VIVOS INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the Company’s financial statements and the notes presented herein. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of the risk factors set forth above in Item 1A and other factors discussed in this Annual Report. Results of Operations Comparison for the Year Ended December 31, 2022 and December 31, 2021 The following table sets forth information from our statements of operations for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 Year Ended December 31, 2021 Revenues $ 36,499 $ 14,887 Cost of goods sold (28,779 ) (12,000 ) Gross profit 7,720 2,887 Operating expenses (2,525,469 ) (2,504,685 ) Operating loss (2,517,749 ) (2,501,798 ) Non-operating income (expense) 47,588 (25,968 ) Net loss $ (2,470,161 ) $ (2,527,766 ) 23 Revenues and Cost of Goods Sold Revenue was $36,499 and $14,887 for the year ended December 31, 2022 and 2021, respectively. All revenue recognized in the years ended December 31, 2022 and 2021 relate to consulting income with respect to the IsoPet ® therapies. Management does not anticipate that the Company will generate sufficient revenue to sustain operations until such time as the Company secures multiple revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies. Operating Expenses Operating expenses for the years ended December 31, 2022 and 2021, respectively consists of the following: Year Ended December 31, 2022 Year Ended December 31, 2021 Professional fees, including stock-based compensation $ 1,755,316 $ 1,838,323 Payroll expenses 275,240 267,477 Research and development 343,802 286,848 General and administrative expenses 151,111 112,037 Total operating expenses $ 2,525,469 $ 2,504,685 Operating expenses for the years ended December 31, 2022 and 2021 was $2,525,469 and $2,504,685, respectively. The increase in operating expenses from 2021 to 2022 can be attributed to the decrease in professional fees ($1,755,316 for the year ended December 31, 2022 versus $1,838,323 for the year ended December 31, 2021) as the Company utilized more services due to amending their Regulation A+ and the fees incurred for the consultants engaged in 2021 including stock-based compensation; the increase in general and administrative expense ($151,111 for the year ended December 31, 2022 versus $112,037 for the year ended December 31, 2021); the increase in research and development ($343,802 for the year ended December 31, 2022 versus $286,848 for the year ended December 31, 2021) as the Company ramped up the development of their products with the recent raising of capital, and an increase in payroll expenses ($275,240 for the year ended December 31, 2022 versus $267,477 for the year ended December 31, 2021) related to the CEOs employment contract taking effect. Non-Operating Income (Expense) Non-operating income (expense) for the years ended December 31, 2022 and 2021, respectively consists of the following: Years Ended December 31, 2022 Years Ended December 31, 2021 Interest expense $ - $ (25,375 ) Forgiveness of debt 47,588 136,445 Loss on debt extinguishment - (137,038 ) Non-operating income (expense) $ 47,588 $ (25,968 ) Non-operating income (expense) for the year ended December 31, 2022 varied from the year ended December 31, 2021 primarily due to a decrease in interest expense from $25,375 for the year ended December 31, 2021 to $0 for the year ended December 31, 2022 as a result of conversions and repayments of notes payable. In addition, the Company converted a note in January 2021 which resulted in a loss on conversion and recognized a gain on forgiveness of debt on old payables as they satisfied agreements with vendors to pay a portion of the payable with the remaining amount forgiven in both 2021 and 2022. Net Loss Our net loss for the years ended December 31, 2022 and 2021 was $(2,470,161) and $(2,527,766), respectively. 24 Liquidity and Capital Resources At December 31, 2022, the Company had working capital of $1,661,044, as compared to working capital of $1,467,383 at December 31, 2021. During the year ended December 31, 2022, the Company experienced negative cash flow from operations of $1,120,058 and realized $1,220,000 of cash flows from financing activities. As of December 31, 2022, the Company did not have any commitments for capital expenditures. Cash used in operating activities increased from $963,819 for the year ended December 31, 2021 to $1,120,058 for the year ended December 31, 2022. Cash used in operating activities was primarily a result of the Company’s non-cash items, such as loss from operations, loss on conversion of debt and share based compensation offset by forgiveness of debt. Cash provided from financing activities decreased from $1,666,238 for the year ended December 31, 2021 to $1,220,000 for the year ended December 31, 2022. In 2021, the Company raised $1,811,238 from sales of common stock and warrants offset by repayments of convertible notes of $50,000 and related party notes of $100,000. In 2022, the Company raise $1,220,000 from sales of common stock and warrants. The Company has generated material operating losses since inception. The Company had a net loss of $2,470,161 for the year ended December 31, 2022, and a net loss of $2,527,766 for the year ended December 31, 2021. The Company expects to continue to experience net operating losses for the foreseeable future. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business. The Company anticipates raising additional capital within the next twelve months for working capital as well as business expansion, although the Company can provide no assurance that additional capital will be available on terms acceptable to the Company, if at all. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business or cease all operations. The Company requires funding of at least $5 million per year to maintain current operating activities. Over the next 24 months, the Company believes it will cost approximately $9 million to fund: (1) fund the FDA approval process to conduct human clinical trials, (2) conduct Phase I, pilot, clinical trials, (3) activate several regional clinics to administer IsoPet ® across the county, (4) create an independent production center within the current production site to create a template for future international manufacturing, and (5) initiate regulatory approval processes outside of the United States. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies, which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises. Although the Company is seeking to raise additional capital and has engaged in numerous discussions with investment bankers and investors, to date, the Company has not received firm commitments for the required funding. Based upon its discussions, the Company anticipates that if the Company is able to obtain the funding required to retire outstanding debt, pay past due payables and maintain its current operating activities, that the terms associated with such funding will result in material dilution to existing shareholders. Recent geopolitical events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact the Company’s ability to obtain financing and its ability to execute its business plan. Our Chief Executive Officer currently works from his home office in virtual communication with key personnel. Cadwell Laboratories, which is controlled by Carl Cadwell, a director of the Company, provides office space to management on an as-needed basis until such time as the Company leases permanent office space. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on the Company’s financial condition, revenues, results of operations, liquidity or capital expenditures. Accounting Policies Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates the Company considers include criteria for stock-based compensation expense, and valuation allowances on deferred tax assets. Actual results could differ from those estimates. 25 Fixed Assets Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations. Depreciation is computed using the straight-line method over the following estimated useful lives: Production equipment: 3 to 7 years Office equipment: 2 to 5 years Furniture and fixtures: 2 to 5 years Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset. Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down. License Fees License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the asset. Patents and Intellectual Property While patents are being developed or pending, they are not being amortized. Management has determined that the economic life of the patents to be ten years and amortization, over such ten-year period and on a straight-line basis will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues. The Company evaluates the recoverability of intangible assets, including patents and intellectual property on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows. Revenue Recognition In May 2014, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standard Update (“ ASU ”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method. Under ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC 606 did not have an impact on the Company’s operations or cash flows. The Company recognized revenue as they (i) identified the contracts with each customer; (ii) identified the performance obligation in each contract; (iii) determined the transaction price in each contract; (iv) were able to allocate the transaction price to the performance obligations in the contract; and (v) recognized revenue upon the satisfaction of the performance obligation. Upon the sales of the product to complete the procedures on the animals, the Company recognized revenue as that was considered the performance obligation. 26 Net Loss Per Share The Company accounts for its loss per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic loss per share is computed by dividing loss available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. When the Company incurs a loss, the denominator is not increased by the potentially dilutive common shares as the effect would be anti-dilutive. Research and Development Costs Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed. Income Taxes The Company accounts for income taxes under FASB ASC Topic 740-10-25 (“ ASC 740-10-25 ”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company files income tax returns in the U.S. federal jurisdiction. Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company’s financial statements. For the years ended December 31, 2022 and 2021, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months. Fair Value of Financial Instruments The Company adopted ASC Topic 820 (“ Fair Value Measurements ”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include: - Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; - Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and - Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Stock-Based Compensation The Company recognizes compensation costs under FASB ASC Topic 718, Compensation – Stock Compensation and ASU 2018-07. Companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. All financial information required by this Item is included on the pages immediately following the Index to Financial Statements appearing on page F-1 and is hereby incorporated by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None 28