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 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
Our
business has a limited operating history on which you can evaluate our past performance and future prospects.
Our
business was formed only in 2016, and therefore you have limited historical data on which to evaluate our company. This is particularly
true because our current VIP-focused business model was only commenced in mid-2018. Therefore, you have even more limited historical
operating data on which to evaluate the results of and prospects for our current business model.
We
have a history of operating losses and may never achieve cash flow positive or profitable results of operations.
Since
our inception, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended
December 31, 2020 and 2019, we reported net losses of $12,056,877 and $10,754,319 respectively, and negative cash flow from operating
activities of $5,680,294 and $5,340,480, respectively. As of December 31, 2020, we had an aggregate accumulated deficit of $35,334,728.
We anticipate that we will continue to report losses and negative cash flow. There is therefore a risk that we will be unable
to operate our business in a manner that generate positive cash flow or profit, and our failure to operate our business profitably
would damage our reputation and stock price. 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 was a substantial doubt about our ability
to continue as a going concern, and this may occur again if we do not achieve positive results of operations in the future.
We
will need to raise additional capital to fund and grow our business. Such funding, even 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.
In
order to fund and grow our business, we will 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 fund our growth or 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, coupled with our inability to generate adequate
cash from operations, 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.
We
have identified a material weakness in our internal control over financial reporting.
Prior
to our initial public offering in December 2020, 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, 2020 and 2019, 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 inadequate review
of certain journal entries, segregation of duties, and inadequate application of accounting guidance. 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
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:
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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;
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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;
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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
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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.
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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, Airway Intelligence System, AireO2, VivoScore and MyoCorrect. 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 and Canada,
with a very limited presence in very few select countries such as South Korea, Australia, Japan and India. 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.
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 has been and could be materially adversely affected by the COVID-19 pandemic or recurrences of COVID-19
(such as has occurred in the fall of 2020) or any other similar diseases in the future. Material adverse effects from COVID-19
and similar diseases 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 may be shut down again due to recurrences of 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.
We
may not be able to successfully implement 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:
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achieve
brand awareness in new and existing markets;
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convince
potential VIPs of the value of our products and services and to make the required investments in becoming a VIP and using
the Vivos System;
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manage
costs, which could give rise to delays or cost overruns;
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recruit,
train, and retain qualified dentists, dental hygienists, physicians, physician assistants, medical technologists and other
staff in our local markets;
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obtain
favorable reimbursement rates for services rendered at VIP offices;
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outperform
competitors; and
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maintain
adequate information systems and other operational system capabilities.
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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.
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:
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the
identification and availability of attractive practices to be VIPs;
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our
ability to successfully identify and address pertinent risks and benefits during the onboarding process;
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the
proximity of VIPs to one of our or our competitors’ existing centers;
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our
VIP’s ability to obtain required governmental licenses, permits and authorizations on a timely basis; and
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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.
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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.
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:
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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;
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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;
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our
ability to maintain current pricing for our Vivos System;
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our
ability to expand by adding additional VIPs in leading major metro areas;
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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;
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failure
of third-party contract manufacturers to deliver products or provide services in a cost effective and timely manner;
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our
failure to develop, find or market new products;
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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;
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actions
relating to ongoing FDA compliance;
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the
size and timing of orders from dentists and independent distributors;
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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;
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unanticipated
delays in the development and introduction of our future products and/or our inability to control costs;
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the
effects of global or local pandemics or epidemics and governmental responses, such as COVID-19;
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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
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general
economic conditions as well as those specific to our customers and markets.
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Therefore,
you should expect that our results of operations will be difficult to predict, which will make an investment in our company uncertain.
Our
MID program is a new business offering for us, and it may not perform as anticipated or may take longer than expected to gain
acceptance.
Begun
only in 2020, our MID is a new business offering for us, and the model is yet unproven. As a result, actual results may be lower
than expected due to lower than expected referrals or other factors. 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. If we fail
to adequately identify and respond to such risks in a timely manner, on our business, financial condition and results of operations
could be adversely affected.
VivoScore
is a new technology which may not be utilized by VIPs to the degree anticipated.
VivoScore
is a relatively new technology. New technologies often take longer to gain acceptance within the medical and dental communities.
If medical and dental care providers do not utilize this new technology, or if VivoScore is not as effective as anticipated, the
financial results of VivoScore may be lower than currently expected. Also, we are subject to many risks associated with this new
technology that we are unable to presently identify, such as pricing, competition, marketing and regulatory risks. If we fail
to adequately identify and respond to such risks in a timely manner, on our business, financial condition and results of operations
could be adversely affected.
We
may not be able to respond in a timely and cost-effective manner to changes in consumer preferences.
The
Vivos System 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.
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 be impacted by the extent to which patients using the Vivos System achieve adequate levels
of third-party insurance 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.
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:
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obtain
clearance from the FDA and certain international regulatory bodies before we can market and sell our products;
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satisfy
all content requirements for the sales and promotional materials associated with the Vivos System; and
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undergo
rigorous inspections of our facilities, manufacturing and quality control processes, records and documentation.
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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.
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:
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our
ability to obtain appropriate regulatory approvals to market the Vivos System in certain countries;
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our
ability to identify new independent third-party distributors in international markets where we do not currently have distributors;
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the
impact of recessions in economies outside the United States;
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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;
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weaker
intellectual property rights protection in some countries;
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potentially
adverse tax consequences; and
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political
and economic instability.
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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.
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.
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.
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.
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:
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costs
of litigation;
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distraction
of management’s attention from our primary business;
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the
inability to commercialize our Vivos System or new products;
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decreased
demand and brand reputation for our Vivos System;
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product
recalls or withdrawals from the market;
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withdrawal
of clinical trial participants;
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substantial
monetary awards to patients or other claimants; or
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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.
We
may not be able to maintain adequate product liability insurance.
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. We believe that primary care physicians typically 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.
Although
we sell our product directly to our corporate-owned and partner clinics, our experience in marketing and selling our Vivos System
or VIP program through a direct sales organization in the United States is limited. 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. In addition, other marketing efforts like MID and VivoScore may not increase revenue to the extent we currently anticipate.
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
or virtual 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.
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.
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.
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.
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.
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:
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disputes
among payors as to which party is responsible for payment;
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variations
in coverage among various payors for similar services;
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the
difficulty of adherence to specific compliance requirements, coding and various other procedures mandated by responsible parties;
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the
institution of new coding standards; and
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failure
to properly credential our dentists to enable them to bill various payors.
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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.
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:
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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;
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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;
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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);
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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;
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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
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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.
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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 or other
side effects 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.
Given
that we are aware that, notwithstanding our training guidelines, our VIPs may use our DNA device off-label, there is a risk that
we could face regulatory scrutiny as a result of such use. 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.
We
may pursue acquisitions of complementary businesses or technologies, which could divert the attention of management and which
may not be integrated successfully into our existing business.
We
may pursue acquisitions or licenses of technology to, among other things, expand the scope of products services we provide. We
cannot guarantee that we will identify suitable acquisition candidates, that acquisitions will be completed on acceptable terms
or that we will be able to integrate successfully the operations of any acquired business into our existing business. The acquisitions
could be of significant size and involve operations in multiple jurisdictions. The acquisition and integration of another business
or technology would divert management attention from other business activities, including our core business. This diversion, together
with other difficulties we may incur in integrating an acquired business or technology, could have a material adverse effect on
our business, financial condition and results of operations. In addition, we may borrow money or issue capital stock to finance
acquisitions. Such borrowings might not be available on terms as favorable to us as our current borrowing terms and may increase
our leverage, and the issuance of capital stock could dilute the interests of our stockholders.
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.
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
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.
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 $1,265,000 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 have occurred as a result of our initial
public offering).
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.
The
results of our clinical trials may not support either further clinical development or the commercialization of any new product
candidates or modifications to existing products.
Even
if our ongoing or contemplated clinical trials are completed as planned, their results may not support either the further clinical
development or the commercialization of any new product candidates or modifications of existing products. 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
or a modification to any existing product 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 medical technology
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 approvals which, if not obtained, 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.
Our
DNA appliance® 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 in 2021. However, it is possible
that we may not receive this FDA additional clearance.
Also,
in March 2021, we submitted a 510(k) for Class II clearance to the FDA for our mmRNA device with indications to treat mild-to-moderate
OSA, SDB and Snoring in adults. We cannot assure you that the FDA will approve our 510(k) Class II approval or we will receive
PMA approval. Further, we cannot assure you that our mmRNA appliance® will be added to the CMS Medicare list of
approved sleep appliances , both in general and in the event that Class II approval is not obtained for the mmRNA device (which
is a prerequisite for inclusion in the CMS Medicare list of approved sleep appliances).
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:
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fines,
injunctions and civil penalties;
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recall,
detention or seizure of our products;
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the
issuance of public notices or warnings;
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operating
restrictions, partial suspension or total shutdown of production;
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refusing
our requests for a 510(k) clearance of new products;
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withdrawing
a 510(k) clearance already granted; and
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criminal
prosecution.
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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.
Our
new Medical Integration Division business line may implicate federal and state laws involving the practice of medicine and related
anti-kickback and similar laws.
Our
MID was launched in 2020 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 a treatment with the Vivos System. There is a risk, however, 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 Our Securities Generally
The
market for our common stock is new and may not develop to provide investors with adequate liquidity.
We
only recently conducted our initial public offering in December 2020. Therefore, the market for our common stock is new, and we
cannot assure you that an active trading market for our common stock will develop, 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
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:
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whether
we achieve our anticipated corporate objectives;
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actual
or anticipated fluctuations in our quarterly or annual operating results;
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changes
in our financial or operational estimates or projections;
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our
ability to implement our operational plans;
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termination
of lock-up agreements or other restrictions on the ability of our stockholders to sell shares in the future;
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changes
in the economic performance or market valuations of companies similar to ours; and
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general
economic or political conditions in the United States or elsewhere.
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In
addition, the stock market in general, and the stock of publicly-traded medical technology 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.
There
is a risk of significant future sales by our stockholders that are currently subject to lock-up agreements which expire in June
2021. Such sales could cause the price of our stock price to fall considerably and may adversely impact our ability to raise funds
in new stock offerings. Other future sales of other shares of our common stock could have a similar adverse effect on us
Approximately
8,185,815 shares of common stock (representing approximately 45% of our currently outstanding shares) held by pre-initial public
offering stockholders of our company (including 1,199,195 shares of common stock that were issued upon the conversion of shares
of Series B Preferred Stock in connection with our initial public offering) are registered with the SEC pursuant to this prospectus.
The holders of such shares (i.e., the selling stockholders hereunder) have entered into “lock-up” agreements in favor
of the representative of the underwriters of our initial public offering, and such lock-ups will expire on June 13, 2021. As such,
following the expiration of such lock-ups, such holders will be free to sell their shares in the market. Such sales, should they
occur in large volume and over a short period of time, could cause the price of our public stock to fall considerably, leading
to losses by our investors and a potential inability of to raise funds in new stock offering.
Furthermore,
options to purchase up to 2,447,345 shares of our common stock with a weighted average exercise price of $5.00 are outstanding,
and we also have outstanding (i) a warrant issued to the representative of the underwriters of our initial public offering (exercisable
for 402,500 shares of common stock at an exercise price of $7.50 per share), (ii) warrants associated with our previously outstanding
Series B Preferred Stock (exercisable for 1,199,195 shares of common stock at an exercise price of $7.50 per share); (iii) 325,000
warrants issued to certain shareholders in November 2020 (see “Management—2020 Derivative Demand and Settlement”
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 25, 2021 for further
information on the issuance of these warrants) at an exercise price of $7.50 per share; (iv) a warrant issued to a 2017 noteholder
(exercisable for 33,334 shares of common stock) at an exercise price of $1.50 per share; and (v) 320,000 warrants issued
to contractors and consultants subsequent to December 31, 2020 with an exercise price of $7.50 per share.
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.
Our
failure to meet the continuing listing requirements of The Nasdaq Capital Market could result in a de-listing of our securities.
If
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.
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” in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2020, filed with the SEC on March 25, 2021 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 technology 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 relating to our company, or that any
merger, combination, or sale, even if consummated, would provide liquidity or a profit for our investors. 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
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 29% of our outstanding voting capital stock. 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.
Actions
of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes
that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.
Activist
investors or other stockholders who disagree with our management may attempt to effect changes in our strategic direction and
how our company is governed or may seek to acquire control over our company. Some investors (commonly known as “activist
investors”) seek to increase short-term stockholder value by advocating corporate actions such as financial restructuring,
increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. Activist campaigns can
also seek to change the composition of our board of directors, and campaigns that contest or conflict with our strategic direction
could have an adverse effect on our results of operations and financial condition as responding to proxy contests and other actions
by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board of directors
and senior management from the pursuit of our business strategies. In addition, perceived uncertainties as to our future direction
that can arise from potential changes to the composition of our board of directors sought by activists may lead to the perception
of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may
cause concern to our current or potential customers or other partners, may result in the loss of potential business opportunities
and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could divert
our management’s attention from our business or cause significant fluctuations in our stock price based on temporary or
speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our
business, all of which could have a material adverse effect on our company.
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
our initial public 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:
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not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404;
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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;
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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;
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reduced
disclosure obligations regarding executive compensation; and
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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 newly 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,
only if the criteria are met. 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. 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.
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.
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 market sizes 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 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.
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 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 common stock. 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 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.
DESCRIPTION
OF CAPITAL STOCK
The
following description of our capital stock is based upon our certificate of incorporation, our bylaws and applicable provisions
of law, in each case as currently in effect. This discussion does not purport to be complete and is qualified in its entirety
by reference to our certificate of incorporation, as amended, and our bylaws, copies of which have been filed with the SEC. We
encourage you to read the Certificate of Incorporation, the Bylaws and the applicable provisions of the Delaware General Corporation
Law for additional information.
Authorized
Capital Stock
As
of the date of this prospectus, pursuant to our certificate of incorporation, our authorized capital is 250,000,000 shares, of
which (1) 200,000,000 shares are common stock, par value $0.0001 per share (or common stock) and (2) 50,000,000 shares are preferred
stock, par value $0.0001 per share (or preferred stock), which may, at the sole discretion of our board of directors be issued
in one or more series.
As
of the date of this prospectus, 18,212,119 shares of common stock have been issued and are outstanding. No shares of preferred
stock are current outstanding.
Our
board may from time to time authorize by resolution the issuance of any or all shares of the common stock and the preferred stock
authorized in accordance with the terms and conditions set forth in the certificate of incorporation for such purposes, in such
amounts, to such persons, corporations, or entities, for such consideration and in the case of the preferred stock, in one or
more series, all as the Board in its discretion may determine and without any vote or other action by the stockholders, except
as otherwise required by law.
Common
Stock
As
of the date of this prospectus, there were approximately 525 holders of record of our common stock. This number does not
include stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number
of holders of record also does not include stockholders whose shares may be held in trust by other entities. Each holder of common
stock shall be entitled to one vote for each share of common stock held of record by such holder. The holders of shares of Common
Stock shall not have cumulative voting rights. The common stock does not have cumulative voting rights. Therefore, holders of
a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common
stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. Subject to the rights of holders of any
class of stock having preference over our common stock, holders of our common stock are entitled to share in all dividends that
our board of directors, in its discretion, declares from legally available funds. In the event of a liquidation, dissolution or
winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities
and after providing for each class of stock, if any, having preference over the common stock. Our common stock has no pre-emptive
rights, no conversion rights and there are no redemption provisions applicable to the common stock.
Our
common stock is traded on The Nasdaq Capital Market under the trading symbol “VVOS.”
Warrants
Associated with MyoCorrect
In
connection with our March 29, 2021 acquisition of certain assets from, and the entry into related agreements with, MyoCorrect,
LLC and its affiliates, we issued three year warrants to purchase 200,000 shares of our 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. These warrants may be exercised
only for cash, and the exercise price is subject to customary, stock-based anti-dilution protection.
Warrants
Associated with Lyon Management & Consulting
In
connection with our April 14, 2021 acquisition of certain assets from, and the entry into related agreements with, Lyon Management
& Consulting, LLC and its affiliates, we issued three year warrants to purchase 25,000 shares of our common stock with an
exercise price of $8.90 per share. 5,000 of these warrants vested initially upon issuance, but the remainder only vest and become
exercisable at the end of each anniversary year following the issuance date. These warrants may be exercised only for cash, and
the exercise price is subject to customary, stock-based anti-dilution protection.
Warrants
Associated with Series B Preferred
There
are presently outstanding warrants to purchase an aggregate of 1,199,195 shares of our common stock which were used to the holders
of our previously outstanding Series B Preferred Stock (which converted to common stock in connection with our initial public
offering). These warrants have an exercise price of $7.50 per share and have a term of five years ending on December 15, 2025.
These warrants may be exercised only for cash, and the exercise price is subject to customary, stock-based anti-dilution protection.
Representative’s
Warrant Issued in Connection with Our Initial Public Offering
In
connection with the our initial public offering, we issued warrants to the underwriter and its designees that provide for the
purchase of 402,500 shares of common stock at an exercise price of $7.50 per share. The warrants are exercisable beginning on
June 8, 2021, and expire on December 10, 2025.
November
2020 Warrants
In
November 2020, we issued warrants to certain shareholders to purchase an aggregate of 325,000 shares of common stock. Such warrants
are substantially similar to the Series B Warrants except such warrants will be exercisable for a period of 36 months, beginning
six months after the consummation of our initial public offering and ending on the forty-second month anniversary of the consummation
of our initial public offering. See “Management--October 2020 Derivative Demand and Settlement”
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 25, 2021 for further
information on the issuance of these warrants.
Warrants
Associated with Convertible Notes
On
June 13, 2017, we issued warrants to purchase an aggregate of 33,334 shares of common stock to an investor of convertible notes.
The warrants are exercisable on a cash basis at an exercise price of $1.50 per share, are exercisable beginning on June 30, 2017,
and expire on June 30, 2022.
Warrants
Associated with Contractors and Consultants
There
are presently outstanding warrants to purchase an aggregate of 95,000 shares of our common stock which are being held by contractors
and consultants. These warrants have an exercise price of $7.50 per share. 45,000 of these warrants vested initially upon issuance,
but the remainder only vest and become exercisable at the end of each anniversary year following the issuance date. These warrants
may be exercised only for cash, and the exercise price is subject to customary, stock-based anti-dilution protection.
Issuance
of Stock Options
On
July 1, 2017, we granted options to purchase 166,667 shares of common stock at an exercise price of $1.50 per share to Upeva,
Inc. (which is owned and operated by Gregg Johnson, our former director and Secretary) pursuant to the terms of a consulting agreement.
Such granted options are subject to graduated vesting in the following installments on each of the following dates: (i) options
to purchase 9,260 shares as of the date of grant and (ii) options to purchase 4,630 shares at the end of each calendar month following
July 1, 2017.
On
September 30, 2017, we granted options to purchase 333,334 shares of common stock at an exercise price of $1.65 per share to R.
Kirk Huntsman in recognition of his service to our company. Such granted options are subject to graduated vesting in the following
installments on each of the following dates: (i) options to purchase 27,778 shares as of the date of grant and (ii) options to
purchase 27,778 shares at the end of each calendar quarter following September 30, 2017.
Adoption
of Vivos Therapeutics, Inc. 2017 Stock Option and Stock Issuance Plan
Our
board of directors and shareholders adopted and approved on September 22, 2017 and February 9, 2018, respectively, the Vivos Therapeutics,
Inc. 2017 Stock Option and Stock Issuance Plan, effective September 22, 2017, under which stock options and restricted stock may
be granted to officers, directors, employees and consultants. Under the Plan, a total of 1,333,333 of common stock are reserved
for issuance.
Issuance
of Stock Options under 2017 Stock Option and Stock Issuance Plan
On
September 30, 2017, we granted options to purchase 100,000 shares of common stock at an exercise price of $1.65 per share to each
of Joe Womack, Kelly McCrann, Dr. Willis Pumphrey, and Dr. C. Michael Bennett (for an aggregate of 400,000 shares) in recognition
of their service as members of our board of directors. Such granted options are subject to graduated vesting in the following
installments on each of the following dates: (i) options to purchase 8,334 shares as of the date of grant and (ii) options to
purchase 8,334 shares at the end of each calendar quarter following September 30, 2017 that they serve as directors.
On
September 30, 2017, we granted options to purchase 100,000 shares of common stock at an exercise price of $1.65 per share to Susan
McCullough in recognition of her service to our company. Such granted options are subject to graduated vesting in the following
installments on each of the following dates: (i) options to purchase 8,334 shares as of the date of grant and (ii) options to
purchase 8,334 shares at the end of each calendar quarter following September 30, 2017.
On
January 1, 2018, we granted options to purchase 6,667 shares of common stock at an exercise price of $1.50 per share to Amanda
Cruess pursuant to the terms of her employment agreement. Such granted options are subject to graduated vesting in the following
installments on each of the following dates: (i) options to purchase 417 shares as of the date of grant and (ii) options to purchase
417 shares at the end of each calendar quarter following January 1, 2018.
On
February 9, 2018, we granted options to purchase 83,334 shares of common stock at an exercise price of $4.50 per share to Bryan
Ferre in recognition of his service to our company. Such granted options are subject to graduated vesting in the following installments
on each of the following dates: (i) options to purchase 16,667 shares as of the date of grant and (ii) options to purchase 16,667
shares at the end of each year following February 9, 2018.
On
February 9, 2018, we granted options to purchase 33,334 shares of common stock at an exercise price of $4.50 per share to Edward
Loew. Such granted options to purchase 33,334 shares vested upon the closing of our initial public offering.
On
February 9, 2018, we granted options to purchase up to 16,667 shares of common stock at an exercise price of $4.50 per share to
each of four of the six advisors on our Board of Advisors (for an aggregate of 66,668 shares). Such granted options are subject
to the following vesting in the following installments on each of the following dates: (i) options to purchase 3,334 shares as
of the date of grant and (ii) options to purchase 3,334 shares at the end of each year following the date of grant that they serve
as advisors.
On
April 30, 2018, we granted options to purchase up to 16,667 shares of common stock at an exercise price of $7.50 per share to
each of two then incoming members of our board of directors, De Lyle Bloomquist and Chris Strong, and 16,667 to an incoming member
of the Board of Advisors, Dr. Bhaskar Savani, (for an aggregate of 50,001 shares). Such granted options are subject to quarterly
vesting of 4,167 shares through March 31, 2019.
On
April 30, 2018, we granted options to purchase up to 3,334 shares of common stock at an exercise price of $7.50 per share to each
of two employees, Dr. C. Michael Bennett and Lori Jones, (for an aggregate of 6,668 shares). Such granted options are subject
to quarterly vesting of 667 shares through June 30, 2019.
On
April 30, 2018, we granted options to purchase up to 8,334 shares of common stock at an exercise price of $7.50 per share to Cathryn
H. Bonar, our compliance officer. Such granted options are subject to the following vesting in the following installments on each
of the following dates: (i) options to purchase 1,667 shares as of the date of grant and (ii) options to purchase 1,667 shares
at the end of each year following the date of grant.
On
August 16, 2018, we granted options to purchase up to 66,667 shares of common stock at an exercise price of $7.50 per share to
Edward Loew. Such granted options are subject to the following vesting in the following installments on each of the following
dates: (i) options to purchase 13,334 shares as of the date of grant and (ii) options to purchase 13,334 shares at the end of
each year following the date of grant.
On
August 16, 2018, we granted options to purchase up to 166,667 shares of common stock at an exercise price of $7.50 per share to
Joe Womack, then a member of our board of directors. Such granted options are subject to the following vesting in the following
installments on each of the following dates: (i) options to purchase 33,334 shares as of the date of grant and (ii) options to
purchase 33,334 shares at the end of each year following the date of grant. On March 20, 2019, 100,000 of the 166,667 options
expired.
Effective
October 22, 2018, we granted options to purchase 83,334 shares of common stock at an exercise price of $7.50 per share to Bradford
Amman pursuant to the terms of his employment agreement. Such granted options are subject to graduated vesting in the following
installments on each of the following dates: (i) options to purchase 16,667 shares as of the date of grant and (ii) options to
purchase 16,667 shares at the end of each calendar year beginning December 31, 2018. Effective November 18, 2020, we granted an
option to purchase 16,667 shares of common stock at an exercise price of $7.50 per share. Such granted options are subject to
graduated vesting in the following installments on each of the following dates: (i) options to purchase 3,334 shares as of the
date of grant and (ii) options to purchase 3,334 shares at the anniversary date of grant beginning November 18, 2020.
On
November 9, 2018, we granted options to purchase up to 248,336 shares of common stock at an exercise price of $7.50 per share
in the following amounts to each of the following officers and employees, 116,667 to Bryan Ferre, Chief Marketing Officer, 83,334
to Bradford Amman, Chief Financial Officer, 16,667 to Edward Loew, Chief Strategy Officer, 25,000 to Cathryn H. Bonar, Chief Compliance
Officer, 3,334 to Michele Grasmick and 3,334 to Teri McKenna. Such granted options are subject to the following vesting in the
following installments on each of the following dates: (i) options to purchase 49,667 shares as of the date of grant and (ii)
options to purchase 49,667 shares at the end of each year following the date of grant.
On
February 14, 2019, we granted options to purchase up to 50,000 shares of common stock at an exercise price of $7.50 per share
to an employee, Corbin Cowan. Such granted options are subject to the following vesting in the following installments on each
of the following dates: (i) options to purchase 10,000 shares as of the date of grant and (ii) options to purchase 10,000 shares
at the end of each year following the date of grant.
On
February 14, 2019, we granted options to purchase up to 16,667 shares of common stock at an exercise price of $7.50 per share
to Jon Caufield, as a member of our Clinical Advisory Board. Such granted options are subject to the following vesting in the
following installments on each of the following dates: (i) options to purchase 3,334 shares as of the date of grant and (ii) options
to purchase 3,334 shares at the end of each year following the date of grant.
On
May 7, 2019, we granted the options to purchase up to an aggregate of 188,334 shares of common stock at an exercise price of $7.50
per share to employees. Such granted options are subject to the following vesting in the following installments on each of the
following dates: (i) 20% as of the date of grant and (ii) 20% at the end of each year following the date of grant.
On
July 18, 2019, we granted the options to purchase up to an aggregate of 25,000 shares of common stock at an exercise price of
$7.50 per share to outgoing directors. Such granted options are fully vested upon the date of grant.
On
July 22, 2019, we granted the options to purchase up to an aggregate of 33,334 shares of common stock at an exercise price of
$7.50 per share to two directors. Such granted options are subject to the following vesting in the following installments on each
of the following dates: (i) 25% as of the date of grant and (ii) 25% at the end of each calendar quarter following the date of
grant.
On
August 15, 2019, we granted options to purchase up to an aggregate of 33,334 shares of common stock at an exercise price of $7.50
per share to an external contractor. Such granted options vest according to the following installments, 25% vesting immediately
and 75% upon completion of performance obligations, completing endorsement videos, making qualified introductions and other duties.
On
November 18, 2019, we granted options to purchase up to 16,667 shares of common stock at an exercise price of $7.50 per share
to an officer of the company with standard vesting on each of the following dates: (i) 20% as of the date of grant and (ii) 20%
at the end of each year following the date of grant.
On
January 8, 2020, we granted options to purchase up to 23,334 shares of common stock at an exercise price of $7.50 per share in
the following amounts to employees and consultants, 16,667 to an employee with standard vesting on each of the following dates:
(i) 20% as of the date of grant and (ii) 20% at the end of each year following the date of grant, and 6,667 to a contractor with
immediate vesting on January 8, 2020 for services rendered.
On
June 19, 2020, we granted options to five independent board members elected by stockholders to serve on the board for a one-year
term. The options vest 50% on the date of grant and 12.5% quarterly on September 30, 2020, December 31, 2020, March 31, 2021 and
June 19, 2021.
On
July 9, 2020, we granted options to purchase up to 8,334 shares of common stock at an exercise price of $7.50 per share in the
following amounts to employees and consultants, 1,667 to employees with standard vesting on each of the following dates: (i) 20%
as of the date of grant and (ii) 20% at the end of each year following the date of grant, and 6,667 to an advisor with standard
vesting on each of the following dates: (i) 20% as of the date of grant and (ii) 20% at the end of each year following the date
of grant.
Adoption
of Vivos Therapeutics, Inc. 2019 Stock Option and Stock Issuance Plan
Our
board of directors and shareholders adopted and approved on April 18, 2019, the Vivos Therapeutics, Inc. 2019 Stock Option and
Stock Issuance Plan, effective April 18, 2019, under which stock options and restricted stock may be granted to officers, directors,
employees and consultants. Under the Plan, a total of 333,334 of common stock are reserved for issuance. On June 18, 2020, our
stockholders approved an amendment and restatement of the 2019 Plan to increase the number shares or our common stock available
for issuance thereunder by 833,333 share of common stock such that, after amendment and restatement of the 2019 Plan, 1,166,667
shares of common stock will be available for issuance under the 2019 Plan.
On
July 18, 2019, we granted options to purchase up to an aggregate of 25,000 shares of common stock at an exercise price of $7.50
per share to outgoing directors. Such granted options are fully vested upon the date of grant.
On
July 22, 2019, we granted options to purchase up to an aggregate of 33,334 shares of common stock at an exercise price of $7.50
per share to two directors. Such granted options are subject to the following vesting in the following installments on each of
the following dates: (i) 25% as of the date of grant and (ii) 25% at the end of each calendar quarter following the date of grant.
On
October 22, 2019, we granted options to purchase up to an aggregate of 1,667 shares of common stock at an exercise price of $7.50
per share to an outside consultant. Such granted options are fully vested upon the date of grant.
On
November 18, 2019, we granted options to purchase up to 121,667 shares of common stock at an exercise price of $7.50 per share
in the following amounts to employees and consultants, 60,000 to employees with standard vesting on each of the following dates:
(i) 20% as of the date of grant and (ii) 20% at the end of each year following the date of grant, 51,667 to contractors with standard
vesting on each of the following dates: (i) 20% as of the date of grant and (ii) 20% at the end of each year following the date
of grant, and 10,000 to a contractors over the service period with vesting of 50% upon grant and 50% six months following the
grant.
On
July 9, 2020, we granted options to purchase up to 217,334 shares of common stock at an exercise price of $7.50 per share in the
following amounts to employees and consultants, 85,000 to employees with standard vesting on each of the following dates: (i)
20% as of the date of grant and (ii) 20% at the end of each year following the date of grant, 54,000 to contractors with standard
vesting on each of the following dates: (i) 20% as of the date of grant and (ii) 20% at the end of each year following the date
of grant; 75,000 to advisors over the service period with vesting of 50% at the end of each year following the date of grant;
and 3,334 to a former employee that vested on the date of grant.
On
October 5, 2020, we granted options to purchase 96,668 shares of common stock at an exercise price of $7.50 per share in the following
amounts to employees, a former board member and consultants, 50,000 to an employee with standard vesting on each of the following
dates: (i) 20% as of the date of grant and (ii) 20% at the end of each year following the date of grant, and 33,334 shares of
common stock at an exercise price of $7.50 per share to a former director with immediate 100% vesting; and 12,334 shares of common
stock at an exercise price of $7.50 per share to consultants with immediate 100% vesting.
On
March 12, 2021, we granted options to purchase 145,000 shares of common stock at an exercise price of $7.50 per share in the following
amounts to employees and consultants, 120,000 to two employees (100,000 and 20,000 respectively) with standard vesting on each
of the following dates: (i) 20% as of the date of grant and (ii) 20% at the end of each year following the date of grant, and
25,000 to a consultant with standard vesting on each of the following dates: (i) 20% as of the date of grant and (ii) 20% at the
end of each year following the date of grant.
Piggyback
Registration Rights
As
of the date of this prospectus, the holders of 9,710,010 shares of our common stock, including shares which were issued upon the
conversion of our previously outstanding Series B Preferred Stock and common stock warrants associated with the Series B Preferred
Stock, are entitled to (or we have otherwise granted to certain parties, subject to such parties signing a lock-up agreement in
connection with our initial public offering) piggyback registration rights from prior offerings. Such shares were registered for
resale as part of the registration statement for our initial public offering.
Cash
Dividends
As
of the date of this prospectus, we have not paid any cash dividends to stockholders. The declaration of any future cash dividend
will be at the discretion of our board of directors and will depend upon our earnings, if any, our capital requirements and financial
position, the general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends
in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Anti-Takeover
Effects of Certain Provisions of Our Bylaws
Provisions
of our bylaws could make it more difficult to acquire us by means of a merger, tender offer, proxy contest, open market purchases,
removal of incumbent directors and otherwise. These provisions, which are summarized below, are expected to discourage types of
coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate
with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly
or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals
because negotiation of these proposals could result in an improvement of their terms.
Vacancies.
Newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors
resulting from death, resignation, disqualification, removal or other cause shall be filled by a majority of the remaining directors
on the board.
Bylaws.
Our certificate of incorporation and bylaws authorizes the board of directors to adopt, repeal, rescind, alter or amend our
bylaws without shareholder approval.
Removal.
Except as otherwise provided, a director may be removed from office only by the affirmative vote of the holders of not less than
a majority of the voting power of the issued and outstanding stock entitled to vote.
Calling
of Special Meetings of Stockholders. Our bylaws provide that special meetings of stockholders for any purpose or purposes
may be called at any time only by the board of directors or by our Secretary following receipt of one or more written demands
from stockholders of record who own, in the aggregate, at least 15% the voting power of our outstanding stock then entitled to
vote on the matter or matters to be brought before the proposed special meeting.
Effects
of authorized but unissued common stock and blank check preferred stock. One of the effects of the existence of authorized
but unissued common stock and undesignated preferred stock may be to enable our board of directors to make more difficult or to
discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby
to protect the continuity of management. If, in the due exercise of its fiduciary obligations, the board of directors were to
determine that a takeover proposal was not in our best interest, such shares could be issued by the board of directors without
stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover
transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, by putting a substantial
voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors,
by effecting an acquisition that might complicate or preclude the takeover, or otherwise.
In
addition, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of
authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings
and assets available for distribution to holders of shares of common stock. The issuance also may adversely affect the rights
and powers, including voting rights, of those holders and may have the effect of delaying, deterring or preventing a change in
control of our company.
Cumulative
Voting. Our certificate of incorporation does not provide for cumulative voting in the election of directors, which would
allow holders of less than a majority of the stock to elect some directors.
Choice
of Forum
Our
bylaws provide that, unless we consent in writing to the selection of 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 us; (ii) any action asserting a
claim for breach of a fiduciary duty owed by any director, officer, employee, or agent of ours 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. In addition, our bylaws 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 exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities
Act. Our bylaws further provide that any person or entity purchasing or otherwise acquiring any interest in our shares of capital
stock shall be deemed to have notice of and consented to these forum selection clauses.
Section
27 of 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, our bylaws provide that the exclusive 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. Section 22 of the Securities Act creates concurrent
jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act
or the rules and regulations thereunder.
Indemnification
of Directors and Officers
Our
Certificate of Incorporation and bylaws provide that, to the fullest extent permitted by the laws of the State of Delaware, any
officer or director of our company, who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he/she is or
was or has agreed to serve at our request as a director, officer, employee or agent of our company, or while serving as a director
or officer of our company, is or was serving or has agreed to serve at the request of our company as a director, officer, employee
or agent (which includes service as a trustee, partner or manager or similar capacity) of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity. For the avoidance of doubt, the foregoing indemnification obligation includes, without limitation, claims for monetary
damages against Indemnitee to the fullest extent permitted under Section 145 of the Delaware General Corporation Law as in existence
on the date hereof.
The
indemnification provided shall be from and against expenses (including attorneys’ fees) actually and reasonably incurred
by a director or officer in defending such action, suit or proceeding in advance of its final disposition, upon receipt of an
undertaking by or on behalf of such person to repay all amounts advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such person is not entitled to be indemnified for such expenses under
our certificate of incorporation and bylaws or otherwise.
To
the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons
controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our
company in the successful defense of any action, suit or proceeding) is asserted by any of our directors, officers or controlling
persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us
is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.