Tier 2 pricing reflects a one-time enrollment fee of $25,000 coupled with a 30% price premium on appliances compared to Tier 1 prices for appliances, and Tier 3 pricing reflects a $12,500 one-time enrollment fee coupled with a 50% price premium on appliances compared to Tier 1 prices for appliances. Therefore, Tier 2 and Tier 3 pricing provides for a lower initial enrollment fee, but results in higher appliance costs compared to Tier 1 pricing. The one-time enrollment fee provides VIPs with extensive clinical and business integration training, including training on matters such as billing and marketing. For additional subscription fees described further below, VIPs can sign up for our Billing Intelligence Services (BIS) under which the VIPs outsource their medical credentialing, pre-authorizations, billing, and payer collections functions to us.

 

Another published study, titled “Global Prevalence of Obstructive Sleep Apnea (OSA),” conducted by an international panel of leading researchers, reported that nearly 1 billion people worldwide have sleep apnea. Accordingly, we believe there is a substantial market opportunity for us outside the United States and Canada.

 

Our Revenue Model

 

Our current revenue is derived from three primary sources, namely:

 

VIP enrollment and training fees (comprised of one-time, up-front fees, as well as optional renewal fees after 12 months);
   
recurring sales of the Vivos System and Vivos Guides; and
   
recurring monthly subscription fees from our Billing Intelligence Services (BIS). Our BIS offering is relatively new, and the eventual steady-state proportion of VIP participation remains uncertain. We currently have approximately 80 VIP practices that subscribe to our BIS.

 

3

 

 

In addition, we recently launched our Medical Integration Division (MID) to assist VIP practices to establish clinical collaboration ties to local primary care physicians, sleep specialists, ENTs, pediatricians, pulmonologists and other healthcare professionals who routinely see or treat patients with sleep and breathing disorders. The primary objective of our MID is to promote the Vivos System to the medical profession and thus facilitate more patients being able to receive what can be a life-saving treatment from our VIP providers. The MID seeks to fulfill that objective by meeting with VIP dentists and physicians in their local areas to establish Pneusomnia Clinics. These independent businesses will be set up as LLCs owned by a small group of independent physicians, co-located at the dental practice of the VIP dentist, and managed by Vivos under a services agreement. We believe our early market response from MID activities has been promising, but it remains too early to predict the eventual impact on our overall revenue. If successful, the MID is expected to enhance the overall practice level economics for independent VIP offices and generate additional lines of recurring revenue for us. As of the date of this prospectus, we have not yet opened any Pneusomnia clinics.

 

Finally, we derive a relatively small amount of revenue from the management of two (2) Vivos-owned treatment centers in Colorado (which we call the Vivos Centers) where dentists and other healthcare professionals treat patients using the Vivos System. As a company, we are not in the business of treating patients per se, as this occurs only through dentists and other professionals, operating within the scope of their respective licenses, who, among other services, prescribe and treat patients using the Vivos System and/or Vivos Guides. We thus have no direct control over patient intake or clinical care at our Vivos Centers. Our role is limited to managing the practices and training and educating dentists and their staff, and to fulfilling orders placed for the Vivos System and/or Vivos Guides.

 

While managing Vivos Centers where licensed dentists and other healthcare professionals, furnished services was the main aspect of our business model prior to 2018, the Vivos Centers are not currently our core business, but rather a means by which we derive hands-on assessments and field intelligence from the use and practice of the Vivos System in actual clinical settings. As such, we may terminate our relationship with one or both of the Vivos Centers in the future, as was the case in October 2019 when we sold one Vivos Center located in Orem, Utah. In our current business model, our core revenue drivers are enrollment and renewal fees from VIP clinical education and office training, sales of the Vivos System and other appliances, and subscription fees from BIS services as described above.

 

Current Treatments for OSA and their Limitations

 

There are several treatment options for patients with OSA depending on the level of severity of the disease, ranging from lifestyle changes to surgery. The goals of therapy are to resolve signs and symptoms of OSA, improve sleep quality, normalize and significantly reduce the AHI, and generally increase SpO2 (blood oxygen saturation) levels. CPAP therapy is typically considered the first-line standard of care for adults with OSA; however, low patient adherence lessens the benefits of CPAP therapy. According to Kaiser Health News, “as many as 50% of patients stop using the device.” In the Cleveland Clinic respiratory program about 70% of patients keep using the CPAP device. Common reasons cited for lack of adherence are trouble getting used to wearing the CPAP device, difficulty tolerating forced air, dry and stuffy nose, feeling claustrophobic, skin irritation, pressure sores, leaky mask, dry mouth, bothersome noise, chronic bacterial and respiratory infections, and lack of intimacy.

 

Many patients with mild-to-moderate OSA who prefer not to use CPAP use a mandibular advancement device (or MAD) as an alternative therapy; however, treatment with MADs can come with its own set of adverse side effects, including dry mouth, dental carries, temporomandibular joint dysfunction (TMD or TMJD), soft tissue and tongue irritation, excessive salivating, occlusal changes, damage to teeth or restorations and tooth mobility, among other effects.

 

 4 

 

 

Our Solution for OSA – the Vivos System

 

The Vivos System is a non-invasive, non-surgical, non-pharmaceutical, multi-disciplinary treatment modality for mild-to-moderate OSA that we believe does not require lifetime care or nightly intervention for most patients. Based on clinical retrospective data, statistically significant results were obtained in patients diagnosed with mild-to-moderate OSA, snoring and other SDB symptoms after treatment with the Vivos System. Based on VIP and patient feedback we have received, we believe initial therapeutic benefits from using the device are often achieved relatively quickly (in days or weeks) and final clinical results are typically achieved in 12 to 24 months), all at a relatively low cost to consumers.

 

A widely accepted factor in the incidence of OSA is abnormal anatomical features of soft tissues and/or structures of the maxillomandibular skeleton that cause a disproportionate or underdeveloped anatomy of the airway. Correcting the size, shape, and relative position of the maxilla, mandible, and oral hard and soft tissues can eliminate and/or reduce obstruction of the upper airway.

 

The Vivos System works to treat mild-to-moderate OSA as follows:

 

  Published studies have shown that expanding the palate and enhancing the airway using our customized appliances has led to lower AHI scores and a reduction in OSA.
     
  Our multi-disciplinary clinical approach involves sleep specialist physicians, dentists, myofunctional therapists, chiropractors, and other healthcare providers. Each of these providers contributes to the overall treatment outcomes within the scope of their individual licensures.
     
  Retrospective evaluations of patients post treatment, as reported observationally by Vivos-trained clinicians, have not shown (where patient compliance with prescribed protocols has occurred) significant amounts of regression, resorption (a common type of dental injury or irritation that causes a loss of a part or parts of a tooth) or relapse (although we have only very limited case report data to support this view).

 

We believe that the Vivos System represents a novel treatment protocol that naturally enhances, repositions, and redevelops the tissues that surround and comprise the functional space known as the upper airway. This belief is based on retrospective raw data with validated before and after sleep studies, cone beam scans, and other clinical measures as reported by treating clinicians and patient testimony. As the Vivos treatment process progresses, the airway expands, with many patients reporting a reduction or elimination of their OSA symptoms. The Vivos products used in the Vivos System consist of a variety of specifically designed, custom oral appliances that are worn primarily in the evening hours and overnight. The total treatment time typically ranges from 12 to 24 months with 18 months being the approximate mean treatment time. Vivos appliances require periodic adjustments, some of which can be performed by the patient and others that are typically rendered at the dental office where treatment was initiated.

 

 

Examples of Vivos mRNA appliances

 

The Vivos System has been specifically designed to promote the proper growth and development of the hard and soft tissues surrounding and comprising the oral cavity, nasal cavity, upper and lower jaws, and other tissues which together form and shape the upper airway. As these areas develop more fully using the Vivos System, a patient’s airway typically widens and expands (a process we call Pneumopedics®), enabling them to breathe properly through their nose. With a more open and less obstructed airway, and easier nocturnal breathing, the symptoms of SDB tend to diminish over time, and patients often report they are no longer suffering from the adverse effects of SDB or OSA. Use of the Vivos System is variable and case dependent, but is typically recommended to be worn daily for 12 to 16 hours starting in the early evening and continuing overnight. During use, patients can typically talk (with minor difficulty), drink and swallow, but the device must be removed to eat.

 

Most potential patients learn they may be a possible candidate for OSA therapy through physician referral, education and advertising campaigns, and/or dentist examinations. If a VIP dentist determines that a patient may have OSA, they will refer the patient to complete either a home sleep test or a full polysomnography, which provides detailed information on sleep state, respiratory behavior and gas exchange abnormalities, in addition to a range of other variables including body position, heart rate and rhythm, and muscle tone and activity. If a patient is diagnosed with sleep apnea from the reading of the home sleep test or polysomnography test, after obtaining a prescription from a physician, the VIP dentist will design a treatment plan and present the case to the patient. Upon treatment acceptance, the financial arrangements will be organized including insurance pre-authorization and/or any deposits and payment plan agreements. The VIP dentist will design the appliance(s) based upon treatment protocol and order the appliance through our cloud-based portal that we call Vivos Aire. Fabrication of the Vivos System appliances usually takes between two to four weeks for delivery. Upon receipt of appliance(s) by the VIP dentist, the patient will visit the dentist for an appliance seating and delivery appointment. Routine follow-up lasts for the 12 to 24 months of treatment.

 

Patient Advantages

 

We believe the Vivos System offers the following patient advantages:

 

  Reduce or possibly eliminate the need for surgery or lifetime CPAP or mandibular advancement therapy
     
  Non-invasive, non-surgical and non-pharmaceutical treatment of OSA
     
  Comfortable and easy to wear and to comply with treatment protocols

 

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  No known material side effects (minor spacing between teeth, bite changes, etc. are all minor and easily addressed)
     
  Average treatment is 12 to 24 months for most cases
     
  Affordable (typically $7,000-$10,000 for an adult case and $3,500 to $6,000 for a child case)
     
  Adults covered by most major medical insurance plans up to 70% (average is about 50%)
     
  Treatment effective (for its FDA cleared uses)
     
  Restoration and maintenance of craniofacial symmetry
     
  Improved facial aesthetics (stronger jawline, reduce or eliminate “gummy” smiles)
     
  Near term benefits from treatment (no waiting for months to see improvements)
     
  U.S. patented 3D axial springs™ and screw mechanism for patient adjustment

 

Our Competitive Strengths

 

We believe that the Vivos System has numerous advantages that, taken together, set us apart from the competition and position us for success in the marketplace:

 

  Significant Barriers to Entry: We believe that third parties seeking to compete directly with us have significant barriers to entry for the following reasons: competitors must offer a treatment modality with similar features, capabilities, research support, FDA regulatory clearances, and successful clinical outcomes in the market; then establish a comprehensive educational training program featuring other clinical professionals with actual experience and success using that particular treatment modality to properly educate dentists on all clinical aspects of use with patients; then develop and promulgate the systems and best practices required to successfully integrate the treatment of mild-to-moderate OSA using this novel treatment modality in a dental practice; then establish and provide, by recruitment and otherwise, ongoing clinical mentoring and support to dentists engaged in treating their patients for mild-to-moderate OSA and related conditions (clinical mentors are limited and may be hard to find); and finally, assisting the dentists with case selection, case acceptance, patient financing, and medical insurance reimbursement.
     
  Vivos System Insurance Reimbursement: Most major commercial insurance payers reimburse for our adult treatment. The average level of reimbursement is approximately 50% (ranging from 5% to 70%), although medical insurance is never a guarantee of payment, and patient deductibles typically vary. At the present time, commercial health insurance reimbursement is primarily limited to adult patients. Thus, parents of pediatric patients are often required to pay out of pocket for treatment.
     
  Body of published research and strong patient outcomes: Together with our network of trained clinical dentists, we have developed a body of clinical and patient data over approximately ten years and an estimated delivery of approximately 15,000 appliances that demonstrates the safety, effectiveness, therapy adherence (patient compliance), and benefits of the Vivos System for its FDA cleared and registered uses.
     
  First mover advantage: Our business model is the first to focus on dentists screening patients for mild-to-moderate OSA and SDB, referring patients to physicians for diagnosis, with the dentists then serving as the primary source of treatment using the Vivos System for such patients. In addition, we provide VIPs not only with our novel treatment technology and protocols, but also programs to support and incentivize broad case acceptance. We are the first company to offer individuals diagnosed with mild-to-moderate OSA access to the Vivos System via our VIP dentists across the United States and Canada, whereby patients can receive much-needed treatment that offers many of them a potentially better option than CPAP and/or MADs. We believe our focus provides us with a significant first mover advantage and momentum over future competitors, as we have an estimated 1,200 dentists trained in the proper use of the Vivos System.

 

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  Differentiated products: The dental profession’s historical and current contribution to the treatment of OSA has almost exclusively been via the fitting of mandibular advancement devices (oral appliances often referred to as MADs). To our knowledge, only the Vivos System offers a truly differentiated, non-invasive treatment option that actually works on a common root cause of the condition. MAD-type oral appliances are typically less expensive, but do not reshape the upper airway, and therefore require nightly use over a lifetime, and have a number of other disadvantages.
     
  Intellectual property portfolio and research and development capabilities: We have a comprehensive patent portfolio to protect our intellectual property and technology, with six design patents that expire between 2023 through 2029 and two utility patents expiring in 2029 and 2030. We also own two Canadian patents and one European patent all of which expire in 2029. Our U.S. trademark portfolio consists of four registered marks and eight pending trademark applications. Extensive online and in-person training, extensive support from multiple sources (clinical mentoring, staff training, systems integration, among others), specific fabrication materials, customized appliance designs, and multi-disciplinary treatment protocols are all considered proprietary trade secrets and competitive advantages with no known counterparts.
     
  Extensive Training and Support Systems: We believe our extensive online and in-person clinical and business systems training program offered through our Institute for Craniofacial Sleep Medicine (ICSM) is unmatched anywhere in dentistry and is a clear competitive strength that would be difficult to replicate. We have established and maintain an integrated network of clinical advisors, market advisors and practice advisors comprised of experienced and dedicated individuals with proven abilities to mentor, consult, and drive new case starts within the particular environment of a dental practice. The collective experience, training, and performance of such a broad network of individuals would be difficult to replicate and represents a core competitive strength.
     
  Compelling economics and value-added services to VIPs at all levels of the product and service delivery chain:

 

   

Vivos Integrated Practice Program. We offer our VIP program with a tiered fee structure. These up-front enrollment fees provide each VIP dentist with a full 12 months of unlimited access to all clinical, systems, and staff training offered through our ICSM, along with full access to a dedicated team of professionals who are available to assist with whatever questions or concerns new or existing VIPs may have. After the first year, dentists may renew their access to the ICSM for a monthly subscription fee.

 

In addition to the Vivos training enrollment fees, we strongly advise VIP practices to have Cone Beam Computerized Tomography (or CBCT) equipment that meets certain criteria available at their practices. These machines have many uses in dentistry such as with implants, orthodontics, and routine diagnostics, and are critical in the diagnosis and treatment planning with the Vivos System.

 

The return on such an investment is typically seen by the relatively high gross margins available to VIP dentists. See “Recurring Subscription Fees” below.

 

A new VIP dentist typically achieves 2 to 4 new cases per month within twelve months after receiving training, with a mid- term target of 4 to 6 cases per month and a long-term target of 10 cases per month. At this average level of production and profit margin, VIP dentists are anticipated to see a full payback of their investment well within 18 months after they complete their training. According to the largest dental industry supplier, Henry Schein, within the typical general dental practice, there are well over 400 patients with OSA.

       
    Recurring Vivos System and Guides Sales. Trained VIP dentists pay us an average adult case fee of approximately $1,600 per case, and $400 for a pediatric Guide case. We maintain average gross margins in excess of 60% on both adult and pediatric cases. In turn, VIP offices typically charge adult patients fees ranging from $7,000 to $10,000, and $3,500 to $6,000 for pediatric cases. We estimate that fully burdened costs to the VIP practice range from between $1,500 (pediatric Guides) and $3,000 (adult mRNA appliance®) per case. Thus, VIP dentists also have compelling unit case economics with relatively high gross margins.

 

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    Recurring Subscription Fees. Ongoing renewal access to our ICSM and online training courses after the first 12 months as a VIP are estimated at $595 per month and are expected to start in the first quarter of 2021. Due to our extensive use of online broadcasting and training delivery, incremental training costs to scale and accommodate additional VIP dentists are not significant. Nevertheless, we do have costs associated with paying professional lecturers, acquiring and recording new content, and ongoing upgrades to our curricula and course offerings. In addition, we also have a physical training facility near Denver, Colorado with certain fixed and variable costs.
       
    The Institute for Craniofacial Sleep Medicine. Our ICSM provides advanced post-graduate education and certification in the emerging science of Pneumopedics® and product-specific training for the use of Vivos products and services. Certain adjunctive courses, such as oral myofunctional training and certification are offered through the ICSM at an additional cost to attendees with revenue and potential profit to our company. Revenue from such courses is not material at the present time.
       
    The Airway Intelligence Service (AIS) provides a complete resource for VIPs to help simplify the diagnostic and appliance design matrix and expedite the treatment planning process. AIS is provided as part of the price of each appliance and is not a separate revenue stream. We believe that this value-added service included with every new case start is a major differentiator between our higher cost products versus other lower cost oral appliances (including MADs) on the market.
       
    The Billing Intelligence Service (BIS). This complete billing solution allows dentists to focus on running their practice and delivering the best care for their patients. Our medical billing service generates recurring subscription service fees from participating VIPs (currently $895 per month for up to 5 cases with an additional $100 per case over 5 cases in a single month). We believe this important adjunctive service is priced competitively and allows VIP offices to outsource a key back office function without adding one or more full time employees.
       
   

Medical Integration Division (MID). Our recently launched MID is tasked with assisting VIP offices to create close ties and collaborative relationships with local physicians and other healthcare providers. The intent is to expose more medical healthcare providers to our technology and products, and ultimately to drive additional case volume to the VIP offices. The MID works closely with participating VIP offices and local physicians or other interested healthcare providers to showcase the Vivos System.

 

Our MID is charged with fostering closer collaboration between our VIP dentists and local physicians in order to improve overall patient care and extend the opportunities for greater numbers of patients to receive our potentially life-saving treatment. The MID executes that mandate by meeting with VIP dentists and physicians in their local areas to establish Pneusomnia Clinics. These independent businesses will be set up as LLCs owned by a small group of independent physicians, co-located at the dental practice of the VIP dentist, and managed by our company under a services agreement. The physicians will capitalize the company through an initial investment (which totals $100,000 - $125,000) and appoint us as Manager under a long-term Management Services Agreement which pays us six (6%) percent of all collections from sleep-related services. The treating dentist will rent a portion of the space in his / her dental practice to the Pneusomnia clinic. He or she also will contract with the sleep clinic as a contract provider to treat patients at a set price that is lower than fees paid by patients. The difference between the fees paid by patients and the contract rate paid by the clinic to the treating dentist gives the Pneusomnia clinic a margin of profit that will allow the clinic to pay expenses and potentially generate a profit. Owner doctors will receive profit distributions from their limited liability companies based solely on their ownership percentage and will not be compensated for patient referrals in any way. We have built into our core Pneusomnia business model a great degree of flexibility, such that elements of each Pneusomnia clinic as described above may change and be adapted to local conditions, state laws and regulations, and other considerations, so long as any such alterations do not violate any state or federal statutes or regulations. As of the date of this prospectus, we have not yet opened any Pneusomnia clinics.

 

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  Targeted approach to market development and patient engagement: We have established a systematic and scalable approach to actively and consistently engage with our primary target audience of US and Canadian dentists, and we leverage our consistent training systems to capture market share and establish our VIP provider network across the U.S. and Canada. In addition, our recently launched MID is actively targeting physicians and other relevant healthcare providers in order to build awareness and collaborative patient options at our VIP practices.
     
  Marketplace acceptance: Patient access to treatment with our products at a VIP practice is rapidly becoming readily available, and active VIP dentists can now be found in almost all major US cities and in large parts of Canada. The Vivos System and our other products are in the marketplace, with growing acceptance among dentists and other healthcare providers.

 

Competitive Landscape

 

The following graphic depicts what we believe to be the competitive landscape for the Vivos System:

 

 

 

We consider our primary competition, both within and outside of the United States, to be both CPAP and other oral appliance products (all of which represent variations on the same mandibular advancement device platform) typically delivered by licensed dentists, such as SomnoMed, DynaFlex, TAP, EMA, and Herbst (which are FDA cleared) as well as ALF, Homeoblock and FAGGA (which are not FDA cleared). According to the American Sleep Apnea Association, over 100 different oral appliances are FDA cleared for the treatment of snoring and obstructive sleep apnea. We believe other emerging businesses are in the early stages of developing mandibular advancement or other oral appliance devices which incorporate novel technologies.

 

To a lesser extent, we also compete with surgical therapies such as Uvulopalatopharyngoplasty (UPPP), maxillomandibular advancement (MMA), robotic tongue reduction surgery, and Inspire medical implants. While we compete with CPAP in general as an alternative treatment for mild-to-moderate OSA, we believe the Vivos System is a superior alternative given its relative safety, comfort, ease of use and the potential to resolve underlying conditions. In addition, the Vivos System is suitable for patients who cannot tolerate CPAP or for whom CPAP has not been effective. In certain cases, clinicians may temporarily treat patients using a combination of the Vivos System and CPAP.

 

As highlighted in the chart above, a patient who is diagnosed with OSA faces two primary treatment pathways—non-surgical and surgical. The Vivos System, CPAP, and mandibular advancement oral appliances are examples of non-surgical treatment options. Inspire Medical Systems implants, UPPP surgery, and Maxillomandibular Advancement surgery are examples of surgical treatment options. Each treatment option offers patients potential benefits and risks at a different price point.

 

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We believe the Vivos System offers patients several important advantages. Treatment in the Vivos System is typically limited to a defined period of time (12-24 months), whereas both CPAP and oral appliance therapy require lifetime nightly use to be effective. Treatment in the Vivos System also addresses the underlying anatomical cause of the OSA, whereas both CPAP and oral appliances are palliative and effective only for temporary relief of symptoms while the devices are being used. Neither treatment purports to correct the underlying tissue and structural anomalies that give rise to the OSA condition in the first place. Long-term compliance in both alternative non-surgical protocols can be challenging. Yet once treatment in the Vivos System is complete, no further intervention is necessary, in most cases.

 

Inspire Medical Systems’ primary treatment for OSA involves surgical implant devices that seek to temporarily remove airway obstruction by moving the tongue forward via an electrical stimulation.These devices relieve OSA symptoms and lower AHI scores, but pose the added cost and risks of surgery, and must be used nightly over the patient’s lifetime in order to be effective. The Vivos System avoids the cost and risk of surgery, and is less costly for both patients and insurance carriers than surgical options. The Vivos System is thus far less dependent on insurance reimbursement for patients to be able to afford treatment.

 

Sales and Marketing

 

We have established a methodical approach to market development which centers on active engagement directly with members of the medical community, including general dentists and medical doctors who treat SDB and OSA, to educate them on the Vivos System and its benefits. The goals of our sales and marketing efforts are (i) secure new VIP dentists provide them with the tools to treat patients with our products and (ii) more broadly educate the medical community regarding our products with a view towards expanding our number of VIPs as well as medical professionals who could refer SBD and OSA patients to our VIPs for treatment.

 

We sell the VIPs through a direct sales force that primarily targets general dentists in the United States and Canada. Our VIP program was developed to train dentists to identify and treat conditions associated with SDB and mild-to-moderate sleep apnea. Our sales program to target medical doctors is our recently launched Medical Integration Division (MID) program, which was developed to assist VIP practices to establish clinical collaboration ties to local primary care physicians, sleep specialists, ENTs, pediatricians, pulmonologists and other healthcare professionals who routinely see or treat patients with sleep and breathing disorders.

 

Our current VIP sales organization is comprised of:

 

  one Enrollment Specialist, who is the primary salesperson responsible for enrolling new VIPs;

 

  two Enrollment Support Staff members, who are responsible for organizing potential VIP appointments for Enrollment Specialist;

 

  three Business Development Associates, who are responsible for cultivating new business leads which are referred to the Enrollment Support Staff);

 

  one Outreach and Engagement Associate, who is responsible for engaging with potential VIPs in our sales process with surveys and offers of online courses with the purpose of leads to be referred to the Enrollment Support Staff members; and

 

  one Practice Advisory Onboarding Specialist, who is responsible for onboarding new VIPs to our training programs.

 

Our MID sales organization is comprised of a Senior Vice President that leads the MID sales efforts and one Senior Director of Business Development.

 

From the proceeds of this offering, we will look to increase the size of our sales force by recruiting employees and building more sales teams as described above with strong sales backgrounds, direct experience developing markets with new technologies and established relationships in the dental community. We plan on growing our MID sales organization by recruiting candidates that have extensive healthcare backgrounds, strong business development experience setting up physician owned medical facilities/practices and significant healthcare regulatory knowledge.

 

In the future, we plan on utilizing indirect and direct marketing channels to inform and educate dentists, medical doctors and healthcare professionals about the Vivos System. Our planned indirect marketing channels include strategic partners, industry key opinion leaders, trade shows and our own clinical advisor network. Our planned direct marketing channel includes outreach to prospective VIPs using digital advertising platforms including Facebook and Google ad placements. The objective of our indirect and direct marketing efforts will be to bring dentists, medical doctors and healthcare professionals to our educational and training websites to learn about SDB, OSA and treatment alternatives.

 

We believe our dentist and medical doctor marketing efforts have been effective in facilitating contact via our Vivos introduction and online training webinars, particularly during the COVID-19 epidemic. We are hopeful that these efforts will create an expanding base of potential VIPs for us.

 

Our Strategy

 

Our strategy to accomplish our mission of becoming the predominant airway, breathing and sleep wellness company in the North American market hinges upon our first-mover advantage. We believe the following planned activities will pay a critical role in achieving this goal, and thereby ensure our future growth:

 

  Expand our North American (U.S. and Canada) sales and marketing organization to drive adoption of our Vivos System and other products and services. We believe that a strong sales and support team to train dentists and other ancillary healthcare providers on the use and the benefits of Vivos System will increase sales. To accomplish this, we will:

 

     

Engage with strategic partners to hold joint corporate events for the purpose of sharing the Vivos opportunity and clinical evidence to dentists throughout the U.S. and Canada.

             
      Scale training capacity and effectiveness at the Institute for Craniofacial Sleep Medicine
         
      Encourage every VIP to maximize his or her potential for case generation (we have a mid-term objective target of 4 to 6 cases per month per VIP with an eventual long-term target of 10 cases per month per VIP)
         
      Work to ensure that production and support services capacity will ramp up in sync with increasing demand
         
      Systematize the aggregation and centralization of patient data for documentation, research, analysis, and product development

 

  Drive medical community awareness of Vivos System. We intend to continue to promote awareness of the value proposition of the Vivos System through training and educating dentists, physicians, and other healthcare providers via exhibits at industry conferences, advertising in medical journals, direct visits, webinars, and calls. Additionally, through our recently established Medical Integration Division we are seeking strategic alliances within the medical and dental communities to increase awareness of our product.

 

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  Increase indirect marketing channels. We have been successful through strategic alliances within the medical and dental communities to increase awareness of our products.
     
 

Build patient awareness of the Vivos System. We also plan to continue building patient awareness through our direct-to-patient marketing initiatives which we anticipate will include celebrity endorsements, paid search, radio, television, social media, company sponsored events, corporate wellness programs, and online video.

 

  Invest in research and development to drive innovation and expand indications. We are committed to ongoing research and development, and we intend to invest in our business to further improve our products and validate our value proposition. For example, Vivos and Stanford University, Department of Sleep Medicine, will be conducting an IRB approved randomized double-blind control study evaluating our mRNA appliance® to treat mild-to-moderate OSA, SDB and snoring in adults aged 21 to 63.
     
  Expand into international markets. We have trained dentists from many different countries all over the world and we plan to conduct further strategic evaluation of such markets as we expand our market penetration throughout the United States and Canada.

 

Our Published Research

 

Since 2009, our technology has been the subject of approximately 55 peer-reviewed articles in the medical, dental and orthodontic literature. Of the 55, 27 of these articles are journal papers, with Dr. G. Dave Singh, our Chief Medical Officer, as first author on 22 of these papers. In addition, over 25 conference papers have been published as abstracts, with Dr. Singh as first author on 20 of these conference papers, and 19 independent dentists and 5 different Sleep Physicians are co-authors on these publications as well. The results published in these case reports and articles, together with patient-reported outcomes, have shown that our Vivos System therapy provides a significant reduction in the severity of patients’ mild-to-moderate OSA (as measured by industry standard indices such as the AHI, among others), improvement in sleep-related quality of life, reduction in snoring, as well as a high patient compliance rates and a strong safety profile.

 

Our Financial Condition

 

For the fiscal years ended December 31, 2019 and 2018, we generated revenue of $11,393,277 and $3,792,261, respectively; and generated net losses of $10,754,319 and $8,439,156, respectively, and negative cash flow from operating activities of $5,340,480 and $5,313,891, respectively. For the six months ended June 30, 2020, we generated revenue of $6,467,695 and generated a net loss of $3,994,239. Our management has identified, and our auditors agreed, that there is substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations, as well as our dependence on private equity and financings. We had an accumulated deficit of $27,272,090 and recurring losses from operations as of June 30, 2020. We have a near and longer-term need for capital, including the proceeds of this offering.

 

Summary of Risks Affecting Our Business

 

Investing in our common stock is highly speculative and involves significant risks and uncertainties. You should carefully consider the risks and uncertainties discussed under the section titled “Risk Factors” elsewhere in this prospectus before making a decision to invest in our common stock. Certain of the key risks we face include, without limitation:

 

  We have a history of operating losses and there is a substantial doubt about our ability to continue as a going concern.
     
  We have limited capital resources, and even following this offering we will need to raise additional capital.
     
  Our Vivos Integrated Practice (VIP) program is a relatively new business model for us, and management has limited experience operating this model.
     
  We will not be successful if our Vivos System is not sufficiently adopted by the medical and dental professions, including independent practitioners and dental service organizations (DSOs) for the treatment of craniofacial deficiencies that are often associated with SDB and mild-to-moderate OSA.
     
  We may not be able to successfully implement our growth strategy for recruiting and enrolling VIPs on a timely basis or at all, which could harm our business, financial condition and results of operations.
     
  New technologies and treatment methods may emerge that are superior to ours, less expensive than ours, or both.
     
  We face risks relating to public health conditions such as the COVID-19 pandemic, which could adversely affect our dentist customers, our business and our results of operations.

 

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  Our future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our common stock.
     
  We face significant competition in the rapidly changing market for the treatment of sleep and breathing disorders, and we may be unable to manage competitive pressures.
     
  Our products and manufacturing activities are subject to extensive governmental regulation that could prevent us from selling our Vivos System or introducing new and/or improved products in the United States or internationally.
     
  Government healthcare programs or private insurance providers may refuse reimbursement or reduce reimbursement rates for the Vivos System.
     
  Our failure to obtain government approvals, including required FDA approvals, or to comply with ongoing governmental regulations relating to our technologies and products could delay or limit introduction of our products and result in failure to achieve revenue or maintain our ongoing business.
     
  We depend on our patents and proprietary technology, notably the Vivos System technology, which we may not be able to protect, or that may be found by a court not to provide protection to our products.
     
  We face the risk of product liability claims that could be expensive, divert management’s attention and harm our reputation and business. We may not be able to maintain adequate product liability insurance.
     
  We bear the risk of warranty claims on the Vivos System.
     
  There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity.
     
  The market price of our common stock may be highly volatile, and you could lose some or all of your investment.
     
  Future sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings.
     
  We have identified a material weakness in our internal control over financial reporting for the years ended December 31, 2019 and 2018.
     
  You will experience immediate and substantial dilution as a result of this offering and will likely experience additional dilution in the future.
     
  Our officers and directors may have the ability to exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.
     
  We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives, including those associated with being a public company.

 

If any of these or other risks and uncertainties occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock would likely decline, and you may lose all or part of your investment. See “Risk Factors” for a more complete listing of the factors facing our company.

 

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Emerging Growth Company under the JOBS Act

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we have elected to take advantage of reduced reporting requirements and are relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

  we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
     
  we are exempt from the requirement to obtain an attestation and report from our auditors on whether we maintained effective internal control over financial reporting under the Sarbanes-Oxley Act;
     
  we are permitted to provide less extensive disclosure about our executive compensation arrangements; and
     
  we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.

 

We may take advantage of these provisions until December 31, 2025 (the last day of the fiscal year following the fifth anniversary of our initial public offering) if we continue to be an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have elected to provide two years of audited financial statements. Additionally, we have elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act.

 

Transfer of Corporate Domicile

 

Effective August 12, 2020, Vivos WY transferred its corporate domicile and became a Delaware corporation under the same name (which we refer to herein as Vivos DE) pursuant to Section 17-16-1720 of the Wyoming Business Corporation Act and Section 265 of the Delaware General Corporation Law. As a result of the transfer of corporate domicile, each share of capital stock of Vivos WY became a share of capital stock of Vivos DE on a one-to-one basis, and such shares carry the same terms in all material respects as the shares of Vivos WY. The transfer of corporate domicile has heretofore been approved by the board of directors and majority shareholders of Vivos WY and has not and will not result in any change in headquarters, business, jobs, management, location of any of our offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the transfer of corporate domicile, which are immaterial). On the effective date of the transfer of corporate domicile, the members of the board of directors of Vivos WY became the members of the board of directors of Vivos DE and the officers of Vivos WY became the officers of Vivos DE. There was, and will be no substantive change in the employment agreements for executive officers or in other direct or indirect interests of the current directors or executive officers as a result of the transfer of corporate domicile. The transfer of corporate domicile has heretofore been approved by the board of directors and majority shareholders of Vivos WY. See “Transfer of Corporate Domicile” for additional information.

 

Corporate Information

 

Our principal offices are located at 9137 Ridgeline Boulevard, Suite 135, Highlands Ranch, Colorado 80129, and our telephone number is (866) 908-4867. Our website is www.vivoslife.com. Our website and the information on or that can be accessed through such website are not part of this prospectus. We were originally organized on July 7, 2016 as a Wyoming corporation under the name as Corrective BioTechnologies, Inc. On September 6, 2016, we changed our name from Corrective BioTechnologies, Inc. to Vivos BioTechnologies, Inc., and on March 2, 2018, we changed our name from Vivos BioTechnologies, Inc. to Vivos Therapeutics, Inc.

 

 13 

 

 

THE OFFERING

 

Shares of common stock offered by us:   3,333,334 shares of common stock
     
Number of shares of common stock outstanding after this offering: (1)   17,168,943 shares of common stock will be outstanding after this offering is completed.
     
Over-allotment option:   We have granted the underwriters the right to purchase up to 500,000 additional shares of common stock from us at the public offering price less the underwriting discount within 45 days from the date of this prospectus to cover over-allotments.
     
Representative’s warrant:  

We will issue to Roth Capital Partners, the representative of the underwriters, upon closing of this offering, a compensation warrant, or the Representative’s Warrant, entitling Roth Capital Partners to purchase 10% of the aggregate number of shares of common stock issued in this offering, with an exercise price equal to 125% of the price per share sold in this offering. The representative’s warrant has a term of three years commencing on the effective date of registration and will be exercisable 180 days after the effective date of the registration statement relating to this offering.

     
Use of proceeds:   While we will have broad discretion on the allocation of the use of net proceeds of this offering, we currently expect to utilize such proceeds for (i) making payments for the intellectual property we acquired in 2017 from our founder and Chief Medical Officer, Dr. G. Dave Singh, via redemption of at least 300,000 shares of our outstanding Series A convertible redeemable preferred stock (which we refer to herein as the Series A Preferred Stock) ($1.5 million) if proceeds of this offering are at least $15 million, and another 200,000 shares of Series A Preferred Stock ($1.0 million) for each additional $5 million raised this offering, up to a maximum redemption of all 700,000 shares of Series A Preferred Stock currently held by Dr. Singh; (ii) further establishment of the Institute for Craniofacial Sleep Medicine (including facility construction); (iii) sales and marketing expenses; (iv), sales and support staff; (v) research and development expenses; (vi) software development and enterprise resource planning implementation; and (vii) working capital and general corporate purposes. We may also use proceeds from this offering to acquire complimentary technologies, products or businesses, although we are not a party to any letters of intent or definitive agreement for any such acquisition. See “Use of Proceeds”.
     
Proposed Nasdaq Capital Market symbol:   We have applied to list our common stock on the Nasdaq Capital Market under the symbol “VVOS”. There can be no assurance that our application will be approved. The closing of this offering is contingent upon the successful listing of our common stock on the Nasdaq Capital Market.
     
Risk factors:   Investing in our common stock is highly speculative and involves a significant degree of risk. As an investor you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 17.

 

  (1) The number of shares of our common stock outstanding before and after this offering, as set forth in the table above, is based on 12,650,813 shares outstanding as of the date of this prospectus and includes 1,184,796 shares of common stock to be issued to the holders of our Series B Convertible Preferred Stock upon automatic conversion of such preferred stock in connection with the closing of this offering. The Series B Convertible Preferred Stock is convertible into common stock at a 25% discount to the price per share to investors in this offering). For the purpose of this preliminary prospectus, we have estimated the initial public offering price as $6.00 per share, the midpoint of the range set forth on the cover page.

 

The number of shares of our common stock outstanding before and after this offering, as set forth in the table above, excludes as of that date:

 

  700,000 shares of our outstanding Series A Preferred Stock held by Dr. G. Dave Singh, our founder and our Chief Medical Officer, which are convertible at any time into 700,000 shares of our common stock;

 

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  1,996,667 shares of common stock underlying options to purchase shares of our common stock issued prior to and under our 2017 and 2019 Stock Option and Stock Issuance Plans with a weighted average exercise price of $4.43 per share (subsequent to June 30, 2020, options to purchase an additional 222,333 shares of common stock were granted);
     
  1,333,333 stock options are outstanding and no remaining shares are available to grant under our 1,333,333 share 2017 Stock Option and Stock Issuance Plan;
     
  385,667 stock options are outstanding and 781,000 remaining are available to grant under our 1,166,667 share 2019 Stock Option and Stock Issuance Plan;
     
  1,184,796 shares of common stock issuable upon the exercise of 1,184,796 common stock warrants associated with the Series B Preferred Stock issued in 2020 at an assumed exercise price of $7.50 per share (a 25% premium to the midpoint of the range set forth on the cover page of prospectus); and
     
  up to 333,334 shares of our common stock underlying the warrant to be issued to the representative of the underwriters in connection with this offering, or up to 383,334 shares of our common stock to the underwriters if the over-allotment option to purchase shares of common stock is exercised in full.

 

Unless otherwise indicated, all information in this prospectus:

 

  assumes no exercise of the representative’s warrant;
     
  assumes no exercise of the underwriters’ over-allotment option to purchase 500,000 shares of common stock.

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

 

The following table presents our summary historical consolidated financial data as of and for the six months ended June 30, 2020 and 2019 and years ended December 31, 2019 and 2018. The summary historical consolidated financial data as of and for the six months ended June 30, 2020 and 2019 are derived from unaudited financial statements.

 

Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods. You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this prospectus.

 

  

Year Ended

December 31,

  

Six months Ended

June 30,

 
   2019   2018   2020   2019 
Statement of Operations Data                
Total revenue  $11,393,277   $3,792,261   $6,467,695   $5,021,759 
Cost of sales   (2,736,034)   (1,081,641)   (1,325,302)   (1,119,800)
Gross profit   8,657,243    2,710,620    5,142,393    3,901,959 
Total operating expenses   (19,234,476)   (11,046,802)   (9,117,445)   (8,895,113)
Loss from operations   (10,577,233)   (8,336,182)   (3,975,052)   (4,993,154)
Interest expense   (137,876)   (102,974)   (61,790)   (42,374)
Interest income   21,133        42,603     
Loss on sale of business   (60,343)            
Loss before income taxes   (10,754,319)   (8,439,156)   (3,994,239)   (5,035,528)
Income tax benefit                
Net loss  $(10,754,319)  $(8,439,156)  $(3,994,239)  $(5,035,528)
Preferred stock accretion   (1,000,000)   (1,000,000)   (500,000)   (500,000)
Net loss attributable to common stockholders   (11,754,319)   (9,439,156)   (4,494,239)   (5,535,528)
Net loss per common share, basic and diluted  $(0.95)  $(0.82)  $(0.36)  $(0.45)

 

   June 30,   December 31,   December 31, 
   2020   2019   2018 
Balance Sheet Data               
Cash and cash equivalents  $413,620   $469,353   $1,254,723 
Working capital (1)   (4,365,960)   (7,109,528)   (145,561)
Total assets   6,895,696    7,551,537    8,203,967 
Total liabilities   7,433,606    9,177,929    2,710,507 
Total stockholders’ equity  $(2,204,577)  $(2,943,059)  $4,826,793 

 

(1) Working capital represents total current assets less total current liabilities.

 

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RISK FACTORS

 

Investing in our common stock is highly speculative and involves a significant degree of risk. Before you invest in our securities, you should give careful consideration to the following risk factors, in addition to the other information included in this prospectus, including our financial statements and related notes, before deciding whether to invest in our securities. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

Risks Related to Our Business and Industry

 

We have a history of operating losses and management identified and our auditors agreed that there is a substantial doubt about our ability to continue as a going concern.

 

To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended December 31, 2019 and 2018, we reported net losses of $10,754,319 and $8,439,156, respectively, and negative cash flow from operating activities of $5,340,480 and $5,313,891, respectively. For the six months ended June 30, 2020, we generated revenue of $6,467,695 and generated a net loss of $3,994,239. As of June 30, 2020, we had an aggregate accumulated deficit of $27,272,090. We anticipate that we will continue to report losses and negative cash flow. As a result of these net losses and cash flow deficits and other factors that we identified, our independent auditors issued an audit opinion with respect to our consolidated financial statements for the year ended December 31, 2019 that indicated that there is a substantial doubt about our ability to continue as a going concern.

 

Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if included, these adjustments would likely reflect a substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities, including common stock issued in this offering, would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing, including funds to be raised in this offering. If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, we may be unable to continue in business even if this offering is successful.

 

We have limited capital resources, and even following this offering we will need to raise additional capital. Such funding, if obtained, could result in substantial dilution or significant debt service obligations. We may not be able to obtain additional capital on commercially reasonable terms in a timely manner, which could adversely affect our liquidity, financial position, and ability to continue operations.

 

At June 30, 2020, we had a cash balance of approximately $414,000 and negative working capital of approximately $4,366,000. We thus have limited capital resources to continue our business and require the funds from this offering to continue our business. Even if we are able to raise funding in this offering or substantially increase revenue and reduce operating expenses, we will need to raise additional capital. In order to continue operating, we may need to obtain additional financing, either through borrowings, private offerings, public offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. We may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our investors losing all of their investment in our company.

 

If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity and ability to pay dividends. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds on favorable terms could have a material adverse effect on our liquidity and financial condition.

 

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We will not be successful if our Vivos System is not sufficiently adopted by the medical and dental communities, including independent practitioners and dental service organizations (DSOs) for the treatment of craniofacial deficiencies that are often associated with SDB and mild-to-moderate OSA.

 

We believe that the Vivos System is the first commercially available product based on our proprietary technology for the treatment of craniofacial deficiencies that are often associated with SDB and mild-to-moderate OSA. Our success depends both on the sufficient acceptance and adoption by the medical/dental community of our Vivos System as a non-invasive treatment for the treatment of craniofacial deficiencies that are often associated with SDB and mild-to-moderate OSA, and heightening public awareness of the prevalence of mild-to-moderate OSA to increase the number of undiagnosed patients with SDB and mild-to-moderate OSA who seek treatment. Currently, a relatively limited number of dentists and other medical clinicians provide treatment with the Vivos System. We cannot predict how quickly, if at all, the medical/dental community will accept our Vivos System, or, if accepted, the extent of its use. For us to be successful:

 

  our dentist customers and referring physicians must believe that the Vivos System offers meaningful clinical and economic benefits for the treating provider and for the patient as compared to the other surgical and non-surgical procedures or devices currently being used to treat individuals with SDB or mild-to-moderate OSA and referring physicians must write a prescription for the use of the Vivos System;
     
  our dentist customers must use our Vivos System to treat craniofacial deficiencies that are often associated with SDB and mild-to-moderate OSA either as a stand-alone treatment or in combination with procedures to treat other areas of upper airway obstruction, and achieve acceptable clinical outcomes in the patients they treat;
     
  our dentist customers must believe patients will pay for the Vivos System out-of-pocket, and patients must believe that paying out-of-pocket for treatment in the Vivos System is the best alternative to either doing nothing or entering into another treatment option; and
     
  our dentist customers must be willing to pay us for the right to become VIPs and to commit the time and resources required to learn the new clinical and technical skills and invest in the technology required to treat patients with SDB or mild-to-moderate OSA using the Vivos System.

 

Studies have shown that a significant percentage of people who have SDB or OSA remain undiagnosed and therefore do not seek treatment, or those who are diagnosed with SDB or OSA may be reluctant to seek treatment or incur significant costs of treatment given the less severe nature of their condition, the potentially negative lifestyle effects of traditional treatments, and the lack of awareness of new treatment options. If we are unable to increase public awareness of the prevalence of SDB or OSA due to untreated craniofacial deficiencies or if the medical/dental community is slow to adopt, or fails to adopt, the Vivos System as a treatment for individuals with SDB or mild-to-moderate OSA, we would suffer a material adverse effect on our business, financial condition and results of operations.

 

Our VIP program is a relatively new business model for us, and management has limited experience operating this model.

 

Our VIP program is a relatively new business model for us, and members of our management team have limited experience operating our company through this model. As a result, our historical financial results may not be comparable to future results. Also, we are subject to many risks associated with this new business model that we are unable to presently identify, such as pricing, competition, marketing and regulatory risks. Moreover, our ability to onboard new VIPs may be impeded by the investments VIPs must make in adapting their practices to the use of the Vivos System. We cannot assure you that management will be able to recruit and adopt new VIPs. Any such failure may have an adverse impact on our business, financial condition and results of operations.

 

We expect to derive a substantial portion of our future revenue from sales of a single product (the Vivos System) through our VIPs and the offering of related services, which leaves us reliant on the commercial viability of the Vivos System.

 

Currently, our primary product is our Vivos System. Our secondary source of revenue is our clinical training and practice support programs, including Billing Intelligence Services and Airway Intelligence Services. We expect that sales of our Vivos System and our services to our VIPs related to the use of such product will account for a significant majority of our revenue for the foreseeable future. We currently market and sell our Vivos System primarily in the United States, with a very limited presence a in very few select countries such as South Korea, Australia, Japan, India, and Canada. Because the Vivos System is different from current surgical and non-surgical treatments for SDB or OSA, we cannot assure you that dentists in corroboration with physicians will use the Vivos System or become VIPs, and demand for our Vivos System may decline or may not increase as quickly as we expect. Also, we cannot assure you that the Vivos System will compete effectively as a treatment alternative to other more well-known and well-established therapies, such as CPAP, mandibular advancement, or palatal surgical procedures. Since our Vivos System and other oral appliances currently represent our only products, and since our VIP program is our primary means of commercialization, we are significantly reliant on the level of recurring sales of the Vivos System and other oral appliances, and decreased or lower than expected sales or recruitment and maintenance of new VIPs would cause us to lose all or substantially all of our revenue.

 

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We face risks relating to public health conditions such as the COVID-19 pandemic, which could adversely affect our dentist customers, our business and our results of operations.

 

Our business and prospects could be materially adversely affected by the COVID-19 pandemic or recurrences of that or any other such disease in the future. Material adverse effects from COVID-19 and similar occurrences could result in numerous known and currently unknown ways including from quarantines and lockdowns which impair our marketing and sales efforts to dentists or other medical professionals. During the COVID-19 pandemic, dental offices throughout the U.S. and Canada shut down for extended periods of time (and remain shut down or may be shut down due to COVID-19), thus negatively impacting our product revenues. The pandemic and reactions to the pandemic or future outbreaks of COVID-19 could also impair the timing of obtaining necessary consents and approvals from the FDA, as its employees could also be under such quarantines and lockdowns and their time could be mandatorily required to be allocated to more immediate global and domestic concerns relating to COVID-19. In addition, we purchase materials for our products from suppliers located in affected areas, and we may not be able to procure required components or secure manufacturing capability. The effects of the COVID-19 pandemic have also placed travel restrictions on us and our VIPs, as well as temporary closures of the facilities of our suppliers and our VIPs as non-essential medical and dental procedures have been limited, which could also adversely impact our business. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could reduce the demand for our products and impair our business prospects including as a result of being unable to raise additional capital on acceptable terms to us, if at all.

 

Our future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our common stock.

 

Our limited history of sales of our Vivos System, together with our history of losses, make prediction of future operating results difficult. You should not rely on our past revenue growth as any indication of future growth rates or operating results. Our valuation and the price of our securities likely will fall in the event our operating results do not meet the expectations of analysts and investors. Comparisons of our quarterly operating results are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:

 

  our inability to attract demand for and obtain acceptance of our Vivos System for the treatment of craniofacial deficiencies that are often associated with SDB and mild-to-moderate OSA by both physicians/dentists and patients;
     
  the success of alternative therapies and surgical procedures to treat individuals with SDB, and the possible future introduction of new products and treatments for SDB;
     
  our ability to maintain current pricing for our Vivos System;
     
  our ability to expand by adding additional VIPs in leading major metro areas;
     
  the expansion and rate of success of our marketing and advertising efforts to both consumers and dentists, and the rate of success of our direct sales force in the United States and internationally;
     
  failure of third-party contract manufacturers to deliver products or provide services in a cost effective and timely manner;
     
  our failure to develop, find or market new products;
     
  the successful completion of current and future clinical studies, and the possibility that the results of any future study may be adverse to our product and services, or reveal some heretofore unknown risk to patients from treatment in the Vivos System; the failure by us to make professional presentation and publication of positive outcomes data from these clinical studies, and the increased adoption of the Vivos System by dentists as a result of the data from these clinical studies;
     
  actions relating to ongoing FDA compliance;
     
  the size and timing of orders from dentists and independent distributors;
     
  our ability to obtain reimbursement for the Vivos System for the treatment of craniofacial conditions that are often associated with SDB and OSA in the future from third-party healthcare insurers;

 

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  the willingness of patients to pay out-of-pocket for treatment in the Vivos System or other Vivos oral appliances, in the absence of reimbursement from third-party healthcare insurers, for the treatment of craniofacial conditions that are often associated with SDB and OSA; decisions by one or more commercial health insurance companies to preclude, deny, limit, reduce, eliminate, or curtain reimbursement for treatment in whole or part by the Vivos System;
     
  unanticipated delays in the development and introduction of our future products and/or our inability to control costs;
     
  the effects of global or local pandemics or epidemics and governmental responses, such as COVID-19;
     
  seasonal fluctuations in revenue due to the elective nature of sleep-disordered breathing treatments, including the Vivos System, as well as seasonal fluctuations resulting from adverse weather conditions, earthquakes, floods or other acts of nature in certain areas or regions that result in power outages, transportation interruptions, damages to one or more of our facilities, food shortages, or other events which may cause a temporary or long-term disruption in patient priorities, finances, or other matters; and
     
  general economic conditions as well as those specific to our customers and markets.

 

Therefore, you should expect that our results of operations will be difficult to predict, which will make an investment in our company uncertain.

 

Further clinical studies of our Vivos System may adversely impact our ability to generate revenue if they do not demonstrate that our Vivos System is clinically effective for currently specified or expanded indications or if they are not completed in a timely manner.

 

We have conducted, and continue to conduct, a number of clinical studies of the use of our Vivos System and other Vivos oral appliances to treat patients with SDB or mild-to-moderate OSA due to craniofacial deficiencies in the United States and Canada. We are involved in a number of ongoing clinical studies evaluating clinical outcomes from the use of the Vivos System and other Vivos oral appliances, including prospective, randomized, placebo-controlled studies, as well as clinical studies that are structured to obtain additional clearances from the FDA for expanded clinical indications for use of our Vivos System.

 

We cannot assure you that these clinical studies will continue to demonstrate that our Vivos System provides clinical effectiveness for individuals diagnosed with SDB or mild-to-moderate OSA, nor can we assure you that the use of our Vivos System will prove to be safe and effective in clinical studies under United States or international regulatory guidelines for any expanded indications. Additional clinical studies of our Vivos System may identify significant clinical, technical or other obstacles that will have to be overcome prior to obtaining clearance from the applicable regulatory bodies to market our Vivos System for such expanded indications. If further studies of our Vivos System indicate that the Vivos System is not a safe and effective treatment of SDB or mild-to-moderate OSA, our ability to market our Vivos System, and generate substantial revenue from additional sales of our Vivos Systems, may be materially limited.

 

Individuals selected to participate in these further clinical studies must meet certain anatomical and other criteria to participate. We cannot assure you that an adequate number of individuals can be enrolled in clinical studies on a timely basis. Further, we cannot assure you that the clinical studies will be completed as planned. A delay in the analysis and publication of the positive outcomes data from these clinical studies, or the presentation or publication of negative outcomes data from these clinical studies, including data related to approval of our Vivos System for expanded indications, may materially impact our ability to increase revenue through sales and negatively impact our stock price.

 

Our business and results of operations may depend upon the ability of our affiliated healthcare providers to achieve adequate levels of third-party reimbursement.

 

Whenever practical, the Vivos System is paid for primarily out-of-pocket by patients, with any available health insurance coverage being reimbursed if and as paid at a later date, where the patient is being treated for SDB or mild-to-moderate OSA.

 

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The cost of treatments for SDB or OSA, such as CPAP, and most surgical procedures generally are covered and reimbursed in whole or part by third-party healthcare insurers. The Vivos System is a customized and highly specialized combination of oral appliances and clinical protocols, some of which currently qualify for reimbursement for the treatment of mild-to-moderate OSA and SDB. Our ability to generate revenue from additional sales of our Vivos System for the treatment of SDB or OSA may be materially limited by the extent to which reimbursement of the Vivos System for the treatment of mild-to-moderate OSA and SDB is available in the future. In addition, third-party healthcare insurers are increasingly challenging the prices charged for medical products and procedures. In the event that we are successful in our efforts to obtain reimbursement for the Vivos System, any changes in this reimbursement system could materially affect our ability to continue to grow our business.

 

Reimbursement and healthcare payment systems in international markets vary significantly by country and reimbursement for the Vivos System may not be available at all under either government or private reimbursement systems. If we are unable to achieve reimbursement approvals in international markets, it could have a negative impact on market acceptance of our Vivos System and potential revenue growth in the markets in which these approvals are sought.

 

Our products and third-party contract manufacturing activities are subject to extensive governmental regulation that could prevent us from selling our Vivos System or introducing new and/or improved products in the United States or internationally.

 

Our products and third-party contract manufacturing activities are subject to extensive regulation by a number of governmental agencies, including the FDA and comparable international regulatory bodies. We are required to:

 

  obtain clearance from the FDA and certain international regulatory bodies before we can market and sell our products;
     
  satisfy all content requirements for the sales and promotional materials associated with the Vivos System; and
     
  undergo rigorous inspections of our facilities, manufacturing and quality control processes, records and documentation.

 

Compliance with the rules and regulations of these various regulatory bodies may delay or prevent us from introducing any new models of our Vivos System or other new products. In addition, government regulations may be adopted that could prevent, delay, modify or rescind regulatory clearance or approval of our products.

 

Our manufacturing partners are further required to demonstrate compliance with the FDA’s quality system regulations. The FDA enforce their quality system regulations through pre-approval and periodic post-approval inspections by representatives from the FDA. These regulations relate to product testing, vendor qualification, design control and quality assurance, as well as the maintenance of records and documentation. If we fail to conform to these regulations, the FDA may take actions that could seriously harm our business. These actions include sanctions, including temporary or permanent suspension of our operations, product recalls and marketing restrictions. A recall or other regulatory action could substantially increase our costs, damage our reputation and materially affect our operating results.

 

Our products are currently not recommended by most pulmonologists, who are integral to the diagnosis and treatment of sleep breathing disorders.

 

The majority of patients being treated today for SDB or OSA, domestically and internationally, are initially referred to pulmonologists by their primary care physicians. Pulmonologists typically administer a polysomnogram, or overnight sleep study, to diagnose the presence and severity of SDB or OSA. If an individual is diagnosed with SDB or OSA by a pulmonologist, the pulmonologist typically prescribes CPAP as the therapy of choice. Although we offer the Vivos System through our VIPs, our domestic sales organization does not generally call on pulmonologists or third-party sleep centers to sell our Vivos System, and we do not believe that most pulmonologists today would recommend the Vivos System to their patients with SDB or mild-to-moderate OSA. We cannot predict the extent to which pulmonologists will, in the future, endorse or recommend the Vivos System to their SDB or mild-to-moderate OSA patients, even for those patients who are unwilling or unable to comply with CPAP therapy.

 

 21 

 

 

We face significant competition in the rapidly changing market for treating sleep breathing disorders, and we may be unable to manage competitive pressures.

 

The market for treating sleep disordered breathing, including sleep apnea in people of all ages, is highly competitive and evolving rapidly. We compete as a second-line therapy in the OSA treatment market for patients with mild to moderate OSA. According to the American Sleep Apnea Association, over 100 different oral appliances are FDA cleared for the treatment of snoring and obstructive sleep apnea. The Vivos System must compete with more established products, treatments and surgical procedures, which may limit our growth and negatively affect our business. Many of our competitors have an established presence in the field of treating SDB and have established relationships with pulmonologists, sleep clinics and ear, nose and throat specialists, which play a significant role in determining which product, treatment or procedure is recommended to the patient. We believe certain of our competitors are attempting to develop innovative approaches and new products for diagnosing and treating SDB or OSA and other sleep disordered breathing conditions. We cannot predict the extent to which ENTs, oral maxillofacial surgeons, primary care physicians or pulmonologists would or will recommend our Vivos System over new or other established devices, treatments or procedures.

 

Moreover, we are in the early stages of implementing our business plan and have limited resources with which to market, develop and sell our Vivos System. Many of our competitors have substantially greater financial and other resources than we do, including larger research and development staffs who have more experience and capability in conducting research and development activities, testing products in clinical trials, obtaining regulatory approvals and manufacturing, marketing, selling and distributing products. Some of our competitors may achieve patent protection, regulatory approval or product commercialization more quickly than we do, which may decrease our ability to compete. If we are unable to be competitive in the market for OSA and SDB, our revenue will decline, which would negatively affect our results of operations.

 

Our Vivos System may become obsolete if we are unable to anticipate and adapt to rapidly changing technology.

 

The medical device industry is subject to rapid technological innovation and, consequently, the life cycle of any particular product can be short. Alternative products, procedures or other discoveries and developments to treat SDB and OSA may render our Vivos System obsolete. Furthermore, the greater financial and other resources of many of our competitors may permit them to respond more rapidly than we can to technological advances. If we fail to develop new technologies, products or procedures to upgrade or improve our existing Vivos System to respond to a changing market before our competitors are able to do so, our ability to market our products and generate substantial revenue may be limited.

 

Our international sales are subject to a number of risks that could seriously harm our ability to successfully commercialize our Vivos System in international markets.

 

We do not have significant international sales outside of Canada, although we hope to more broadly introduce our Vivos Systems into international markets. Our ability to generate international sales is subject to several risks, including:

 

  our ability to obtain appropriate regulatory approvals to market the Vivos System in certain countries;
     
  our ability to identify new independent third-party distributors in international markets where we do not currently have distributors;
     
  the impact of recessions in economies outside the United States;
     
  greater difficulty in negotiating with socialized medical systems, maintaining profit margins comparable to those achieved in the United States, collecting accounts receivable, and longer collection periods;

 

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  unexpected changes in regulatory requirements, tariffs or other trade barriers;
     
  weaker intellectual property rights protection in some countries;
     
  potentially adverse tax consequences; and
     
  political and economic instability.

 

The occurrence of any of these events could seriously harm our future international sales and our ability to successfully commercialize our products in international markets, thereby limiting our growth and revenue.

 

There are risks associated with outsourced production that may result in a decrease in profit to us.

 

We outsource the manufacture of substantially all of our products to third-party manufacturers on a case-by-case basis. By law, the selection of the manufacturer is at the sole discretion of the treating dentist. However, we select our approved and certified manufacturers by training and screening them in advance based on their capabilities, supply capacity, reputation, regulatory registration and compliance, and other relevant traits. Most of these manufacturers are located in the U.S., but at least one important manufacturer is located in South Korea, and other smaller manufacturers are located in Canada. Nonetheless, the possibility of delivery delays, product defects, import or customs blockages, and other production-side risks stemming from outsourcers cannot be eliminated. In particular, inadequate production capacity among outsourced manufacturers could result in our being unable to supply enough product amid periods of high product demand, the opportunity costs of which could be substantial.

 

We do not have any long-term contracts with manufacturers, suppliers or other service providers for our products. Our business would be harmed if manufacturers and service providers are unable to deliver products or provide services in a timely and cost-effective manner, or if we are unable to timely fulfill orders.

 

We do not have any long-term contracts with manufacturers, suppliers or other service providers for our products. We do not anticipate that this will change. As a result, if any manufacturer or supplier is unable, either temporarily or permanently, to manufacture or deliver products or provide services to us in a timely and cost-effective manner, it could have an adverse effect on our financial condition and results of operations. Our ability to provide effective customer service and efficiently fulfill orders for merchandise depends, to a large degree, on the efficient and uninterrupted operation of the manufacturing and related call centers, distribution centers, and management information systems, some of which are run by third parties. Any material disruption or slowdown in manufacturing, order processing or fulfillment systems resulting from strikes or labor disputes, telephone down times, electrical outages, mechanical problems, human error or accidents, fire, natural disasters, adverse weather conditions or comparable events could cause delays in our ability to receive and fulfill orders and may cause orders to be lost or to be shipped or delivered late. As a result, these disruptions could adversely affect our financial condition or results of operations in future periods.

 

The failure of large U.S. customers or Dental Service Organizations (DSO) to pay for their purchases of Vivos System products and services on a timely basis could reduce our future sales revenue and negatively impact our liquidity.

 

The timing and extent of our future growth in sales revenue depends, in part, on our ability to continue to increase the number of U.S. dentists using the Vivos System, as well as expanding the number of Vivos Systems used by these physicians/dentists. To the extent one or more of our large U.S. dentist customers or DSO groups fails to pay us for Vivos Systems on a timely basis, we may be required to discontinue selling to these organizations and find new customers, which could reduce our future sales revenue and negatively impact our liquidity.

 

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We depend on our patents and proprietary technology, which we may not be able to protect.

 

Our success depends, in part, on our ability to obtain and maintain patent protection for our Vivos System components and the confidentiality of proprietary clinical protocols. Our success further depends on our ability to obtain and maintain trademark protection for our name and mark; to preserve our trade secrets and know-how; and to operate without infringing the intellectual property rights of others.

 

We cannot assure investors that we will continue to innovate and file new patent applications, or that if filed any future patent applications will result in granted patents We cannot assure you that any of our patents pending will result in issued patents, that any current or future patents will not be challenged, invalidated or circumvented, that the scope of any of our patents will exclude competitors or that the patent rights granted to us will provide us any competitive advantage or protect our products. The patent position of device companies, including ours, is generally uncertain and involves complex legal and factual considerations and, therefore, validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or circumvented. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies, protocols and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.

 

Any patents we have obtained or do obtain may be challenged by re-examination or otherwise invalidated or eventually found unenforceable. Both the patent application process and the process of managing patent disputes can be time consuming and expensive. If we were to initiate legal proceedings against a third party to enforce a patent related to one of our products, the defendant in such litigation could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity and/or unenforceability are commonplace, as are validity challenges by the defendant against the subject patent or other patents before the United States Patent and Trademark Office (or USPTO). Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement, failure to meet the written description requirement, indefiniteness, and/or failure to claim patent eligible subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent intentionally withheld material information from the USPTO, or made a misleading statement, during prosecution. Additional grounds for an unenforceability assertion include an allegation of misuse or anticompetitive use of patent rights, and an allegation of incorrect inventorship with deceptive intent. Third parties may also raise similar claims before the USPTO even outside the context of litigation. The outcome is unpredictable following legal assertions of invalidity and unenforceability. With respect to the validity question, for example, we cannot be certain that no invalidating prior art existed of which we and the patent examiner were unaware during prosecution. These assertions may also be based on information known to us or the USPTO. If a defendant or third party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the claims of the challenged patent. Such a loss of patent protection would or could have a material adverse impact on our business.

 

The standards that the USPTO (and foreign equivalents) use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in device patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others.

 

However, there can be no assurance that our technology will not be found in the future to infringe upon the rights of others or be infringed upon by others. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products or product candidates infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our product infringes. In such a case, others may assert infringement claims against us, and should we be found to infringe upon their patents, or otherwise impermissibly utilize their intellectual property, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property. We may fail to obtain any of these licenses or intellectual property rights on commercially reasonable terms. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected products, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. Conversely, we may not always be able to successfully pursue our claims against others that infringe upon our technology. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.

 

In addition to patents, we rely on trademarks to protect the recognition of our company and product in the marketplace. We also rely on trade secrets, know-how, and proprietary knowledge that we seek to protect, in part, through confidentiality agreements with employees, consultants and others. We cannot assure you that our proprietary information will not be shared, our confidentiality agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and disclosure of our trade secrets or proprietary information could compromise any competitive advantage that we have, which could have a materially adverse effect on our business.

 

Our success depends, in part, on our ability to protect our proprietary rights to the technologies used in our products and our proprietary clinical protocols. We depend heavily upon confidentiality agreements with our officers, employees, consultants and subcontractors to maintain the proprietary nature of our technology and our proprietary clinical protocols. These measures may not afford us complete or even sufficient protection, and may not afford an adequate remedy in the event of an unauthorized disclosure of confidential information. If we fail to protect and/or maintain our intellectual property, third parties may be able to compete more effectively against us, we may lose our technological or competitive advantage, and/or we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition and results of operations in which event and you could lose all of your investment.

 

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We may face intellectual property infringement claims that would be costly to resolve.

 

There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry, and our competitors and others may initiate intellectual property litigation, including as a means of competition. Intellectual property litigation is complex and expensive, and outcomes are difficult to predict. We cannot assure you that we will not become subject to patent infringement claims or litigation, or interference proceedings, to determine the priority of inventions. Litigation or regulatory proceedings also may be necessary to enforce our patent or other intellectual property rights. We may not always have the financial resources to assert patent infringement suits or to defend ourselves from claims. An adverse result in any litigation could subject us to liabilities, or require us to seek licenses from or pay royalties to others that may be substantial. Furthermore, we cannot predict the extent to which the necessary licenses would be available to us on satisfactory terms, if at all.

 

Our failure to secure trademark registrations could adversely affect our ability to market our products and operate our business.

 

Our trademark applications in the United States and any other jurisdictions where we may file may not be allowed registration, and we may not be able to maintain or enforce our registered trademarks. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions could adversely affect our ability to market our products and our business.

 

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We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the medical device industry, we may employ individuals who were previously employed at other companies similar to ours, including our competitors or potential competitors. We may become subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

We face the risk of product liability claims that could be expensive, divert management’s attention and harm our reputation and business. We may not be able to maintain adequate product liability insurance.

 

Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing of medical devices. This risk exists even if a device is cleared or approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our Vivos System is designed to affect, and any future products will be designed to affect, important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our Vivos System could result in patient injury or death. The medical device industry has historically been subject to extensive litigation over product liability claims, and we cannot offer any assurance that we will not face product liability suits. We may be subject to product liability claims if our Vivos System causes, or merely appears to have caused, patient injury or death. In addition, an injury that is caused by the activities of our suppliers, such as those who provide us with components and raw materials, may be the basis for a claim against us. Product liability claims may be brought against us by patients, healthcare providers or others selling or otherwise coming into contact with our Vivos System, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

  costs of litigation;
     
  distraction of management’s attention from our primary business;
     
  the inability to commercialize our Vivos System or new products;
     
  decreased demand and brand reputation for our Vivos System;
     
  product recalls or withdrawals from the market;
     
  withdrawal of clinical trial participants;
     
  substantial monetary awards to patients or other claimants; or
     
  loss of sales.

 

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Any recall or market withdrawal of our products may delay the supply of those products to our customers and may impact our reputation. We can provide no assurance that we will be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future or that these efforts will have the intended effect of preventing product malfunctions and the accompanying product liability that may result. Such recalls and withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by patients as a safety risk when considering the use of our products, either of which could have a material adverse effect on our business, financial condition and results of operations.

 

Our product liability and clinical study liability insurance is subject to deductibles and coverage limitations. Our product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, coverage may not be adequate to protect us against any future product liability claims. If we are unable to obtain insurance at an acceptable cost or on acceptable terms or otherwise protect against potential product liability claims, we could be exposed to significant liabilities. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business, financial condition and results of operations.

 

We bear the risk of warranty claims on the Vivos System.

 

We bear the risk of warranty claims on our Vivos System. We may not be successful in claiming recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a successful warranty claim against us by a customer or that any recovery from such vendor or supplier would be adequate. In addition, warranty claims brought by our customers related to third-party components may arise after our ability to bring corresponding warranty claims against such suppliers expires, which could result in costs to us.

 

We depend on a few suppliers for key components, making us vulnerable to supply shortages and price fluctuation.

 

We purchase components for our Vivos System from a variety of vendors on a purchase order basis; we have no long-term supply contracts with any of our vendors. While it is our goal to have multiple sources to procure certain key components, in some cases it is not economically practical or feasible to do so. To mitigate this risk, we maintain an awareness of alternate supply sources that could provide our currently single-sourced components with minimal or no modification to the current version of our Vivos System, practice supply chain management, maintain safety stocks of critical components and have arrangements with our key vendors to manage the availability of critical components. Despite these efforts, if our vendors are unable to provide us with an adequate supply of components in a timely manner, or if we are unable to locate qualified alternate vendors for components at a reasonable cost, the cost of our products would increase, the availability of our products to our customers would decrease and our ability to generate revenue could be materially limited.

 

Our sales and marketing efforts may not be successful.

 

We currently market and sell our Vivos System to a limited number of licensed professionals, primarily general dentists. Less than 1% of the general dentists in the U.S. have been trained and certified in the Vivos System. The commercial success of our Vivos System ultimately depends upon a number of factors, including the number of dentists who use the Vivos System, the number of Vivos Systems used by these dentists, the number of patients who become aware of the Vivos System by self-referral or referrals by their primary care physicians, the number of patients who elect to use the Vivos System, and the number of patients who, having successfully used the Vivos System, endorse and refer the Vivos System to other potential patients. The Vivos System may not gain significant increased market acceptance among physicians/dentists who use it or who refer their patients, other patients, third-party healthcare insurers and managed care providers. Primary care physicians may elect to refer individuals with SDB to pulmonologists or other physicians who treat sleep disordered breathing, and these physicians may not recommend the Vivos System to patients for any number of reasons, including safety and clinical efficacy, the availability of alternative procedures and treatment options, or inadequate levels of reimbursement. In addition, while positive patient experiences can be a significant driver of future sales, it is impossible to influence the manner in which this information is transmitted and received, the choices potential patients may make and the recommendations that treating physicians make to their patients.

 

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Although we anticipate selling our product directly to our corporate-owned and partner clinics, we have limited experience in marketing and selling our Vivos System or VIP program through a direct sales organization in the United States. We may not be able to maintain a suitable sales force in the United States or train up a suitable number of VIPs, or enter into or maintain satisfactory marketing and distribution arrangements with others. Our marketing and sales efforts may not be successful in increasing awareness and sales of our Vivos System.

 

The failure to educate or train a sufficient number of physicians and dentists in the use of our Vivos System could reduce the market acceptance of our Vivos System and reduce our revenue.

 

It is critical to the success of our sales efforts that there is an increasing number of dentists familiar with, trained in, and proficient in the use of our Vivos System. Currently, dentists learn to use the Vivos System through hands-on, on-site training by our representatives. However, to receive this training, dentists must be aware of the Vivos System as a treatment option for SDB or mild-to-moderate OSA and be interested in using the Vivos System in their practice. We cannot predict the extent to which dentists will dedicate the time and energy necessary for adequate training in the use of our Vivos System, have the knowledge of or experience in the clinical outcomes of the Vivos System or feel comfortable enough using the Vivos System to recommend it to their patients. Even if a dentist is well versed in the Vivos System, he or she may be unwilling to require patients to pay for the Vivos System out-of-pocket. If dentists do not continue to accept and recommend the Vivos System, our revenue could be materially and adversely affected.

 

We rely on third-party suppliers and contract manufacturers for the manufacture and assembly of our products, and a loss or degradation in performance of these suppliers and contract manufacturers could have a material adverse effect on our business, financial condition and results of operations.

 

We rely on third-party suppliers and contract manufacturers for the raw materials and components used in our Vivos System and to manufacture and assemble our products. Any of our other suppliers or our third-party contract manufacturers may be unwilling or unable to supply the necessary materials and components or manufacture and assemble our products reliably and at the levels we anticipate or that are required by the market. Our ability to supply our products commercially and to develop any future products depends, in part, on our ability to obtain these materials, components and products in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. While our suppliers and contract manufacturers have generally met our demand for their products and services on a timely basis in the past, we cannot guarantee that they will in the future be able to meet our demand for their products, either because of acts of nature, the nature of our agreements with those manufacturers or our relative importance to them as a customer, and our manufacturers may decide in the future to discontinue or reduce the level of business they conduct with us. If we are required to change contract manufacturers due to any change in or termination of our relationships with these third parties, or if our manufacturers are unable to obtain the materials they need to produce our products at consistent prices or at all, we may lose sales, experience manufacturing or other delays, incur increased costs or otherwise experience impairment to our customer relationships. We cannot guarantee that we will be able to establish alternative relationships on similar terms, without delay or at all.

 

Establishing additional or replacement suppliers for any of these materials, components or services, if required, could be time-consuming and expensive, may result in interruptions in our operations and product delivery, may affect the performance specifications of our Vivos System or could require that we modify its design. Even if we are able to find replacement suppliers or third-party contract manufacturers, we will be required to verify that the new supplier or third-party manufacturer maintains facilities, procedures and operations that comply with our quality expectations and applicable regulatory requirements.

 

If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of our Vivos System, the supply of our products to customers and the development of any future products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.

 

We may not be able to implement successfully our growth strategy for our VIPs on a timely basis or at all, which could harm our business, financial condition and results of operations.

 

The growth of our VIP base depends on our ability to execute our plan to recruit and enroll new VIPs. Our ability to recruit and enroll VIPs depends on many factors, including our ability to:

 

  achieve brand awareness in new and existing markets;
     
  convince potential VIPs to make the required investments in becoming a VIP and using the Vivos System;
     
  manage costs, which could give rise to delays or cost overruns;
     
  recruit, train, and retain qualified dentists, dental hygienists, physicians, physician assistants, medical technologists and other staff in our local markets;
     
  obtain favorable reimbursement rates for services rendered at VIP offices;
     
  outperform local competitors; and
     
  maintain adequate information systems and other operational system capabilities.

 

Further, applicable laws, rules and regulations (including licensure requirements) could negatively impact our ability to recruit and enroll VIPs.

 

Accordingly, we may not be able to achieve our planned growth or, even if we are able to grow our VIP base as planned, any new VIPs may not be profitable or otherwise perform as planned. Failure to successfully implement our growth strategy would likely have an adverse impact on our business, financial condition and results of operations.

 

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The long-term success of our VIP program is highly dependent on our ability to successfully identify, recruit and enroll target dental practices.

 

To achieve our growth strategy, we will need to identify, recruit and enroll new VIPs and have them operate on a profitable basis. We take into account numerous factors in identifying target markets where we can enter or expand.

 

The number and timing of new VIPs enrolled during any given period may be negatively impacted by a number of factors including, without limitation:

 

  the identification and availability of attractive practices to be VIPs;
     
  our ability to successfully identify and address pertinent risks and benefits during the onboarding process;
     
  the proximity of VIPs to one of our or our competitors’ existing centers;
     
  our VIP’s ability to obtain required governmental licenses, permits and authorizations on a timely basis; and
     
  our VIP’s ability to recruit qualified dentists, dental hygienists, physicians, physician assistants, medical technologists and other personnel to staff their practices using the Vivos System.

 

If we are unable to find and onboard attractive VIPs in existing markets or new markets, our revenue and profitability may be harmed, we may not be able to implement our growth strategy and our financial results may be negatively affected.

 

Damage to our reputation or our brand could negatively impact our business, financial condition and results of operations.

 

We must grow the value of our brand to be successful. We intend to develop a reputation based on the high quality of our products and services, trained clinic personnel, as well as on our particular culture and the experience of our patients with our VIPs. If we do not make investments in areas such as marketing and advertising, as well as personnel training, the value of our brand may not increase or may be diminished. Any incident, real or perceived, regardless of merit or outcome, that adversely affects our brand, such as, but not limited to, patient disability or death due to malpractice or allegations of malpractice, failure to comply with federal, state, or local regulations, including allegations or perceptions of non-compliance or failure to comply with ethical and operational standards, could significantly reduce the value of our brand, expose us to negative publicity and damage our overall business and reputation.

 

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Our marketing activities may not be successful.

 

We incur costs and expend other resources in our marketing efforts to attract and retain VIPs. Our marketing activities are principally focused on increasing brand awareness in the communities in which we provide services. As we onboard VIP providers, we expect to undertake aggressive marketing campaigns to increase community awareness about our presence and our service capabilities. We conduct our targeted marketing efforts in neighborhoods through channels such as direct mail, billboards, radio advertisements, physician open houses, community sponsorships and various social media. If we are not successful in these efforts, we will have incurred expenses without materially increasing revenue.

 

The SDB and OSA market is highly competitive, including competition for patients, strategic relationships, and commercial payor contracts.

 

The market for providing treatment for SDB and OSA is highly competitive. Our VIP offices and our VIPs face competition from existing facilities providing treatment for SDB and OSA, depending on the type of patient and geographic market. Our VIPs compete on the basis of our product (the Vivos System), quality, price, accessibility, and overall experience. We compete with national, regional, and local enterprises, many of which have greater financial and other resources available to them, greater access to dentists and physicians or greater access to potential patients. We also compete on the basis of our multistate, regional footprint, which we believe will be of value to both employers and third-party payors. As a result of the differing competitive factors within the markets in which we operate and will operate, the individual results of our VIP offices may be volatile. If we are unable to compete effectively with any of these entities or groups, or we are unable to implement our business strategies, there could be a material adverse effect on our business, prospects, results of operations and financial condition.

 

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Government healthcare programs may reduce reimbursement rates, which could adversely affect sales of the Vivos System and demand for dental practitioners from becoming or remaining VIPs.

 

In recent years, new legislation has been proposed and adopted at both the federal and state level that is effecting major changes in the healthcare system. Any change in the laws, regulations, or policies governing the healthcare system could adversely affect reimbursement rates, which could adversely affect sales of the Vivos System and thus adversely affect our operations and financial condition. Enacted in 2010, the Affordable Care Act (or ACA) seeks to expand healthcare coverage, while increasing quality and limiting costs. The ACA substantially changes the way healthcare is financed by both governmental and commercial payors. As a result of the ACA or the adoption of additional federal and state healthcare reforms measures there could be limits to the amounts that federal and state governments will pay for healthcare services, which could result in reduced demand for, or profitability of, the Vivos System and for dental practitioners from becoming or remaining VIPs.

 

Significant uncertainty exists as to the reimbursement status of healthcare products. The regulations that govern marketing approvals, pricing and reimbursement for medical devices vary widely from country to country. In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, is significantly changing the way healthcare is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this law or any amendment to it will continue to have in general or specifically on the Vivos System or any product that we commercialize, the ACA or any such amendment may result in downward pressure on reimbursements, which could negatively affect market acceptance of the Vivos System. In addition, although the United States Supreme Court has upheld the constitutionality of most of the ACA, several states have not implemented certain sections of the ACA, including 19 that have rejected the expansion of Medicaid eligibility for low income citizens, and some members of the U.S. Congress are still working to repeal the ACA. In addition, the United States Supreme Court has recently determined to hear another case challenging the constitutionality of the ACA. President Trump and the Republican majority in the U.S. Senate have also been seeking to repeal or replace all or portions of the ACA but to date they have been unable to agree on any such legislation.

 

The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the ACA, including the so-called “Cadillac” tax on certain high cost employer- sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Cadillac tax was repealed in 2019 and is no longer simply delayed. Congress may still consider other legislation to repeal and replace elements of the ACA. We expect that the ACA, as currently enacted or as it may be amended or repealed in the future, and other healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and on our ability to successfully commercialize our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our products may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

 

If payments from commercial or governmental payors are significantly delayed, reduced or eliminated, our business, prospects, results of operations and financial condition could be adversely affected.

 

We will depend upon revenue from sales of the Vivos System, and in turn on reimbursement from third-party payors for the Vivos System. The amount that our VIPs receive in payment for the Vivos System may be adversely affected by factors we do not control, including federal or state regulatory or legislative changes, cost-containment decisions and changes in reimbursement schedules of third-party payors. Any reduction or elimination of these payments could have a material adverse effect on our business, prospects, results of operations and financial condition.

 

Additionally, the reimbursement process is complex and can involve lengthy delays. Also, third-party payors may reject, in whole or in part, requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that services provided were not medically necessary, that additional supporting documentation is necessary, or for other reasons. Retroactive adjustments by third-party payors may be difficult or cost prohibitive to appeal, and such changes could materially reduce the actual amount we receive from our VIPs. Delays and uncertainties in the reimbursement process may be out of our control and may adversely affect our business, prospects, results of operations and financial condition.

 

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Significant changes in our payor mix resulting from fluctuations in the types of patients seen by our VIPs could have a material adverse effect on our business, prospects, results of operations and financial condition.

 

Our results may change from period to period due to fluctuations in our VIPs’ payor mix. Payor mix refers to the relative amounts we receive from the mix of persons or entities that pay or reimburse our VIPs for healthcare services. Because we believe that our VIPs will receive a higher payment rate from commercial payors than from governmental payors or self-pay patients, a significant shift in our payor mix toward a higher percentage of self-pay or patients whose treatment is paid in whole or part by a governmental payor, could occur for reasons beyond our control and could lessen demand for the Vivos System, which in turn could have a material adverse effect on our business, prospects, results of operations and financial condition.

 

Failure by our Billing Intelligence Service to bill timely or accurately for billable services rendered by participating VIP providers could have a negative impact on our revenue and cash flow.

 

Billing for medical services rendered in connection with the Vivos System treatment is often complex and time consuming. The practice of providing dental or medical services in advance of payment or prior to assessing a patient’s ability to pay for such services may have a significant negative impact on a VIP provider’s patient service revenue, bad debt expense and cash flow. Not all of our VIPs subscribe to our Billing Intelligence Service program. For VIPs who do subscribe, we bill numerous payors, including various forms of commercial health insurance providers on their behalf. Billing requirements that must be met prior to receiving payment for services rendered often vary by payor. Self-pay patients and third-party payors may fail to pay for services even if they have been properly billed. Reimbursement is typically dependent on providing the proper procedure and diagnosis codes, supportive documentation to show medical necessity. Medical insurance is never a guarantee of payment.

 

Additional factors that could affect our ability to collect from insurers for the services rendered by our participating VIP providers include:

 

  disputes among payors as to which party is responsible for payment;
     
  variations in coverage among various payors for similar services;
     
  the difficulty of adherence to specific compliance requirements, coding and various other procedures mandated by responsible parties;
     
  the institution of new coding standards; and
     
  failure to properly credential our dentists to enable them to bill various payors.

 

The complexity associated with billing for our services may lead to delays in cash collections by our VIPs, resulting in increased carrying costs associated with the aging of our accounts receivable as well as the increased potential for bad debt expense.

 

We may incur costs resulting from security risks in connection with the electronic data processing by our partner banks.

 

Because we accept electronic payment cards for payments at our facilities and the facilities of our VIPs, we may incur costs resulting from related security risks in connection with the electronic processing of confidential information by our partner banks. Recently, several large national banks have experienced potential or actual breaches in which similar data has been or may have been stolen. Such occurrences could cause patient dissatisfaction resulting in decreased visits or could also distract our management team from the management of the day-to-day operations.

 

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Our relationships with VIPs, other healthcare providers, and third-party payors will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

 

Healthcare providers (including our VIPs), physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation of the Vivos System. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors may subject us to various federal and state fraud and abuse laws and other health care laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations. These laws will impact, among other things, our clinical research, sales, marketing and educational programs. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will affect our operations include, but are not limited to:

 

  the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between medical device manufacturers on the one hand, and physicians and patients on the other. The Patient Protection and Affordable Care Act, as amended (or the PPACA), amended the intent requirement of the federal Anti-Kickback Statute and, as a result, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it;
     
  federal civil and criminal false claims laws, including, without limitation, the False Claims Act, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. The PPACA provides, and recent government cases against medical device manufacturers support, the view that federal Anti-Kickback Statute violations and certain marketing practices, including off-label promotion, may implicate the False Claims Act;
     
  the federal Health Insurance Portability and Accountability Act of 1996 (or HIPAA), which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private);
     
  HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (or HITECH), and its implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, health care clearinghouses and health care providers, and their respective business associates;

 

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  federal transparency laws, including the federal Physician Payments Sunshine Act, which is part of the PPACA, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (or CMS), information related to: (i) payments or other “transfers of value’’ made to physicians and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members;
     
  state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws that require medical device companies to comply with the specific industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; and
     
  state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

 

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

 

It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of our products from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations.

 

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

 

The misuse or off-label use of the Vivos System may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

 

We train our marketing personnel and direct sales force to not promote the Vivos System for uses outside of the FDA-cleared indications for use, known as “off-label uses.” We cannot, however, prevent a medical professional from using the Vivos System off label when, in their independent professional medical judgment, he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use the Vivos System off-label. Furthermore, the use of the Vivos System for indications other than those cleared by the FDA or cleared by any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients.

 

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If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violations that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

 

In addition, dentists may misuse our Vivos System or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our Vivos System is misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. Similarly, in an effort to decrease costs, physicians may also reuse our Vivos System despite it being intended for a single use or may purchase reprocessed Vivos Systems from third-party processors in lieu of purchasing a new Vivos System from us, which could result in product failure and liability. Product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

 

Our business is seasonal, which impacts our results of operations.

 

We believe that the patient volumes of our VIPs will be sensitive to seasonal fluctuations in urgent care and primary care activity. Typically, 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 significantly in the future depending on these and other factors.

 

We could be subject to lawsuits for which we are not fully insured.

 

Healthcare providers have become subject to an increasing number of lawsuits alleging malpractice and related legal theories such as negligent hiring, supervision and credentialing. Some of these lawsuits involve large claim amounts and substantial defense costs. We generally procure professional liability insurance coverage for our affiliated medical professionals and professional and corporate entities. We are currently insured under policies in amounts management deems appropriate, based upon the nature and risk of our business. Our medical professionals are also required to provide their own medical malpractice insurance coverages. Nevertheless, there are exclusions and exceptions to coverage under each insurance policy that may make coverage for any claim unavailable, future claims could exceed the limits of available insurance coverage, existing insurers could become insolvent and fail to meet their obligations to provide coverage for such claims, and such coverage may not always be available with sufficient limits and at reasonable cost to insure us adequately and economically in the future. One or more successful claims against us not covered by, or exceeding the coverage of, our insurance could have a material adverse effect on our business, prospects, results of operations and financial condition. Moreover, in the normal course of our business, we may be involved in other types of lawsuits, claims, audits and investigations, including those arising out of our billing and marketing practices, employment disputes, contractual claims and other business disputes for which we may have no insurance coverage. Furthermore, for our losses that are insured or reinsured through commercial insurance providers, we are subject to the financial viability of those insurance companies. Although we believe our commercial insurance providers are currently creditworthy, they may not remain so in the future. The outcome of these matters could have a material adverse effect on our financial position, results of operations, and cash flows.

 

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We depend on certain key personnel.

 

We substantially rely on the efforts of our current senior management, including our founder and Chief Medical Officer, Dr. G. Dave Singh, our co-founder, Chairman of the Board and Chief Executive Officer, R. Kirk Huntsman and our Chief Financial Officer, Brad Amman. Our business would be impeded or harmed if we were to lose their services. In addition, if we are unable to attract, train and retain highly skilled technical, managerial, product development, sales and marketing personnel, we may be at a competitive disadvantage and unable to develop new products or increase revenue. The failure to attract, train, retain and effectively manage employees could negatively impact our research and development, sales and marketing and reimbursement efforts. In particular, the loss of sales personnel could lead to lost sales opportunities as it can take several months to hire and train replacement sales personnel. Uncertainty created by turnover of key employees could adversely affect our business.

 

Members of our board of directors and our executive officers will have other business interests and obligations to other entities.

 

Neither our directors nor our executive officers will be required to manage our business as their sole and exclusive function and they may have other business interests and may engage in other activities in addition to those relating to us, provided that such activities do not compete with the business of our company or otherwise breach their agreements with us. We are dependent on our directors and executive officers to successfully operate our company. Their other business interests and activities could divert time and attention from operating our business.

 

We will need to carefully manage our expanding operations to achieve sustainable growth.

 

To achieve increased revenue levels, complete clinical studies and develop future products, we believe that we will be required to periodically expand our operations, particularly in the areas of sales and marketing, clinical research, reimbursement, research and development, manufacturing and quality assurance. As we expand our operations in these areas, management will face new and increased responsibilities. To accommodate any growth and compete effectively, we must continue to upgrade and improve our information systems, as well as our procedures and controls across our business, and expand, train, motivate and manage our work force. Our future success will depend significantly on the ability of our current and future management to operate effectively. Our personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to effectively manage our expected growth, this could have a material adverse effect on our business, financial condition and results of operations.

 

We may not be able to respond in a timely and cost-effective manner to changes in consumer preferences.

 

Our product is subject to changing consumer preferences. A shift in consumer preferences away from the product we offer would result in significantly reduced revenue. Our future success depends in part on our ability to anticipate and respond to changes in consumer preferences. Failure to anticipate and respond to changing consumer preferences in the products we market could lead to, among other things, lower sales of products, significant markdowns or write-offs of inventory, increased product returns and lower margins. If we are not successful in anticipating and responding to changes in consumer preferences, our results of operations in future periods will be materially adversely impacted.

 

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws with respect to our activities outside the United States.

 

We distribute our products to locations within and outside the United States in Canada. Our business plan also anticipates VIP offices outside the United States and Canada. The U.S. Foreign Corrupt Practices Act, and other similar anti-bribery and anti-kickback laws and regulations, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. As we expect to expand our international operations in the future, we will become increasingly subjected to these laws and regulations. We cannot assure you that we will be successful in preventing our agents from taking actions in violation of these laws or regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

 

We have limited clinical evidence to support patient compliance with the use our products is superior to competitive products.

 

We believe based on our experiences to date that our non-surgical treatment of limited duration is preferable relative to CPAP or other oral appliance or surgical therapies, resulting in improved patient compliance. However, we have limited clinical evidence to support our beliefs that patient compliance in the use of our products is superior to competitive products. If actual patient compliance as studied in a clinical trial (should we conduct one) proves less than what we had anticipated, the acceptance of the Vivos System in the marketplace, and our revenues and overall results of operations, may be adversely impacted.

 

There is no guarantee that our PPP loan will be forgiven in whole or in part. 

 

In May 2020, we received loan proceeds in the amount of approximately $1,265,067 under the Paycheck Protection Program (or PPP), established as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provides economic relief to businesses in response to the COVID-19 pandemic.  The loan and accrued interest are forgivable after 24 weeks as long as we use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and our employee head count remains consistent with our baseline period over the 24-week period after the loan was received.  The amount of loan forgiveness will be reduced if we terminate employees or reduce salaries during the 24-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.  While we believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, there is a risk that the loan will not be forgiven or that we will take actions that could cause us to be ineligible for forgiveness of the loan, there is a risk that (i) the loan will not be forgiven, in whole or in part, (ii) we will take actions that could cause us to be ineligible for forgiveness of the loan, in whole or in part or (iii) we may be required to repay the loan, in whole or in part, upon event of default under the loan or upon a breach of applicable PPP regulations (including upon a change of ownership in our company that may occur as a result of this offering).

 

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Risks Related to Our Products and Regulation

 

We depend in large part on our Vivos System technology, and the loss of access to this technology would terminate or delay the further development of our products, injure our reputation or force us to pay higher fees.

 

We depend, in large part, on our Vivos System technology. The loss of this key technology would seriously impair our business and future viability, and could result in delays in developing, introducing or maintaining our products until equivalent technology, if available, is identified, licensed and integrated. In addition, any defects in the Vivos System technology or other technologies we gain access to in the future could prevent the implementation or impair the functionality of our products, delay new product introductions or injure our reputation. If we are required to acquire or enter into license agreements with third parties for replacement technologies, we could be subject to higher fees, milestone or royalty payments, assuming we could access such technologies at all.

 

Our failure to obtain government approvals, including required FDA approvals, or to comply with ongoing governmental regulations relating to our technologies and products could delay or limit introduction of our products and result in failure to achieve revenue or maintain our ongoing business.

 

Our development activities and the manufacture and marketing of the Vivos System are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the United States and abroad. Before receiving FDA or foreign regulatory clearance to market our products which are not presently approved, we will have to demonstrate that these products are safe and effective in the patient population and for the diseases that are to be treated. Clinical trials, manufacturing and marketing of medical devices are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of medical devices. As a result, regulatory approvals for our products not yet approved or that we may develop in the future can take a number of years or longer to accomplish and require the expenditure of substantial financial, managerial and other resources.

 

Clinical trials that may be required to support regulatory submissions in the United States are expensive. We cannot assure that we will be able to complete any required clinical trial programs successfully within any specific time period, and if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.

 

Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through clinical trials the safety and effectiveness of our products. We have incurred, and we will continue to incur, substantial expense for, and devote a significant amount of time to, product development, pilot trial testing, clinical trials and regulated, compliant manufacturing processes.

 

Even if completed, we do not know if these trials will produce statistically significant or clinically meaningful results sufficient to support an application for marketing approval. If and how quickly we complete clinical trials is dependent in part upon the rate at which we are able to advance the rate of patient enrollment, and the rate to collect, clean, lock and analyze the clinical trial database.

 

Patient enrollment in trials is a function of many factors. These include the design of the protocol; the size of the patient population; the proximity of patients to and availability of clinical sites; the eligibility criteria for the study; the perceived risks and benefits of the product candidate under study; the medical investigators’ efforts to facilitate timely enrollment in clinical trials; the patient referral practices of local physicians; the existence of competitive clinical trials; and whether other investigational, existing or new products are available or cleared for the indication. If we experience delays in patient enrollment and/or completion of our clinical trial programs, we may incur additional costs and delays in our development programs and may not be able to complete our clinical trials on a cost-effective or timely basis. Accordingly, we may not be able to complete the clinical trials within an acceptable time frame, if at all. If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Further, if we or any third party have difficulty enrolling a sufficient number of patients in a timely or cost-effective manner to conduct clinical trials as planned, or if enrolled patients do not complete the trial as planned, we or a third party may need to delay or terminate ongoing clinical trials, which could negatively affect our business.

 

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The results of our clinical trials may not support either further clinical development or the commercialization of any of our product candidates.

 

Even if our clinical trials are completed as planned, their results may not support either the further clinical development or the commercialization of our product candidates. The FDA or government authorities may not agree with our conclusions regarding the results of our clinical trials. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results from any later clinical trials may not replicate the results of prior clinical trials and pre-clinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe and effective for indicated uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay the filing of our 510(k)’s and, ultimately, our ability to commercialize our product candidates and generate product revenue. Each Class I and Class II medical device marketed in the U.S. must receive a 510(k) clearance from the FDA. A 510(k) is a premarket submission made to FDA to demonstrate that the device to be marketed is at least as safe and effective, that is, substantially equivalent (or SE), to a legally marketed device. Companies must compare their device to one or more similar legally marketed devices, commonly known as “predicates”, and make and support their substantial equivalency claims. The submitting company may not proceed with product marketing until it receives an order from the FDA declaring a device substantially equivalent. The substantially equivalent determination is usually made within 90 days, based on the information submitted by the applicant.

 

In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in the conduct of these trials. A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials despite promising results in earlier trials. In the end, we may be unable to develop marketable products.

 

Modifications to the Vivos System may require additional FDA approval which could force us to cease marketing and/or recall the modified device until we obtain new approvals.

 

After a device receives a 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require a Premarket approval (or PMA). PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Currently we do not market devices within this Class III category nor do we intend to in the foreseeable future. However, the FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified devices until 510(k) clearance or PMA approval is obtained. We cannot assure you that the FDA would agree with any of our decisions not to seek 510(k) clearance or PMA approval. If the FDA requires us to seek 510(k) clearance or PMA approval for any modification, we also may be required to cease marketing and/or recall the modified device until we obtain a new 510(k) clearance or PMA approval.

 

We are subject to inspection and market surveillance by the FDA to determine compliance with regulatory requirements. If the FDA finds that we have failed to comply, the agency can institute a wide variety of enforcement actions which may materially affect our business operations.

 

We are subject to inspection and market surveillance by the FDA to determine compliance with regulatory requirements. If the FDA finds that we have failed to comply, the agency can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:

 

  fines, injunctions and civil penalties;
     
  recall, detention or seizure of our products;

 

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  the issuance of public notices or warnings;
     
  operating restrictions, partial suspension or total shutdown of production;
     
  refusing our requests for a 510(k) clearance of new products;
     
  withdrawing a 510(k) clearance already granted; and
     
  criminal prosecution.

 

We have received an FDA warning letter in the past when such a letter was received by our subsidiary BioModeling Solutions, Inc. (“BioModeling” or “BMS”) in January 2018 following a routine FDA audit. In its letter, the FDA noted matters such as inadequate documentation of certain FDA-required procedures, not keeping certain records and materials in paper format and in triplicate, and using certain descriptive words and phrases on its website and in marketing materials that were unapproved in advance by FDA. While we believe these issues have been resolved, to date the FDA has made no definitive statement that the matters raised by such letter have been satisfactorily resolved.

 

The FDA also has the authority to request repair, replacement or refund of the cost of any medical device manufactured or distributed by us. Our failure to comply with applicable requirements could lead to an enforcement action that may have an adverse effect on our financial condition and results of operations.

 

Treatment with the Vivos System has only been available for a relatively limited time, and we do not know whether there will be significant post-treatment regression or relapse.

 

Patient treatment using the FDA registered DNA appliance began in 2009, while treatment for mild-to-moderate OSA using the FDA cleared mRNA appliance began in 2014. Both began under the prior business model of our predecessor (and now subsidiary) BMS, and well before our formation. Under the BMS model, the independent treating dentists generated and maintained all records of treatment and ordered their appliances directly from one of the BMS designated labs. Thus, with the exception of specific patients who participated in studies, clinical trials or case reports, we have had limited visibility into patient records which might contain data on this subject. Therefore, we have limited empirical data to support our view that the risk of post treatment regression or relapse is not significant. To the extent a material number of patients who were treated with the Vivos System were to be found to experience post-treatment relapse or regression, it could pose a significant risk to our brand, the willingness or ability of physicians to prescribe and dentists to use our products and the willingness of patients to engage in treatment with our products and could thus have a material adverse effect on our results of operations.

 

We are subject to potential risks associated with the need to comply with state or other dental support organization laws.

 

Our core VIP business model does not involve any form of joint ownership, operational control, or employment of licensed professionals by our company. Thus, we are not typically regarded as a “dental support organization” (or DSO) under the laws of the various states within the United States or in Canada, in which we conduct most of our business. However, we do operate two retail treatment clinics in Colorado wherein we do employ dentists under a provider network model consistent with Colorado law. In that respect, for Colorado only, we may be regarded as a DSO. Nevertheless, if we were deemed to be a DSO in any jurisdiction, it could make it difficult or impossible for us to recruit and retain qualified dentists as VIPs, as some state dental boards are sometimes adverse to corporate DSOs operating in their states. Moreover, where such DSO-provider relationships are permitted, such regulations may impose significant constraints on the structure and financial arrangements that are permissible between us and our affiliated dentists in a particular state.

 

In jurisdictions where laws allow DSOs to operate (which includes almost all U.S. states and Canada), a growing number of dentists are affiliating with corporate DSOs. In those cases, the DSO may not allow their affiliated dentists to offer our products and services or to become VIPs. Thus, the overall number of dentists who are prospects to become VIPs and utilize our products and services may be reduced, which would impair our ability to generate revenue from our core VIP business model.

 

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Our new Medical Integration Division business line may implicate federal and state laws involving the practice of medicine and related anti-corruption laws.

 

We recently launched our MID to assist VIP practices in establishing clinical collaboration ties to local primary care physicians, sleep specialists, ENTs, pediatricians and other healthcare professionals who routinely see or treat patients with sleep and breathing disorders. The primary objective of our MID is to promote the Vivos System to the medical profession and thus facilitate more patients being able to receive what can be a life-saving treatment from our VIP providers. There is a risk that our MID may implicate legal or regulatory compliance issues that may arise in the course of our activities, including various Federal healthcare statutes such as the Stark and anti-kickback laws as well as state-by-state regulations pertaining to inter-disciplinary ownership of professional corporations or other legal entities. We have conducted research, including obtaining advice from outside legal counsel, regarding the implications of these laws and regulations to MID and believe the MID’s operations will be in compliance with or will not implicate these laws and regulations. However, there is a risk that such laws and regulations (or similar laws and regulations adopted in the future) might be interpreted, reinterpreted, or modified in the future in such a way so as to impede or prevent us from continuing to develop or manage our MID, which could lead to our having to discontinue the MID and could leave us subject to regulatory scrutiny and sanction. No advice of counsel has been obtained with respect any potential operations of the MID in Canada.

 

We may not be able to prohibit or limit our dentists, physicians and other healthcare professionals from competing with us in our local markets.

 

In certain states in which we operate or intend to operate, non-compete, non-solicitation, and other negative covenants applicable to employment or ownership are judicially or statutorily limited in their effectiveness or are entirely unenforceable against dentists, physicians and other healthcare professionals. As a result, we may not be able to retain our provider relationships or protect our market share, operational processes or procedures, or limit insiders or VIPs from using competitive information against us or competing with us, which could have a material adverse effect on our business, financial condition and ability to remain competitive as our arrangements with our VIPs do not contain competitive restrictions.

 

Risks Related to this Offering Ownership of Our Securities Generally

 

There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity.

 

Prior to this offering, there has not been a public market for our common stock. We cannot assure you that an active trading market for our common stock will develop following this offering, or if it does develop, it may not be maintained. You may not be able to sell your common stock quickly or at the market price if trading in our securities is not active. The initial public offering price for the shares offered hereby will be determined by negotiations between us and the representative of the underwriters and may not be indicative of prices that will prevail in the trading market.

 

The market price of our common stock may be highly volatile, and you could lose all or part of your investment.

 

The market price of our common stock is likely to be volatile. This volatility may prevent you from being able to sell your securities at or above the price you paid for your securities. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include:

 

  whether we achieve our anticipated corporate objectives;
     
  actual or anticipated fluctuations in our quarterly or annual operating results;
     
  changes in our financial or operational estimates or projections;
     
  our ability to implement our operational plans;
     
  termination of the lock-up agreement or other restrictions on the ability of our stockholders to sell shares after this offering;
     
  changes in the economic performance or market valuations of companies similar to ours; and
     
  general economic or political conditions in the United States or elsewhere.

 

In addition, the stock market in general, and the stock of publicly-traded medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

 

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Future sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings.

 

Sales of our common stock in the public market following this offering could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. 5,928,002 of our currently outstanding shares of common stock which are held by our affiliates are, and will be, restricted immediately after the consummation of this offering, but (i) approximately 5,522,795 shares of common stock are being registered for resale on behalf of the holders of such shares pursuant to the resale prospectus included in this registration statement and (ii) approximately 1,200,016 shares of common stock, representing shares not held by our affiliates but not included in the resale prospectus, generally may be resold under SEC Rule 144 beginning 90 days from the effectiveness of the registration statement of which this prospectus forms a part. In addition, while the beneficial holders of approximately 11,450,797 shares, or 92%, of our common stock outstanding prior to this offering have entered into “lock-up” agreements in favor of the representative of the underwriters of this offering, the restrictions in such lock-up agreements may be waived under the circumstances described in the “Underwriting” section of this prospectus, which would allow the shares subject to such waived lock-up to be sold.

 

Furthermore, options to purchase up to 1,996,667 shares of our common stock with a weighted average exercise price of $4.43 are outstanding, and we will have (i) underwriter warrants (exercisable for 333,334 shares of common stock), and (ii) warrants associated with the Series B Preferred Stock (exercisable for 1,184,796 shares of common stock) outstanding following completion of this offering. The exercise or conversion of any of these securities would result in additional dilution, and the sale of the shares issuable upon exercise or conversion of these securities could also lower the market price of our common stock. We may also acquire or license other technologies or finance strategic alliances by issuing equity, which may result in additional dilution to our stockholders, and the sale of such securities could adversely affect the market price for our common stock.

 

You will experience immediate and substantial dilution as a result of this offering, and will likely experience additional dilution in the future.

 

You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of 3,333,334 shares of common stock offered in this offering at an assumed public offering price of $6.00 per share (the mid-point of the range indicated on the front cover of this prospectus), and after deducting underwriter discounts and commissions and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $5.18 per share, or 86% at the assumed public offering price, assuming no exercise of the underwriters’ over-allotment option. In addition, we may also issue common stock or securities that will convert to common stock that could be dilutive.

 

In addition, upon satisfaction of certain conversion or exercise conditions, our outstanding shares of Series A Preferred Stock and common stock warrants may be converted into or exercised for shares of our common stock by the holders thereof (the preferred stock being held by our founder and Chief Medical Officer, Dr. G. Dave Singh). If shares of our common stock are issued due to conversion or exercise these securities, the ownership interests of existing stockholders would be diluted.

 

Our failure to meet the continuing listing requirements of The Nasdaq Capital Market could result in a de-listing of our securities.

 

If, after this offering, we fail to satisfy the continuing listing requirements of Nasdaq, such as the corporate governance, stockholders equity or minimum closing bid price requirements, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would likely take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

 

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If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.

 

The Securities and Exchange Commission (or SEC) has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares. See “Certain Relationships and Related Party Transactions” for further information on the foregoing transactions with Dr. Singh.

 

There can be no assurance that we will ever provide liquidity to our investors through a sale of our company.

 

While acquisitions of medical device companies like ours are not uncommon, potential investors are cautioned that no assurances can be given that any form of merger, combination, or sale of our company will take place following this offering, or that any merger, combination, or sale, even if consummated, would provide liquidity or a profit for our investors following this offering. You should not invest in our company with the expectation that we will be able to sell the business in order to provide liquidity or a profit for our investors.

 

Our founder and Chief Medical Officer, Dr. G. Dave Singh, is the holder of 700,000 shares of outstanding Series A Preferred Stock that he has the secured right to cause us to redeem on a secured basis at $5.00 per share each year, which could require us to use important capital resources for purposes other than our business.

 

Our founder and Chief Medical Officer, Dr. G. Dave Singh, is the holder as of the date of this prospectus of 700,000 shares of outstanding Series A Preferred Stock that he has the right to cause us to redeem up to 200,000 shares at $5.00 per share each year beginning on May 8, 2018 through 2022. Dr. Singh has redeemed 300,000 shares at $5.00 per share to date. The remaining preferred stock has a value of $3,500,000. If Dr. Singh exercises his right to have his balance of preferred shares redeemed, we would be required to use funds that might otherwise be used for our operations. This could leave us with insufficient funding and require us to seek additional funding to satisfy our obligations, which could cause dilution to our shareholders. Moreover, our obligation to redeem Dr. Singh’s preferred stock is secured by a lien on certain intellectual property assets (which consists of the Vivos System including patents, patent applications, provisional applications, registrations, continuations, re-examination certificates, improvements, trademarks, service marks, business plans, models, product plans, concepts, designs, drawings, specifics, engineering information, processes, research, test data, technology, software, source code, trade secrets, formulas, algorithms, hardware configurations, know how, ideas, inventions, improvements, innovations, financial analysis, forecasts, market information, plans, customer data, pricing information, etc.) assigned by him to our company in May 2017. The security agreement that secures Dr. Singh’s redemption rights remains in effect until (i) conversion of the preferred stock into common stock, or (ii) the redemption of the preferred stock for cash. Our failure to redeem the preferred stock when required could result in our loss of key intellectual property, which would severely damage our business. See “Certain Relationships and Related Party Transactions” for further information on the foregoing transactions with Dr. Singh.

 

Our officers and directors may have the ability to exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.

 

Our officers and directors and their affiliates (primarily Kirk Huntsman and Dr. G. Dave Singh) currently own shares, in the aggregate, representing approximately 49% of our outstanding voting capital stock, on an as-converted basis, and will own approximately 32% of our outstanding voting capital stock, on an as-converted basis following this offering. As a result, if these stockholders were to choose to act together, they have and will continue to be able to exert significant control over certain matters submitted to our stockholders for approval by having the ability to block certain proposals. For example, these persons, if they choose to act collectively, would have the ability to vote against and block a proposed merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

 

In addition, this concentration of voting power was evidenced in April 2020, when Mr. Huntsman, Dr. Singh and a small group of additional shareholders acted to remove three independent members of our board of directors and appoint new members of our board of directors. These shareholders could continue to exert this voting power, even after this offering.

 

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We will have considerable discretion over the allocation of the use of proceeds from this offering, and we may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

 

We currently intend to use the net proceeds we receive from this offering primarily as described in “Use of Proceeds.” Of note, we plan to use a portion of the proceeds of this offering to redeem (in accordance with obligations binding on us) portions of our outstanding Series A Preferred Stock held by Dr. G. Dave Singh, our founder and Chief Medical Officer. We may also use a portion of the net proceeds for the acquisition of, or investment in, products, technologies, or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations and prospects could be harmed.

 

We have identified a material weakness in our internal control over financial reporting.

 

Prior to this offering, we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and related procedures. In connection with the audit of our consolidated financial statements for the years ended December 31, 2019 and 2018, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our case arose from an accumulation of significant deficiencies which amounted to a material weakness in internal controls. Such significant deficiencies identified included insufficient supporting documentation and review of certain journal entries, inappropriate cutoff procedures, and inadequate review of our tax provision for our net loss. If we are unable to remedy our material weakness, or if we generally fail to establish and maintain effective internal controls appropriate for a public company, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.

 

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

 

We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an EGC until the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404;
     
  not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
     
  being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
     
  reduced disclosure obligations regarding executive compensation; and
     
  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

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We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this prospectus. In particular, we have not included all of the executive compensation information that would be required if we were not an EGC. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

 

As a public company, and particularly after we are no longer an EGC, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

 

Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an EGC, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

Certain provisions of our Certificate of Incorporation may make it more difficult for a third party to effect a change-of-control.

 

Our certificate of incorporation authorizes the Board of Directors to issue up to 50,000,000 shares of preferred stock, of which approximately 49,100,000 shares remain unissued. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

 

Our bylaws designate certain courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

 

Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee, or agent of ours to us or our stockholders; (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the Certificate of Incorporation, or the bylaws; and (iv) any action asserting a claim governed by the internal affairs doctrine (the “Delaware Forum Provision”). Our bylaws further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”). In addition, our bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision.

 

Section 27 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the Delaware Forum Provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

 

We recognize that the Delaware Forum Provision and the Federal Forum Provision in our bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, the Delaware Forum Provision and the Federal Forum Provision may limit our stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court were “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce the Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

 

The holder of our Series A Preferred Stock, Dr. G. Dave Singh, our Chief Medical Officer, has, on account of his holding of such securities, a preference over the holders of our common stock upon a liquidation of our company.

 

Upon any liquidation, dissolution or winding-up of our company, the holder of our currently outstanding Series A Preferred Stock (Dr. G. Dave Singh, our Chief Medical Officer) shall be entitled to receive out of our company’s assets an amount equal to the stated value for each such share of preferred stock before any distribution or payments made to the holders of junior securities, including the shares of our common stock. Accordingly, upon any liquidation, dissolution or winding-up of our company, there may be less proceeds available to holders of common stock due to the liquidation preference of the preferred stock held by Dr. Singh, or if the assets of our company are insufficient to pay Dr. Singh in full, there may not any proceeds available to common stockholders.

 

Limitations on director and officer liability and indemnification of our officers and directors by us may discourage stockholders from bringing suit against an officer or director.

 

Our certificate of incorporation and bylaws provide that, to the fullest extent permitted by Delaware law, as it presently exists or may be amended from time to time, a director shall not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director. Under Delaware law, this limitation of liability does not extend to, among other things, acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director or officer for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director or officer.

 

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We are responsible for the indemnification of our officers and directors.

 

Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our certificate of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.

 

Our ability to use our net operating losses and research and development credit carryforwards to offset future taxable income may be subject to certain limitations.

 

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (or the Code), a corporation that undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, and its research and development credit carryforwards to offset future taxable income. Our existing NOLs and research and development credit carryforwards may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs and research and development credit carryforwards could be further limited by Sections 382 and 383 of the Code. In addition, our ability to deduct net interest expense may be limited if we have insufficient taxable income for the year during which the interest is incurred, and any carryovers of such disallowed interest would be subject to the limitation rules similar to those applicable to NOLs and other attributes. Future changes in our stock ownership, some of which might be beyond our control, could result in an ownership change under Section 382 of the Code. For these reasons, in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs, research and development credit carryforwards or disallowed interest expense carryovers, even if we attain profitability.

 

The financial and operational projections that we may make from time to time are subject to inherent risks.

 

The projections that our management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts, production and supply dates, and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There will be differences between actual and projected results, and actual results may be materially different from those contained in the projections. The inclusion of the projections in (or incorporated by reference in) this prospectus should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.

 

If we were to dissolve, the holders of our securities may lose all or substantial amounts of their investments.

 

If we were to dissolve as a corporation, as part of ceasing to do business or otherwise, we may be required to pay all amounts owed to any creditors before distributing any assets to the investors. There is a risk that in the event of such a dissolution, there will be insufficient funds to repay amounts owed to holders of any of our indebtedness and insufficient assets to distribute to our other investors, in which case investors could lose their entire investment.

 

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An investment in our company may involve tax implications, and you are encouraged to consult your own advisors as neither we nor any related party is offering any tax assurances or guidance regarding our company or your investment.

 

The formation of our company and our financings, as well as an investment in our company generally, involves complex federal, state and local income tax considerations. Neither the Internal Revenue Service nor any state or local taxing authority has reviewed the transactions described herein, and may take different positions than the ones contemplated by management. You are strongly urged to consult your own tax and other advisors prior to investing, as neither we nor any of our officers, directors or related parties is offering you tax or similar advice, nor are any such persons making any representations and warranties regarding such matters.

 

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. This means that it is very unlikely that we will pay dividends on our shares of common stock. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

 

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, the price of our common stock and trading volume could decline.

 

The trading market for our common stock may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us was to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading volume to decline.

 

In making your investment decision, you should understand that we and the underwriters have not authorized any other party to provide you with information concerning us or this offering.

 

You should carefully evaluate all of the information in this prospectus before investing in our company. We may receive media coverage regarding our company, including coverage that is not directly attributable to statements made by our officers, that incorrectly reports on statements made by our officers or employees, or that is misleading as a result of omitting information provided by us, our officers or employees. We and the underwriters have not authorized any other party to provide you with information concerning us or this offering, and you should not rely on this information in making an investment decision.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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 the “Risk Factors” section of this prospectus, 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,” “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 formulate and implement our business plan, including the recruitment of dentists to be VIPs;
     
  the understanding and adoption by dentists and other healthcare professionals of the Vivos System as a treatment for mild-to-moderate OSA;
     
  our expectations concerning the effectiveness of treatment using the Vivos System and patient relapse after completion of treatment;
     
  the potential financial benefits to VIP dentists from treating patients with the Vivos System;
     
  our potential profit margin from treating cases of OSA using the Vivos System;
     
  our ability to add VIPs qualified to implement the Vivos System in their dental practices;
     
  our business model generally and our utilization of the proceeds from this offering;
     
  the viability of our current intellectual property;
     
  acceptance of the products and services that we market;
     
  government regulation;
     
  our ability to retain key employees;
     
  adverse changes in general market conditions for medical devices;
     
  our ability to continue as a going concern;
     
  our future financing plans; and
     
  our ability to adapt to changes in market conditions (including as a result of the COVID-19 pandemic) which could impair our operations and financial performance.

 

These forward-looking statements involve various 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 “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this prospectus. You should thoroughly read this prospectus 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 prospectus relate only to events or information as of the date on which the statements are made in this prospectus. 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 prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

 

 47 

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from our issuance and sale of our common stock in this offering will be approximately $17,750,000, assuming an initial public offering price of $6.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $20,540,000.

 

We expect the net proceeds from this offering will allow us to fund our operations for at least 12 months following the closing of the offering. We intend to use the net proceeds from this offering as follows:

 

  Up to $3,500,000 to make remaining payments for the intellectual property we acquired in 2017 from our founder and Chief Medical Officer, Dr. G. Dave Singh, via redemption of at least 300,000 shares of Series A Preferred Stock ($1.5 million) if proceeds of this offering are at least $15 million, and another 200,000 shares of Series A Preferred Stock ($1.0 million) for each additional $5 million raised this offering, up to a maximum redemption of all 700,000 shares of Series A Preferred Stock currently held by Dr. Singh;
     
  approximately $1,500,000 for the further establishment and development of the Institute for Craniofacial Sleep Medicine (including facility construction);
     
  approximately $4,000,000 for sales and marketing expenses;
     
  approximately $2,500,000 for sales and support staff;
     
  approximately $1,500,000 for research and development expenses;
     
  approximately $800,000 for software development including enterprise resource planning implementation; and
     
  approximately $3,950,000 working capital and general corporate purposes, including certain payments to investment banking firms we previously had engagements with, as described below, and the repayment of $115,000 of outstanding convertible notes as of the date of this prospectus.

 

The foregoing expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. For example, we may also elect to use proceeds from this offering to acquire complimentary technologies, products or businesses, although we are not a party to any letters of intent or definitive agreements for any such acquisition. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

On January 23, 2020, we engaged Weild & Co., a FINRA member broker-dealer (“Weild”), to assist us in private placement capital raising activities. This arrangement was terminated on May 5, 2020 in consideration of 3,333 of our Series B preferred shares and a cash payment of $175,000, which will be paid upon the consummation of this offering.

 

Effective January 30, 2020, we terminated two agreements (originally entered into in 2018 and 2019) with Maxim Group, LLC, a FINRA member broker-dealer (“Maxim”), under which Maxim was engaged to assist us in capital raising activities. Under the terms of the termination, we paid a sum of $50,000 and issued Maxim 75,000 shares of our common stock. In addition, we will pay Maxim an additional amount of $180,000, payable as follows: (i) $90,000 upon the conclusion of this offering and (ii) $90,000 payable in nine monthly installments of $10,000 following the consummation of this offering.

 

DIVIDEND POLICY

 

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Our future ability to pay cash dividends on our stock may also be limited by the terms of any future debt or preferred securities or future credit facility.

 

 48 

 

 

TRANSFER OF CORPORATE DOMICILE

 

Effective August 12, 2020, Vivos WY transferred its corporate domicile and became a Delaware corporation under the same name (which we refer to herein as Vivos DE) pursuant to Section 17-16-1720 of the Wyoming Business Corporation Act and Section 265 of the Delaware General Corporation Law. As a result of the transfer of corporate domicile, each share of capital stock of Vivos WY became a share of capital stock of Vivos DE on a one-to-one basis, and such shares shall carry the same terms in all material respects as the shares of Vivos WY.

 

The transfer of corporate domicile has not and will not result in any change in headquarters, business, jobs, management, location of any of our offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the transfer of corporate domicile, which are immaterial). Vivos DE will be governed by a certificate of incorporation filed with the Delaware Secretary of State and bylaws, the material portions of which are described in “Description of Capital Stock.” On the effective date of the transfer of corporate domicile, the members of the board of directors of Vivos WY became the members of the board of directors of Vivos DE and the officers of Vivos WY became the officers of Vivos DE. There has been and will be no substantive change in the employment agreements for executive officers or in other direct or indirect interests of the current directors or executive officers as a result of the transfer of corporate domicile. Upon the effective time of the transfer of corporate domicile, shares of capital stock Vivos WY will be converted into an equivalent number of shares of capital stock of Vivos DE.

 

The purpose of the transfer of corporate domicile is so that our company will continue as a Delaware corporation rather than a Wyoming corporation following this offering. We believe that Delaware is a nationally-recognized leader in adopting and implementing comprehensive and flexible corporate laws. The General Corporation Law of the State of Delaware is frequently revised and updated to accommodate changing legal and business needs. With our corporate structure, business planning and growth, we think it will be beneficial to us and our shareholders to obtain the benefits of Delaware corporate law. We also believe that Delaware courts have developed proficiency in dealing with corporate legal issues and produced a substantial body of case law construing Delaware corporate laws, with multiple cases concerning areas that Wyoming courts may not have fully considered. Because our judicial system is based largely on legal precedents, Delaware case law should serve to enhance the relative clarity and predictability of areas of corporate law, which should offer added advantages by allowing our board of directors and management to make corporate decisions and take corporate actions with greater assurance as to the validity and consequences of those decisions and actions. The transfer of our corporate domicile to Delaware also may make it easier to attract future candidates willing to serve on our board of directors, because many of such candidates already will be familiar with Delaware corporate law, including provisions relating to director indemnification, from their past business experience.

 

The transfer of corporate domicile has heretofore been approved by the board of directors and majority shareholders of Vivos WY. In order to consummate the transfer of corporate domicile, we made appropriate filings with the Secretary of States of Wyoming and Delaware.

 

On July 30, 2020, prior to the transfer of Vivos WY’s corporate domicile from Wyoming to Delaware, Vivos WY implemented a one-for-three reverse stock split of its outstanding common stock pursuant to which holders of Vivos WY’s outstanding common stock received one share of common stock for every three shares of common stock held. Unless the context expressly dictates otherwise, all references to share and per share amounts referred to herein reflect the reverse stock split.

 

In this prospectus, unless the context indicates otherwise, the terms “we,” “our,” “ours” “us” or similar terminology refer to Vivos DE, assuming the transfer of corporate domicile has occurred. However, the financial statements and summary historical financial data included in this prospectus are those of Vivos WY and do not give effect to the transfer of corporate domicile but do give effect to our reverse stock split.

 

 49 

 

 

CAPITALIZATION

 

The following table shows our capitalization at June 30, 2020:

 

  on an actual basis;
     
  on a pro forma basis to reflect the conversion of all outstanding $3,081,884 face value worth of Series B Convertible Redeemable Preferred Stock (which we refer to as the Series B Preferred Stock) issued during 2020 into 695,937 shares of our common stock upon the consummation of this offering at an assumed conversion price equal to $4.50 per share (a 25% discount to the public offering price per share of $6.00 (the midpoint of the range set forth on the cover page of this prospectus); and
     
  a pro forma as adjusted basis to reflect the sale of 3,333,334 shares of common stock by us in this offering at an assumed initial public offering price of $6.00 per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting the underwriters’ discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

 

We derived this table from, and it should be read in conjunction with and is qualified in its entirety by reference to, our historical and unaudited pro forma consolidated financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

   As of June 30, 2020 
   Actual   Pro forma   Pro forma As Adjusted (1) 
             
Cash and cash equivalents  $413,620    413,620   $14,465,592 
Convertible debt and accrued interest through June 30, 2020   198,028    198,028   - 
Preferred stock, $0.0001 par value; 50,000,000 shares authorized               
Series A Convertible Redeemable Preferred Stock, 700,000 shares issued and outstanding, actual and pro forma; no shares authorized, issued or outstanding, pro forma as adjusted   1,666,667    1,666,667    - 
Stockholders’ equity:               
Series B Convertible Preferred Stock, $.0001 par value, 1,200,000 authorized, 208,755 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted   3,081,884    -    - 
Common stock, $0.0001 par value; 200,000,000 shares authorized, 12,608,813 shares issued and outstanding, actual; 200,000,000 shares authorized, 13,304,750 shares issued and outstanding, pro forma; 200,000,000 shares authorized, 16,638,084 shares issued and outstanding, proforma as adjusted   1,261    1,329    1,663 
Additional paid-in capital   21,984,368    25,066,184    42,815,850 
Accumulated deficit   (27,272,090)   (27,272,090)   (27,272,090)
Total stockholders’ equity   (2,204,577)   (2,204,577)   15,545,423 
Total stockholders’ equity, preferred stock and convertible debt  $(537,910)   (537,910)   15,545,423 

 

(1) The number of shares of common stock to be outstanding after the offering is based on 12,608,813 shares, which is the number of shares outstanding on June 30, 2020, and excludes on a proforma basis:

 

  1,996,667 shares of common stock underlying options to purchase shares of our common stock with a weighted average exercise price of $4.43 per share (subsequent to June 30, 2020, options to purchase an additional 222,333 shares of common stock were granted);
     
  1,333,333 stock options are outstanding and no remaining shares are available to grant under our 1,333,333 share 2017 Stock Option and Stock Issuance Plan;
     
  385,667 stock options are outstanding and 781,000 remaining are available to grant under our 1,166,667 share 2019 Stock Option and Stock Issuance Plan;
     
  695,937 shares of common stock issuable upon the exercise of 695,937 common stock warrants associated with the Series B Preferred Stock issued in 2020 at an assumed exercise price of $7.50 per share (a 25% premium to the midpoint of the range set forth on the cover page of prospectus) (subsequent to June 30, 2020, an additional 488,859 shares of Series B Preferred Stock were issued with associated common stock warrants to purchase 488,859 shares of common stock, bringing the total number of shares of common stock underlying the warrants associated with the Series B Preferred Stock to 1,184,796 as of the date of this prospectus); and
     
  up to 333,334 shares of our common stock underlying the warrant to be issued to the representative of the underwriters in connection with this offering, or up to 383,334 shares of our common stock to the underwriters if the over-allotment option to purchase shares of common stock is exercised in full.

 

 50 

 

 

DILUTION

 

If you invest in our common stock, you will incur immediate dilution since the public offering price per share you will pay in this offering is more than the net tangible book value per common share immediately after this offering.

 

The net tangible book value of our stockholders’ equity and convertible redeemable Series A preferred stock as of June 30, 2020 was $(3,688,980), or $(0.29) per share based upon 12,608,813 shares of common stock outstanding. Net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding. Tangible assets equal our total assets less goodwill and intangible assets.

 

The as adjusted net tangible book value of our stockholders’ equity as of June 30, 2020, was $14,061,020 or $0.82 per share. The as adjusted net tangible book value gives effect to the sale of 3,333,334 shares of common stock in this offering at an assumed initial public offering price of $6.00 per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share  $6.00  
Pro forma net tangible book value per share before this offering, as of June 30, 2020  $(0.29)
Increase in pro forma net tangible book value per share attributable to new investors in this offering   1.11 
Pro forma net tangible book value per share after offering   

0.82

 
Dilution in pro forma tangible book value per share to new investors  $5.18 

 

If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, and based on the initial public offering price of $6.00 per share, the as adjusted net tangible book value (deficit) per share after this offering would be approximately $0.93 per share.

 

A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) our pro forma net tangible book value per share after this offering by approximately $1.00, and increase the value per share to new investors by approximately $1.29, after deducting the underwriters’ discounts and commissions and estimated offering expenses payable by us.

 

The following table sets forth, on a pro forma as adjusted basis as of June 30, 2020, the difference between the number of shares of common stock purchased from us, the total cash consideration paid, and the average price per share paid by our existing shareholders and by new public investors before deducting estimated underwriters’ discounts and commissions and estimated offering expenses payable by us, using an assumed public offering price of $6.00 per share:

 

   Shares Purchased   Total Cash Consideration   Average Price         
   Number   Percent   Amount   Percent   Per Share 
Existing shareholders   12,650,813   

38

%  $

18,787,115

    

22

%  $1.48 
Series A Preferred shareholder   700,000    

7

%  $3,500,000    

74

%  $5.00 
Common stock from the conversion of Series B Preferred shareholders   1,184,796    

10

%  $

5,331,576

    

67

 %   $4.50
Option holders   

2,282,334

    -%  $

-

    

-

%  $- 
Warrant holders   1,518,130    

-

%  $

-

    

-

%  $- 
New investors from public offering   3,333,334    

45

%  $

20,000,004

    

-

%  $

6.00

 
Total   21,669,407    100% 

$

47,618,695

   $100%  $

2.19

 

 

The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our common stock and other terms of this offering determined at pricing.

 

 51 

 

 

The foregoing discussion and tables (i) include the issuance of (a) 488,859 shares of common stock to investors at an average price of $4.50 per share pursuant to private placements and convertible debt exchanges after June 30, 2020 and (b) 40,000 shares of common stock to consultants at an average value of $7.50 per share after June 30, 2020 and (ii) excludes the following:

 

  700,000 shares of our outstanding Series A Preferred Stock held by Dr. G. Dave Singh, our founder and Chief Medical Officer, which are convertible at any time into 700,000 shares of our common stock;
     
 

1,996,667 shares of common stock underlying options to purchase shares of our common stock issued under our 2017 and 2019 Stock Option and Stock Issuance Plans with a weighted average exercise price of $4.43 per share (subsequent to June 30, 2020, options to purchase an additional 222,333 shares of common stock were granted);

 

  1,333,333 stock options are outstanding and no remaining shares are available to grant under our 1,333,333 share 2017 Stock Option and Stock Issuance Plan;  
     
  385,667 stock options are outstanding and 781,000 remaining are available to grant under our 1,166,667 share 2019 Stock Option and Stock Issuance Plan;
     
  695,937 shares of common stock issuable upon the exercise of 695,937 common stock warrants associated with the Series B Preferred Stock issued in 2020 at an assumed exercise price of $7.50 per share (a 25% premium to the midpoint of the range set forth on the cover page of prospectus) (subsequent to June 30, 2020, an additional 488,859 shares of Series B Preferred Stock were issued with associated common stock warrants to purchase 488,859 shares of common stock, bringing the total number of shares of common stock underlying the warrants associated with the Series B Preferred Stock to 1,184,796 as of the date of this prospectus); and
     
  up to 333,334 shares of our common stock underlying the warrant to be issued to the representative of the underwriters in connection with this offering, or up to 383,334 shares of our common stock if the over-allotment option to purchase shares of common stock is exercised in full.

 

 52 

 

 

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 consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus. The below discussion may contain forward-looking statements, as that term is defined in the federal securities laws, which are based upon current expectations but which involve significant risks and uncertainties. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.

 

Please refer to the sections of this prospectus captioned “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” for important information to be read in conjunction with the below discussion.

 

All share and per share references give effect to a one-for-three reverse stock split which occurred on July 20, 2020.

 

Overview

 

We are a revenue stage medical technology company focused on the development and commercialization of a highly differentiated technology offering a clinically effective non-surgical, non-invasive, non-pharmaceutical, and low-cost solution solutions for patients with SDB, including mild-to-moderate OSA. We offer novel and proprietary alternatives for treating mild-to-moderate OSA as well as certain craniofacial and anatomical anomalies known to be associated with OSA. We believe our products and technology represent a significant improvement in the treatment of mild-to-moderate OSA versus other treatments such as continuous positive airway pressure (or CPAP). Our treatment for mild-to-moderate OSA involves specially designed and customized oral appliances and treatment protocols that we call the Vivos System.

 

Our revenue is derived from three primary sources. Our three core revenue drivers are:

 

  VIP enrollment and training fees;
     
  continual Vivos System sales; and
     
  recurring subscription fees from our recently launched Billing Intelligence Services, through which we provide a medical billing service on a tiered subscription fee basis plus a set fee per case over five (5) cases per month per VIP provider.

 

Our Billing Intelligence Service offering is relatively new, and VIP participation levels remain uncertain; however, our initial customer response has been positive. In addition, we derive a relatively small amount of revenue from the management of two (2) clinics in Colorado (which we call the Vivos Centers) where medical professionals treat patients using the Vivos System. While managing Vivos Centers was the main aspect of our business model prior to 2018, these clinics are not currently our core business but rather a means by which we derive hands-on assessments and field intelligence from the use and practice of the Vivos System in actual clinical settings. As such, we may terminate our relationship with one or more of the Vivos Centers in the future.

 

We were originally organized on July 7, 2016 as a Wyoming corporation under the name as Corrective BioTechnologies, Inc. On September 6, 2016, we changed our name from Corrective BioTechnologies, Inc. to Vivos BioTechnologies, Inc., and on March 2, 2018, we changed our name from Vivos BioTechnologies, Inc. to Vivos Therapeutics, Inc. In August and September 2016, we completed, by way of share exchange, an agreement to acquire the business and operations of (1) BMS, which was engaged in the manufacture and sale of our patented DNA appliance® and FDA cleared mRNA appliance® (collectively with special proprietary treatment protocols comprises the Vivos System), and (2) First Vivos, Inc., a Texas corporation (or First Vivos), which initially proposed to develop and manage a retail chain of Vivos Centers with specially trained dentists that offer the Vivos System and corroborating physicians. In connection with the share exchange with BMS, we issued 3,333,334 shares of common stock to the shareholders of BMS (including, but not limited to, Dr. G. Dave Singh, our founder and Chief Medical Officer, who received 3,219,705 shares) in exchange for 12,423,500 shares of BMS, which constitutes 100% ownership interest in BMS. In connection with the share exchange with First Vivos, we issued 3,333,334 shares of common stock to the shareholders of First Vivos (including, but not limited to, R. Kirk Huntsman, our co-founder, Chairman of the Board and Chief Executive Officer, who received 1,833,334 shares) in exchange for 5,000 shares of First Vivos, which constitutes 100% ownership interest in First Vivos. We transferred our corporate domicile from Wyoming to Delaware, effective August 12, 2020.

 

 53 

 

 

Results of Operations

 

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

 

   Six months ended   Increase 
   June 30, 2020   June 30, 2019   (Decrease) 
             
Revenue               
Product revenue  $2,139,432   $1,805,877   $333,555 
Service revenue   4,328,263    3,215,882    1,112,381 
Total revenue   6,467,695    5,021,759    1,445,936 
Cost of sales   (1,325,302)   (1,119,800)   (205,502)
Gross profit   5,142,393    3,901,959    1,240,434 
Gross profit %   80%   78%   2pp
                
Operating expenses               
General and administrative   (7,693,812)   (7,549,196)   (144,616)
Sales and marketing   (1,062,026)   (966,049)   (95,977)
Depreciation and amortization   (361,607)   (379,868)   18,261 
Operating loss   (3,975,052)   (4,993,154)   1,018,102 
Interest expense   (61,790)   (42,374)   (19,416)
Interest income   42,603    -    42,603 
Net loss  $(3,994,239)  $(5,035,528)  $1,041,289 

 

Impact of COVID-19

 

The early 2020 outbreak of COVID-19 and its development into a pandemic in March 2020 has resulted in significant economic disruption globally. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe. This has significantly reduced global economic activity and resulted in a decline in demand across many industries.

 

Many of our VIPs and potential VIPs closed their offices or limited their practices as a result of COVID-19, although some remained open to specifically provide patients with our products as our appliances and VIPs were deemed an essential business for health considerations in many jurisdictions. In the face of the pandemic and the results potential for revenue reduction, our management worked diligently to reduce expenses and maintain revenues from March to June 2020. While revenue growth flattened in March and April 2020, expenses were reduced and we aggressively expanded our network of healthcare providers familiar with our products by offering online continuing education courses which introduced many in the medical and dental communities to our product line. As a result of improving operating cash flows, we determined no triggering events had occurred indicating no impairment needed as of June 30, 2020. However, even as we take action to face the challenges of the pandemic, since the situation with COVID-19 remains uncertain, we cannot predict with certainty the impact of the pandemic or local outbreaks thereof will have on our near and longer term results of operations.

 

Revenue

 

Our revenue for the six months ended June 30, 2020 increased $1,445,936, or 29%, to $6,467,695 from $5,021,759 for the six months ended June 30, 2019. This increase was related to increased revenue from fees paid by dentists to enroll in our VIP program along with the increase in the number of Vivos System oral appliances sold. Accordingly, appliance revenues increased primarily as a result of volume increases rather than price increases during the period. During the six months ended June 30, 2020, we enrolled 133 VIPs for total revenue of $4,051,546. During the six months ended June 30, 2019, we enrolled 97 VIPs for total revenue of $3,158,538. Our newly launched Billing Intelligence Service accounted for $254,565 in revenues for the six months ended June 30, 2020 compared to none for the six months ended June 30, 2019. During the six months ended June 30, 2020, we sold 2,447 total oral appliance arches for a total of $1,936,725 and for the six months ended June 30, 2019 we sold 1,561 total oral appliance arches for a total of $952,234. The increase in appliance revenue is due to volume increases associated with the larger number of VIPs. Revenue from Vivos Centers declined by $650,936 primarily as a result of sale of the Utah center in the latter half of 2019.

 

 54 

 

 

Cost of Sales

 

Cost of sales for the six months ended June 30, 2020 increased $205,502, or 18%, compared to the six months ended June 30, 2019 largely due to the $1,445,936, or 29%, increase in revenue. COVID-19 impacted our sales mix as many dental offices were closed for a good portion of April and May, resulting in having higher margin service revenues represent a larger portion of our overall revenues than our product revenues for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.

 

General and Administrative

 

General and administrative expenses increased $144,616, or 2%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. As a percentage of revenues, general and administrative expenses decreased to 119% of revenues for the six months ended June 30, 2020 from 150% of revenues for the six months ended June 30, 2019. This decrease was achieved as a result of scaling operations as our revenues grew and reducing payroll and travel expenses during the COVID-19 outbreak.

 

Sales and Marketing

 

Sales and marketing expenses increased $95,977, or 10%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The primary reason for this increase were additional commissions related to the increase in sales, which increased by 29%.

 

Depreciation and Amortization

 

Depreciation and amortization expense decreased $18,261, or 5%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, due primarily to the sale of one of our Vivos Centers in the fourth quarter of 2019.

 

Interest Expense

 

Interest expense increased $19,416, or 46%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, primarily as a result of a convertible note offering launched in April 2019 with limited investments initially that matured on March 31, 2020.

 

Net Loss

 

We incurred a net loss of $3,994,239 during the six months ended June 30, 2020 as compared to a net loss of $5,035,528 for the six months ended June 30, 2019. A higher gross margin of $1,240,434 was offset by slightly higher sales and marketing expenses and general and administrative expenses.

 

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

   Year ended    
   December 31,
2019
   December 31,
2018
   Increase
(Decrease)
 
             
Revenue               
Product revenue  $4,349,623   $1,848,375   $2,501,248 
Service revenue   7,043,654    1,943,886    5,099,768 
Total revenue   11,393,277    3,792,261    7,601,016 
Cost of sales   (2,736,034)   (1,081,641)   (1,654,393)
Gross profit   8,657,243    2,710,620    5,946,623 
Gross profit %   76%   71%   5pp
                
Operating expenses               
General and administrative   (16,172,505)   (9,272,890)   (6,899,615)
Sales and marketing   (2,310,743)   (1,163,239)   (1,147,504)
Depreciation and amortization   (751,228)   (610,673)   (140,555)
Operating loss   (10,577,233)   (8,336,182)   (2,241,051)
Interest expense   (137,876)   (102,974)   (34,902)
Interest income   21,133    -    21,133 
Loss on sale of business   (60,343)   -    (60,343)
Net loss  $(10,754,319)  $(8,439,156)  $(2,315,163)

 

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Revenue

 

Our revenue for the year ended December 31, 2019 increased $7,601,016, or 200%, to $11,393,277 from $3,792,261 for the year ended December 31, 2018. This increase was related to revenue from our VIP program that began during 2019 along with the increase in the number of oral appliances sold. During the year ended December 31, 2019, we enrolled 204 VIPs for a total of $6,742,283. During the year ended December 31, 2018, we enrolled 67 VIPs for a total of $1,251,679. During the year ended December 31, 2019 we sold 4,696 total oral appliance arches for a total of $2,917,095 and for the year ended December 31, 2018 we sold 2,201 total oral appliance arches for a total of $695,250. The increase in appliance revenue is due to both volume and price increases.

 

Cost of Sales

 

Cost of sales for the year ended December 31, 2019 increased $1,654,393, or 153%, to $2,736,034 from $1,081,641 for the year ended December 31, 2018 due to the relative increase in revenue. As a percentage of revenue, cost of sales was 24% for the year ended December 31, 2019 and 29% for the year ended December 31, 2018. The decrease in cost as percentage of revenue was due to a greater mix of higher margin VIP program revenue during the year ended December 31, 2019 over year ended December 31, 2018.

 

General and Administrative

 

General and administrative expenses increased $6,899,615, or 74%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018. This increase relates primarily to payroll and benefits, consultants, travel and other costs associated with the growth of our business.

 

Sales and Marketing

 

Sales and marketing increased $1,147,504, or 99%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The primary reason for this increase were additional commissions related to the increased service and product revenues, which increased 200%.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased $140,555 for the year ended December 31, 2019 as compared to the year ended December 31, 2018, due almost entirely to the full year’s depreciation on furniture and equipment and leasehold improvements at the Vivos Centers in 2019 versus a partial year in 2018.

 

Interest Expense

 

Interest expense increased $34,902 for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily as a result of a convertible note offering that commenced in April 2019.

 

Net Loss

 

We incurred a net loss of $10,754,319 during the year ended December 31, 2019 as compared to $8,439,156 of net loss for the year ended December 31, 2018. A higher gross margin of $5,946,623 was offset by higher sales and marketing expenses and general and administrative expenses.

 

Liquidity and Capital Resources

 

As of June 30, 2020, we had cash and cash equivalents of $413,620 compared to cash and cash equivalents of $469,353 and $1,254,723 at December 31, 2019 and 2018, respectively. In January 2020, we commenced a private placement offering that authorized the issuance of up to $15,000,000 of newly designated Series B Preferred Stock to accredited investors. Subsequent to June 30, 2020, we raised approximately $2,200,000 during the three months ended September 30, 2020, from new Series B investments bringing our cash and cash equivalents balance at September 30, 2020, to more than $1,500,000. As of October 1, 2020, we closed our Series B Preferred Stock offering after having received $5,331,576 from the issuance of Series B Preferred Stock. Additionally, most holders of our 2019 convertible notes that were due on March 31, 2020 have exchanged more than $2,872,000 in accrued principal and interest into Series B Preferred Stock, whereas other 2019 convertible note holders elected to convert their notes into common stock. As of the date of this prospectus, $115,000 of our 2019 convertible notes remain outstanding, and we intend to repay such notes with interest from the proceeds of this offering.

 

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In May 2020, we secured funding of $1,265,067 under the Paycheck Protection Program that was signed into law as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act as a result of the COVID-19 pandemic. The promissory note contains an interest rate of 1.0% per year. Payments will be deferred for the first six months of the loan, then we must pay principal and interest monthly based on the unforgiven portion of the loan balance plus all accrued interest, beginning seven months from the month the note is dated. We anticipate seeking forgiveness of a significant portion of the loan amount under the provisions of the program as the amount borrowed has been used to pay compensation, rent and utilities. While we believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, there is a risk that the loan will not be forgiven or that we will take actions that could cause us to be ineligible for forgiveness of the loan, in whole or in part.

 

Our capital requirements going forward will consist of financing our operations until we are able to reach a level of revenue and gross margin adequate to equal or exceed our ongoing operating expenses. We do not have any credit agreement or source of liquidity immediately available to us.

 

Since inception, our operations have primarily been funded through proceeds from investors in consideration of equity and debt securities of our company. We expect to have ongoing needs for working capital in order to establish and grow our operations. To that end, we may be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital. If we are unsuccessful, we may need to (i) initiate cost reductions; (ii) forego business development opportunities; (iii) seek extensions of time to fund our liabilities, or (iv) seek protection from creditors.

 

In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our company.

 

If we are able to raise additional capital, we are uncertain as to the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.

 

Sources and Uses of Cash for the Six Months Ended June 30, 2020 and 2019

 

The following table summarizes our cash flows for the six months ended June 30, 2020 and 2019:

 

  

June 30,

2020

  

June 30,

2019

  

Increase

(Decrease)

 
Net cash used in operating activities  $(1,387,507)  $(3,018,674)  $1,631,167 
Net cash used in investing activities   (13,007)   (63,824)   50,817 
Net cash provided by financing activities   1,344,781    2,074,138    (729,357)
Net (decrease) increase in cash  $(55,733)  $(1,008,360)  $952,627 

 

Net cash used in operations was $1,387,507 for the six months ended June 30, 2020 versus net cash used of $3,018,674 for the six months ended June 30, 2019. The improvement in cash flows from operating activities was primarily driven by the reduction in our net loss and our increased collections of outstanding receivables that was offset by an increase in our deferred revenues related to our expanding VIP program.

 

Net cash used in investing activities consists of capital expenditures for property, plant and equipment and decreased by $50,817 from the six months ended June 30, 2020 versus the six months ended June 30, 2019.

 

Net cash provided by financing activities for the six months ended June 30, 2020 consisted of the $1,265,067 in proceeds from our PPP loan plus $229,714 in proceeds from the sale of Series B Preferred Stock offset by $150,000 in redemptions on the Series A Preferred Stock. For the six months ended June 30, 2019, $1,248,500 was received from the issuance of common stock and $1,225,535 was received from the proceeds of our convertible debt offering. These amounts were offset by $300,000 in redemptions on the Series A Preferred Stock.

 

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Sources and Uses of Cash for the Years Ended December 31, 2019 and 2018

 

The following table summarizes our cash flows for the years ended December 31, 2019 and 2018:

 

  

December 31,

2019

  

December 31,

2018

  

Increase

(Decrease)

 
Net cash used in operating activities  $(5,340,480)  $(5,313,891)  $(26,589)
Net cash used in investing activities   86,223    (1,117,254)   1,203,477 
Net cash provided by financing activities   4,468,887    5,253,031    (784,144)
Net (decrease) increase in cash  $(785,370)  $(1,178,114)  $392,744 

 

Net cash used in operations was $5,340,480 for the year ended December 31, 2019 versus net cash used in operations of $5,313,891 for the year ended December 31, 2018. Net cash used in operations for the year ended December 31, 2019 included an incrementally larger net loss of $2,315,163 that was offset by an increase in the non-cash stock based compensation of $704,119 and a $1,179,447 increase in the change in unearned revenue.

 

Net cash provided by investing activities for the year ended December 31, 2019 included $250,000 from the sale of a Vivos Center offset by property and equipment purchased for the Vivos Centers. Net cash used in investing activities for the year ended December 31, 2018 is primarily the result of property and equipment purchased for our Vivos centers opened in 2018.

 

Net cash provided by financing activities for the year ended December 31, 2019 includes proceeds of $3,759,535 from the issuance of convertible notes and proceeds of $1,248,499 from the sale of common stock, offset by $350,000 of redemptions of preferred stock and payments of $159,887 in deferred offering costs. Net cash provided by financing activities for the year ended December 31, 2018 includes proceeds of $6,353,732 for the sale of common stock, offset by redemptions of Series A Preferred Stock totaling $1,000,000.

 

Seasonality

 

We believe that the patient volumes of our VIPs will be sensitive to seasonal fluctuations in urgent care and primary care activity. Typically, 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 significantly in the future depending on these and other factors.

 

Our Ability to Continue as a Going Concern

 

The financial statements included as part of this prospectus have been prepared in conformity with generally accepted accounting principles in the United States (or U.S. GAAP), which contemplate continuation of our company as a going concern. We have incurred losses since inception, including $3,994,239 for the six months ended June 30, 2020 and $10,754,319 for the year ended December 31, 2019, resulting in an accumulated deficit of $27,272,090 as of June 30, 2020. As of June 30, 2020, we had $413,620 in cash and cash equivalents on hand, which will not be sufficient to fund our operations and strategic objectives over the next twelve months. These factors raise substantial doubt regarding our ability to continue as a going concern. The financial statements included as part of this prospectus do not include any adjustments that might result from the outcome of this uncertainty.

 

We will be required to obtain additional financing and expect to satisfy our cash needs primarily from the issuance of equity securities or indebtedness in order to sustain operations until we can achieve 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, we may be required to delay, significantly modify or terminate our operations, all of which could have a material adverse effect on our company. Readers are advised that the carrying amounts of assets and liabilities presented in our consolidated financial statements do not necessarily purport to represent realizable or settlement values.

 

As a result of the foregoing factors, our independent registered public accounting firm, Plante & Moran, PLLC included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements as of December 31, 2019 and 2018 and the years then ended.

 

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Off-Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

Critical Accounting Policies Involving Management Estimates and Assumptions

 

Basis of Presentation and Consolidation

 

Our consolidated financial statements included as part of this prospectus, which include the accounts of our company and our wholly owned subsidiaries (BMS and First Vivos), are prepared in conformity with U.S. GAAP and the rules and regulations of the SEC related to annual and quarterly reports. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The consolidated balance sheet as of December 31, 2019 included in this report has been derived from our audited consolidated financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited interim condensed consolidated financial statements. The information presented throughout this report, as of and for the periods ended June 30, 2020 and 2019, is unaudited.

 

Use of Estimates

 

To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

We consider currency on hand, demand deposits and all highly liquid investments with an original or remaining maturity of three months or less to be cash and cash equivalents. As of June 30, 2020 and December 31, 2019, we had no cash equivalents and all cash amounts consisted of cash on deposit. During the six months ended June 30, 2020, we, at times, maintained balances in excess of federally insured limits.

 

Concentration of Credit Risk and Significant Customers

 

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. We limit our exposure to credit loss by placing our cash with high credit quality financial institutions. Additionally, we have a diverse customer base and no single customer represented greater than ten percent of sales or accounts receivable for the years ended December 31, 2019 and December 31, 2018 and the six months ended June 30, 2020.

 

Accounts Receivable, Net

 

The accounts receivable in the accompanying consolidated financial statements are stated at the amounts management expects to collect. We perform credit evaluations of our customers’ financial condition and may require a prepayment for a portion of the services to be performed. We reduce accounts receivable by estimating an allowance that may become uncollectible in the future. Management determines the estimated allowance for uncollectible amounts based on its judgements in evaluating the aging of the receivables and the financial condition of our clients. The allowance for uncollectible receivables was $349,339, $180,852 and $37,500 as of June 30, 2020, December 31, 2019 and December 31, 2018, respectively.

 

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 4 to 5 years. Amortization of leasehold improvements is recognized using the straight-line method over the shorter of the life of the improvement or the term of the respective leases which range between 5 and 7 years.

 

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Intangible Assets, Net

 

Intangible assets consist of assets acquired from First Vivos and costs paid to third parties for work related to our patents. The identified intangible assets acquired from First Vivos are amortized using the straight-line method over the estimated life of the assets, which approximates 5 years. The costs paid to third parties for our assets are amortized using the straight-line method over the life of the underlying patents, which approximates 15 years commencing at which time the patent has been granted. We determined the fair value of the intangible assets using a discounted cash flow approach.

 

Goodwill

 

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 after the close of the year. There was no impairment of goodwill recognized at June 30, 2020, December 31, 2019 or 2018.

 

Long-lived Asset Policy

 

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. Our evaluation of long-lived assets completed for the periods ended June 30, 2020, December 31, 2019 and 2018 resulted in no impairment loss.

 

Notes Receivable, Net

 

The notes receivable in the accompanying financial statements are stated at the amount management expects to collect. The current portion is what the Company expects to collect in the next twelve months and the long-term portion consists of the portion the Company expects to collect beyond twelve months. Periodically throughout the year, management evaluates the collectability of the note receivable based on its judgements of the operations and financial strength of underlying practice. The Company reduced notes receivable by estimating a discount based on market rates. The discount on notes receivable was $80,645 and $93,421 as of June 30, 2020 and December 31, 2019, respectively. Accretion on the discount and interest on the note is recorded in interest income.

 

Business Combinations

 

We account for our business acquisitions under the acquisition method of accounting as indicated in the Financial Accounting Standards Board’s (or FASB) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquired business; and establishes the acquisition date as the fair value measurement point. Accordingly, we recognize assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controlling interest in the Acquire, based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, we recognize and measure goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

 

Fair Value Measurements

 

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following 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 fair value measurement:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities

 

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Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

 

We believe that the fair value of cash, accounts receivable, accounts payable and accrued liabilities approximates their carrying values at June 30, 2020, December 31, 2019 and 2018 due to their short maturities. We also believe that the current and long-term portion of debt approximates their fair values at June 30, 2020, December 31, 2019 and 2018 as its terms are commensurate with terms we can obtain from other third parties.

 

Revenue Recognition

 

We adopted Accounting Standards Update No. 2014-09 (Topic 606) titled, “Revenue from Contracts with Customers” as of January 1, 2019 and relied upon transitional guidance provided for in 606-10- 65-1(f)(3) and do not disclose the transaction price allocated to the remaining performance obligations or an explanation of when we expect to recognize that amount as revenue.

 

We generate revenue from the sale of products and services. Revenue is recognized when control of the products or services is transferred to our customers in a way that reflects the consideration we expect to be entitled to in exchange for those products and services.

 

We determine 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.

 

Service revenue

 

Service revenue is recognized when the underlying training or other services are performed. Unearned revenue reported on the balance sheet as contract liability represents the portion of fees paid by customers for services that have not yet been performed as of the reporting date and are recorded as the service is rendered. We recognize this revenue over the twelve-month life of the contract. Provisions for discounts are provided in the same period that the related revenue from the products and/or services is recorded.

 

We enter into programs that may provide for multiple element deliverables. Commencing in 2018, we began enrolling medical and dental professionals in a one-year program which includes training in a highly personalized, deep immersion workshop format which provides the dentist access to an onboarding team who is dedicated to creating a successful integrated practice. The key topics covered in training include case selection, clinical diagnosis, appliance design, adjunctive therapies, instructions on ordering our products, guidance on pricing, instruction on insurance reimbursement protocols and interacting with our proprietary software system and the many features on our website. The initial training and educational workshop is typically provided in the first month that a VIP enrolls. Since VIPs are able to begin generating revenue after the second training workshop, we recognize 50% of the service revenue in the second month of enrollment and the remaining 50% pro-rata throughout the following eleven months of the service contract. Ongoing support and additional training are provided throughout the year and include access to our proprietary Airway Intelligence Service (or AIS) which provides VIPs with resources to help simplify the diagnostic and treatment planning process. AIS is provided as part of the price of each appliance and is not a separate revenue stream. Following the year of training and support, a VIP may pay for seminars and training courses that meet the VIP’s needs on a subscription or a course by course basis. In addition to enrollment service revenue, we have more recently launched an additional service on a monthly subscription basis: Billing Intelligence Service (or BIS). Revenue for this service is recognized monthly during the month the service is rendered.

 

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We identify all goods and services that are delivered separately under a sales arrangement and allocates revenue to each deliverable based on relative fair values. Fair values are generally established based on the relevant service period which approximates the prices for relevant training that would be charged if those services were sold separately. In general, revenues are separated between durable medical equipment (product revenue) and education and training services (service revenue). The allocated revenue for each deliverable is then recognized ratably based on relative fair values of the components of the sale. Revenue from training is recognized over the relevant service period (i.e., as we satisfy our performance obligations and creates value for the VIP). We also evaluate the impact of undelivered items on the functionality of delivered items for each sales transaction and, where appropriate, defer revenue on delivered items when that functionality has been affected. Functionality is determined to be met if the delivered products or services represent a separate earnings process.

 

From time to time we offer various discounts to our customers. These include the following:

 

  1) Discount for cash pay in full
  2) Conference or trade show incentives
  3) Negotiated concessions on annual enrollment fee

 

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 us and the VIP 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 us agree upon the amount of consideration that the customer will pay in exchange for the services we provide. The net consideration that the customer has agreed to pay is the expected value that is recognized as revenue over the service period. Any overpayments are refunded during the reporting period so that no refund liability is recognized. At the end of each reporting period, we update 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, we also generate revenue from the sale of our patented oral devices and preformed guides, known as appliances or systems to our customer, the VIP. Revenue from the appliance sale is recognized when control of product is transferred to the VIP in an amount that reflects the consideration we expect 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, installing the appliance and educating the patient as to its use. We are contracted with the VIP for the sale of the appliance and are not involved in the sale of the products and services from the VIP to the VIP’s patient.

 

Our appliances are visually similar to a retainer that is worn after braces are removed. Each appliance is specifically fitted to each patient. We utilize our network of certified VIPs throughout the country to sell the appliances to their customers as well as in two centers that we operate. We utilize third party contract manufacturers or labs to produce each appliance and preformed Guide. The manufacturer designated by us (of which there are several) produces the appliance in strict adherence to our patents, design files, protocols, processes and procedures and under the direction and specific instruction of us. The manufacturer then ships the appliance to the VIP who ordered the appliance from us. All of our contract manufacturers are required to follow our master design files in production of appliances or the lab will be in violation of the FDA’s rules and regulations. We performed an analysis under ASC Topic 606-10-55-36 through 55-40 and concluded it is the principal in the transaction and is reporting revenue gross. We bill the VIP provider the contracted price for the appliance which is recorded as product revenue. Product revenue is recognized once the appliance ships to the VIP provider under our direction.

 

Beginning in 2018, we operated three centers in Colorado and Utah. Effective October 1, 2019, we sold our center in Utah (see Note 4 to the financial statements included as part of this prospectus). Within each center, we utilize a team of medical professionals to measure, order and fit each appliance. Upon scheduling the patient (which is our customer in this case), the center takes a deposit and reviews the patient’s insurance coverage. Revenue is recognized differently for our owned centers than for our VIPs. We recognize revenue in the centers after the appliance is received from the manufacturer and once the appliance is fitted and provided to the patient.

 

We offer our clinical advisors (who help our VIPs with technical aspects of our products) discounts from our standard VIP pricing. This is done to help encourage our clinical advisors to purchase our products for their own practices. In addition, from time to time, we offer buy one, get one offers and other credits to incentivize our VIPs to embrace our products and increase volume within their practices.

 

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Stock-Based Compensation

 

Our board of directors (or the compensation committee thereof) grants share-based payments to employees under our equity incentive plans described below. Historically, this is has come in the form of options to purchase shares of our common stock. Since November 2018, all stock options have been granted with an exercise price of $7.50 per share on post-reverse split basis. Exercise price of such stock options has been consistent with the price offered to private investors in the Company’s private placements during this period, which our board of directors or its compensation committee deemed to be the fair value of the underlying common stock.

 

From an accounting perspective, we account for share-based payments to employees by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. Absent a publicly traded market for our stock, we use the price paid for our stock in the most recent sales to third parties as the stock price input into our valuation model as of the date of grant. We determine the estimated grant fair value using the Black-Scholes option pricing model and recognize compensation costs ratably over the requisite service period which approximates the vesting period using the straight-line method. For options issued to consultants, we recognize the estimated fair value of options issued using the Black-Scholes option pricing model at the time the services are rendered.

 

The Black-Scholes model requires the input of certain subjective assumptions and the application of judgment in determining the fair value of the awards. The most significant assumptions and judgments include the expected volatility, risk-free interest rate, the expected dividend yield, and the expected term of the awards. The Company accounts for forfeitures as they occur.

 

The assumptions used in our option pricing model represent management’s best estimates. If factors change and different assumptions are used, our equity-based compensation expense could be materially different in the future. The key assumptions included in the model are as follows:

 

  Share Price – We use the price of our stock sold to third parties in our offerings as the most available representation of fair value per share of common stock on date of grant.
     
  Expected volatility — We determine the expected price volatility based on the historical volatilities of our peer group as we do not have a sufficient trading history for our common stock. Industry peers consist of several public companies in the bio-tech industry similar to us in size, stage of life cycle and financial leverage. We intend 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 our own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.
     
  Risk-free interest rate — The risk free rate was determined based on yields of U.S. Treasury Bonds of comparable terms. The volatility is based on analyzing the stock price and implied volatility of guideline companies.
     
   ● Expected dividend yield — We have not previously issued dividends and do not anticipate paying dividends in the foreseeable future. Therefore, we used a dividend rate of zero based on our expectation of additional dividends.