ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organizational Transactions

BioModeling Solutions, Inc. (“BioModeling” or “BMS”) was organized on March 20, 2007 as an Oregon limited liability company, and subsequently incorporated in 2013. On August 16, 2016, BioModeling entered into a share exchange agreement (the “SEA”) with First Vivos, Inc. (“First Vivos”), and Vivos Therapeutics, Inc. (“Vivos”), a then Wyoming corporation established on July 7, 2016 to facilitate this merger. Vivos was formerly named Corrective BioTechnologies, Inc. until its name changed on September 6, 2016 to Vivos Biotechnologies and on March 2, 2018 to Vivos Therapeutics, Inc. and had no substantial pre-combination business activities. First Vivos was incorporated in Texas on November 10, 2015. Pursuant to the SEA, all the outstanding shares of common stock and warrants of BioModeling and all of the shares of common stock of First Vivos were exchanged for newly issued shares of common stock, par value $0.0001 per share (the “Common Stock”) and warrants to purchase Common Stock of Vivos, the legal acquirer, which is collectively referred to herein as the “Company”. On August 12, 2020, the Company reincorporated as a domestic Delaware corporation under Delaware General Corporate Law from Wyoming.

The merger transaction was accounted for as a reverse acquisition and recapitalization, with BioModeling as the acquirer for financial reporting and accounting purposes. Upon the consummation of the merger, the historical financial statements of BioModeling became the Company’s historical financial statements and continued to be recorded at their historical carrying amounts.

Description of Business

The Company is a medical technology company focused on the development and commercialization to dental practices of a patented oral appliance technology and related protocols called the Vivos System. The Company believes the Vivos System represents the first non-surgical, non-invasive and cost-effective treatment for people with sleep disordered breathing, including mild-to-moderate obstructive sleep apnea. The Company’s business model is focused around dentists, and the Company’s program to train dentists and offer them other value-added services in connection with their ordering and use of the Vivos System for patients is called the Vivos Integrated Practice (“VIP”) program.

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 the Company’s VIPs and potential VIPs closed their offices during periods of 2020 as a result of COVID-19, although some remained open to specifically provide patients with Company products as Company 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, Company management worked diligently to reduce expenses and maintain revenues during 2020. While revenue growth flattened in March and April 2020, expenses were reduced and the Company aggressively expanded its network of healthcare providers familiar with its products by offering online continuing education courses which introduced many in the medical and dental communities to the Company’s product line. As businesses have continued to reopen into 2021, the impact of COVID-19 on the Company has begun to diminish, although the Company is closely monitoring the potential impact of COVID-19 variants on its business. Of note, during the three months ended September 30, 2021, many of the Company’s Canadian VIPs have not traveled to the US for training in light of travel restrictions. As of August 9, 2021, the Government of Canada imposed further restrictions on unvaccinated travelers, which has caused delays with some of the Company’s Canadian VIPs receiving required training and commencing Vivos System cases. However, overall, for the quarter ended September 30, 2021, the Company does not believe that COVID-19 as had a material impact on its results of operations.

Basis of Presentation and Consolidation

The accompanying unaudited interim condensed consolidated financial statements, which include the accounts of the Company and its consolidated subsidiaries (which, consist, as of the date of this report, of BMS, First Vivos, Vivos Therapeutics (Canada) Inc., and Vivos Management and Development, LLC (“VMD”) (all of which are wholly-owned subsidiaries of the Company) and Vivos Del Mar Management, LLC, which is wholly owned by VMD), have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the SEC related to a quarterly report. 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 condensed consolidated balance sheet as of December 31, 2020 included in this report has been derived from the Company’s 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 September 30, 2021 and 2020, is unaudited.

These interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the three months and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the full year.

On July 30, 2020, the Company effected a reverse stock split in which each common shareholder received one share of Common Stock for every three shares outstanding. All share and per share amounts in this report have been adjusted to reflect the effect of such reverse stock split.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company currently expects to retain its status as an emerging growth company until the year ending December 31, 2026, but this status could end sooner under certain circumstances.

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.

December 2020 Initial Public Offering

On December 11, 2020, the Company completed its initial public offering (“IPO”) by offering 4,025,000 shares of Company Common Stock at a price of $6.00 per share, for net proceeds of approximately $21.6 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. In connection with the IPO, the Company’s then outstanding units of Series B preferred stock were automatically converted into an aggregate of 1,199,195 shares of Company Common Stock and warrants to purchase an aggregate of 1,199,195 shares of Company Common Stock (see Note 9).

May 2021 Follow-On Offering

On May 11, 2021, the Company completed a follow-on underwritten public offering of 4,600,000 shares of Company Common Stock at a price of $6.00 per share, for net proceeds of approximately $25.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. Issuing costs associated with this stock issuance were approximately $2.2 million (see Note 9).

Payroll Protection Program Loan

On May 8, 2020, the Company received approximately $1,265,000 in funding through the U.S. Small Business Administration’s Payroll Protection Program (“PPP”) that was part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act signed into law in March 2020. The interest rate on the loan is 1.00% per year and matures on May 5, 2022 and may be forgiven to the extent proceeds of the loan are used for eligible expenditures such as payroll and other expenses described in the CARES Act. The note is payable in monthly installments of principal and interest over 12 months, beginning 12 months from the date of the note (deferral period). The note can be repaid at any time with no payment penalty.

The Company used these funds to assist with payroll, rent and utilities. The Company has spent the funding in a manner in which it believes the entire balance of the outstanding promissory note will be eligible for forgiveness through the terms of the PPP. An application to forgive the entire amount was submitted with the lender in January 2021; however, there can be no assurance given that all or any portion of the PPP loan will be forgiven. Any request for forgiveness is subject to review and approval by the lender and the SBA, including review of qualifying expenditures, staffing and salary levels.

Currently, there is no guidance in U.S. GAAP that specifically addresses the accounting by an entity that obtains a forgivable loan from a government entity. In the absence of specific guidance, the Company believes that is acceptable to account for the PPP loan as a debt instrument under ASC 470, Debt and apply the interest method in ASC 835-30, Imputation of Interest, which considers the interest accrued during the payment deferral period allowed for the loan. The Company recognized the entire loan amount as a financial liability (current and noncurrent per ASC 470-10-45, Other Presentation), with interest accrued and expensed over the term of the loan (see Note 7). Additionally, any amount forgiven when the Company is legally released as the primary obligor under the loan, will be recognized in the statement of operations as a gain from extinguishment of the loan.

Cash and Cash Equivalents

The Company considers 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 September 30, 2021, and December 31, 2020, the Company had no cash equivalents and all cash amounts consisted of cash on deposit. During the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company, at times, maintained balances in excess of federally insured limits.

Concentration of Credit Risk and Significant Customers

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. Additionally, the Company has a diverse customer base and no single customer represented greater than ten percent of sales or accounts receivable for the three months and nine months ended September 30, 2021 and the year ended December 31, 2020.

Accounts Receivable, Net

The accounts receivable in the accompanying financial statements are stated at the amounts management expects to collect. The Company performs credit evaluations of its customers’ financial condition and may require a prepayment for a portion of the services to be performed. The Company reduces 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 the Company’s customers (namely, the Company’s VIP dentists). Allowance for uncollectible receivables was $592,747 and $507,347 as of September 30, 2021 and December 31, 2020, 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. The Company does not begin depreciating assets until they are placed in service.

Intangible Assets, Net

Intangible assets consist of assets acquired from First Vivos, BMS and Dr. G. Dave Singh (the Company’s founder, Chief Medical Officer and former director), and costs paid to third parties for work related to the Company’s patents. The identified intangible assets that were acquired are amortized using the straight-line method over the estimated life of the assets, which ranges from 5-15 years (See Note 5). The costs paid to third parties for the Company’s assets are amortized using the straight-line method over the life of the underlying patents, which approximates 15 years. The Company initially determined the fair value of the intangible assets using a discounted cash flow approach.

On March 29, 2021, the Company acquired certain assets from, and entered into related agreements with, MyoCorrect, LLC and its affiliates (“MyoCorrect”), which affiliates include an existing VIP dentist to administer the MyoCorrect program whereby dentists enrolled in the VIP program will have access to trained therapists who provide orofacial myofunctional therapy (“OMT”) via telemedicine technology. The Company issued to the OMT therapist warrants to purchase 200,000 shares of the Company’s Common Stock with an exercise price of $7.50 per share. 25,000 of these warrants vested initially upon issuance, but the remainder only vest and become exercisable upon the achievement of pre-determined performance metrics related to the utilization of MyoCorrect. The fair value of the warrants is consideration for intangibles assets, valued using the Black-Scholes pricing model at $136,326 and will amortized over 15 years.

Goodwill

Goodwill is the excess of acquisition costs of an acquired entity over the fair value of the identifiable net assets acquired (See Note 5). 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. The Company tests for impairment annually at year end. There was no impairment of goodwill recognized at December 31, 2020. There were no indicators of impairment that occurred for the three months and nine months ended September 30, 2021 and accordingly, no impairment was required.

Long-lived Assets

The Company reviews and evaluates 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. The Company measures 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 the Company 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. There was no impairment of long-lived assets as of December 31, 2020. No triggering events indicating potential impairment were identified for the three months and nine months ended September 30, 2021.

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. The Company reduced notes receivable by estimating a discount based on market rates. The discount on notes receivable was $46,580 and $68,101 as of September 30, 2021 and December 31, 2020, respectively. Accretion on the discount and interest on the note is recorded in interest income.

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.

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.

The Company believes that the fair value of cash, accounts receivable, accounts payable and accrued liabilities approximates their carrying values at September 30, 2021, and December 31, 2020, due to their short maturities. The Company also believes that the current and long-term portion of notes receivable and debt approximates their carrying value at September 30, 2021, and December 31, 2020, as its terms are commensurate with terms the Company can obtain from third parties.

Share-Based Compensation

The Company accounts for share-based payments to employees by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. Prior to December 2020 (when the Company consummated its IPO), the Company used the price paid for such stock in the then most recent sales to third parties as the stock price input into the Company’s valuation model as of the date of grant. Following the IPO, the Company uses the price of its publicly-traded Common Stock on the date of grant. The Company then determines the estimated grant fair value using the Black-Scholes option pricing model and recognizes compensation costs ratably over the requisite service period which approximates the vesting period using the straight-line method. For options issued to consultants, the Company recognizes 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 the Company’s option pricing model represent management’s best estimates. If factors change and different assumptions are used, the Company’s equity-based compensation expense could be materially different in the future. The key assumptions included in the model are as follows:

● Share price – Historically, the Company used the price of its stock sold to third parties in its offerings as the most available representation of fair value per share of Common Stock on date of grant. Beginning in late 2020, the Company began using the publicly quoted market price of its Common Stock on the Nasdaq Capital Market.

● Expected volatility — The Company determines the expected price volatility based on the historical volatilities of its peer group of publicly traded companies as the Company does not have a sufficient trading history for its Common Stock. Industry peers consist of several public companies in the medical technology industry similar to the Company in size, stage of life cycle and financial leverage. The Company intends 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 the Company’s own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, 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 — The Company has not previously issued dividends and does not anticipate paying dividends in the foreseeable future. Therefore, the Company used a dividend rate of zero based on management’s expectation of not paying additional dividends.

● Expected term — The Company estimates the expected term using the simplified method which is the average of the vesting term and the contractual term of the options.

Research and Development

Costs related to research and development are expensed as incurred and include costs associated with research and development of new products and enhancements to existing products. Research and development costs incurred were immaterial for the three months and nine months ended September 30, 2021 and 2020, respectively.

Income Taxes

The Company uses the asset and liability method to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.

Deferred tax assets and liabilities are determined using the effective tax rates for the years in which the tax assets and liabilities are expected to be realized. A valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved.

Basic and Diluted Net Loss Per Share

Basic net loss per share is computed using the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per common share is computed using the weighted average number of shares of Common Stock outstanding and the weighted average dilutive potential shares of Common Stock outstanding using the treasury stock method. However, for the nine months ended September 30, 2021 and 2020, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of Common Stock issuable upon the exercise of outstanding warrants and stock options would be anti-dilutive. The numerator in the basic and diluted net loss per share calculation is the net loss attributable to the holders of Common Stock, which is the net loss for the year increased by the current year preferred stock dividends accrued (at September 30, 2021, the Company had no shares of preferred stock outstanding; see Notes 8 and 9).

For both the three months and nine months ended September 30, 2021 and 2020, the Company incurred a net loss and, accordingly, there were no undistributed earnings to allocate.

The following table summarizes outstanding Common Stock securities not included in the computation of diluted net loss per common share as their inclusion would be anti-dilutive:

	September 30,		December 31,
	2021		2020
Common Stock Warrants		2,556,029		1,960,029
Common Stock Options		2,871,344		2,302,345

Recent Accounting Pronouncements

The Company is an emerging growth company (“EGC”) as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), whereby the Company is not required to comply with new or revised financial accounting standards until the dates when private companies are required to comply with such standards. The JOBS Act provides that a company can elect to opt out of the extended transition periods and comply with the requirements that apply to non-EGC public companies but any such election to opt out is irrevocable. Presented below is a discussion of new accounting standards including deadlines for adoption assuming that the Company retains its designation as an EGC.

Standards Required to be Adopted in Future Years. The following accounting standards are not yet effective, and a decision has not been reached about whether the Company will elect to early adopt any of the standards:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires the Company to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11 Targeted Improvements, which provides lessees the option to adopt either (i) retrospectively to each prior reporting period presented upon initial adoption, or (ii) apply the new leasing standard to all open leases as of the adoption date by recognizing a cumulative-effect adjustment to accumulated deficit in the period of adoption without restating prior periods. The Company is still evaluating which transition approach will be implemented upon adoption of ASU No. 2016-02. ASU 2016-02 is effective for the Company beginning in the first quarter of 2022 and early adoption is permitted.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This guidance requires use of an impairment model (known as the “current expected credit losses”, or CECL model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. ASU 2016-13 is effective for the Company beginning in the first quarter of 2023. The Company is still evaluating the impact the adoption of ASU 2016-13 will have on its results of operations or financial position.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2022. Early adoption is permitted, including adoption in an interim period. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Additionally, ASU 2020-06 affects the diluted earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. Effective January 1, 2021, the Company elected to adopt ASU 2020-06 using the modified retrospective transition method which did not result in any changes to the Company’s financial statements upon adoption.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not currently expected to have a material impact on the Company’s financial statements upon adoption.