Vivos Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm 75 Financial Statements: Consolidated balance sheets as of December 31, 2021 and 2020 76 Consolidated statements of operations for the years ended December 31, 2021 and 2020 77 Consolidated statements of stockholders’ equity (deficit) for the years ended December 31, 2021 and 2020 78 Consolidated statements of cash flows for the years ended December 31, 2021 and 2020 79 Notes to consolidated financial statements 80 - 74 - Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Vivos Therapeutics, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying balance sheets of Vivos Therapeutics, Inc. and Subsidiaries (the “Company”), as of December 31, 2021 and 2020 and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Plante & Moran, PLLC We have served as the Company’s auditor since 2018. Denver, Colorado March 31, 2022 - 75 - VIVOS THERAPEUTICS INC. Consolidated Balance Sheets December 31, 2021 and 2020 (In Thousands, Except Per Share Amounts) 2021 2020 ASSETS Current assets Cash and cash equivalents $ 24,030 $ 18,206 Accounts receivable, net of allowance of $ 180 and $ 508 , respectively 1,203 1,431 Current portion of note receivable from related party - 84 Tenant improvement allowance receivable 516 - Prepaid expenses and other current assets 1,575 673 Total current assets 27,324 20,394 Long-term assets Goodwill 2,843 2,671 Property and equipment, net 2,825 872 Note receivable from related party, net of current portion - 811 Intangible assets, net 341 270 Deposits and other 356 309 Total assets $ 33,689 $ 25,327 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 920 $ 781 Payable to related party for redemption of Series A Preferred Stock - 1,500 Accrued expenses 2,853 1,737 Contract liabilities 2,399 2,938 Current portion of long-term debt 1,265 867 Current portion of deferred rent 3 18 Current portion of lease incentive liability 69 - Total current liabilities Total current liabilities 7,509 7,841 Long-term liabilities Long-term debt, net of current maturities - 423 Deferred rent, net of current portion 343 146 Lease incentive liability, net of current portion 298 - Total liabilities Total liabilities 8,150 8,410 Commitments and contingencies (Note 13) - Stockholders’ equity Preferred Stock, $ 0.0001 par value per share. Authorized 50,000,000 shares; no shares issued and outstanding - - Common Stock, $ 0.0001 par value per share. Authorized 200,000,000 shares; issued and outstanding 23,012,119 and 18,209,452 shares as of December 31, 2021 and 2020, respectively 2 2 Additional paid-in capital 81,160 52,250 Accumulated deficit ( 55,623 ) ( 35,335 ) Total stockholders’ deficit Total stockholders’ equity 25,539 16,917 Total liabilities and stockholders’ deficit Total liabilities and stockholders’ equity $ 33,689 $ 25,327 The accompanying notes are an integral part of these consolidated financial statements. - 76 - VIVOS THERAPEUTICS INC. Consolidated Statements of Operations Years Ended December 31, 2021 and 2020 (In Thousands, Except Per Share Amounts) 2021 2020 Revenue Product revenue $ 6,520 $ 4,890 Service revenue 10,365 8,176 Total revenue 16,885 13,066 Cost of sales (exclusive of depreciation and amortization shown separately below) 4,281 2,653 Gross profit 12,604 10,413 Operating expenses General and administrative 25,791 16,090 Sales and marketing 5,551 2,314 Litigation settlement - 3,331 Impairment loss 911 - Depreciation and amortization 733 718 Total operating expenses 32,986 22,453 Operating loss ( 20,382 ) ( 12,040 ) Non-operating income (expense) Interest expense ( 14 ) ( 96 ) Other expense ( 9 ) - Interest income 117 79 Loss before income taxes ( 20,288 ) ( 12,057 ) Income tax expense - - Net loss $ ( 20,288 ) $ ( 12,057 ) Warrant beneficial conversion feature - ( 3,598 ) Preferred stock accretion - ( 2,333 ) Net loss attributable to common stockholders $ ( 20,288 ) $ ( 17,988 ) Net loss per share attributable to common stockholders (basic and diluted) $ ( 0.96 ) $ ( 1.40 ) Weighted average number of shares of Common Stock outstanding (basic and diluted) 21,233 12,869 The accompanying notes are an integral part of these consolidated financial statements. - 77 - VIVOS THERAPEUTICS INC. Consolidated Statements of Stockholders’ Equity (Deficit) Years Ended December 31, 2021 and 2020 (In Thousands) Common Stock Series B Preferred Additional Paid-in Accumulated Shares Amount Units Amount Capital Deficit Total Balances, December 31, 2019 12,444,165 $ 1 - $ - $ 20,334 $ ( 23,278 ) $ ( 2,943 ) Series B preferred stock issued: For cash, net of issuance costs - - 164 2,403 - - 2,403 In exchange for convertible debt - - 196 2,944 - - 2,944 Issuance of Common Stock: For exchange of Series B preferred stock 1,199,195 1 ( 360 ) ( 5,347 ) 5,346 - - In initial public offering, net of issuance costs 4,025,000 - - - 21,577 - 21,577 To consultants for services 88,111 - - - 677 - 677 For settlement of liability 46,667 - - - 350 - 350 For conversion of convertible debt 106,314 - - - 796 - 796 In litigation settlement 300,000 - - - 1,800 - 1,800 Fair value of warrants issued in litigation settlement - - - - 1,531 - 1,531 Stock-based compensation expense - - - - 2,172 - 2,172 Series A preferred stock accretion - - - - ( 2,333 ) - ( 2,333 ) Net loss - - - - - ( 12,057 ) ( 12,057 ) Balances, December 31, 2020 18,209,452 2 - - 52,250 ( 35,335 ) 16,917 Issuance of Common Stock: In follow-on public offering, net of issuance costs 4,600,000 - 25,362 - 25,362 To consultants for services 2,667 - - - 20 - 20 Upon exercise of stock options 200,000 - - - 330 - 330 Fair value of warrants issued: To consultants for services - - - - 232 - 232 In business combination - - - - 172 - 172 For purchase of assets - - - - 136 - 136 Stock-based compensation expense - - - - 2,658 - 2,658 Net loss - - - - - ( 20,288 ) ( 20,288 ) Balances, December 31, 2021 23,012,119 $ 2 - $ - $ 81,160 $ ( 55,623 ) $ 25,539 The accompanying notes are an integral part of these consolidated financial statements. - 78 - VIVOS THERAPEUTICS INC. Consolidated Statements of Cash Flows Years Ended December 31, 2021 and 2020 (In Thousands) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 20,288 ) $ ( 12,057 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 2,658 2,172 Depreciation and amortization 733 718 Fair value of warrants issued for services 232 - Common stock issued for services and settlement of liabilities 20 488 Accretion of discount on note receivable ( 29 ) ( 26 ) Impairment on note receivable 911 Common stock issued in litigation settlement - 1,925 Fair value of warrants issued in litigation settlement - 1,531 Changes in operating assets and liabilities: Accounts receivable 228 ( 560 ) Deferred rent and lease incentive liability 548 80 Tenant improvement allowance ( 516 ) Prepaid expenses and other current assets ( 902 ) ( 114 ) Deposits ( 47 ) ( 27 ) Accounts payable 139 ( 274 ) Accrued expenses 1,117 474 Contract liability ( 539 ) ( 10 ) Net cash used in operating activities ( 15,735 ) ( 5,680 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment ( 2,396 ) ( 120 ) Payment for business acquisition ( 225 ) - Principal collections under note receivable 13 - Net cash used in investing activities ( 2,608 ) ( 120 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 27,930 22,290 Series A Preferred Stock redemption payments ( 1,500 ) ( 2,150 ) Payments for issuance costs ( 2,238 ) ( 245 ) Principal payments on debt ( 25 ) ( 75 ) Proceeds from issuance of preferred stock - 2,452 Proceeds from issuance of debt - 1,265 Net cash provided by financing activities 24,167 23,537 Net increase in cash and cash equivalents 5,824 17,737 Cash and cash equivalents at beginning of year 18,206 469 Cash and cash equivalents at end of year $ 24,030 $ 18,206 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 18 $ 33 Cash paid for income taxes $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Fair value of warrants issued in asset purchase $ 136 $ - Fair value of warrants issued in business acquisition $ 172 - Fair value of warrants issued to underwriters in connection with follow-on offering $ 1,486 $ - Conversion of debt to common stock $ - $ 770 Exchange of debt to Series B preferred stock $ - $ 2,944 Exchange of Series B preferred stock into common shares $ - $ 5,347 Common stock issued for payment of interest $ - $ 26 Series B Preferred Stock issued for payment of interest $ - $ 102 Series A Preferred Stock redemption included in accounts payable $ - $ 1,500 Capital expenditures included in accounts payable $ 110 $ 2 The accompanying notes are an integral part of these consolidated financial statements. - 79 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements NOTE 1 - ORGANIZATION, DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES Organization BioModeling Solutions, Inc. (“BioModeling”) was organized on March 20, 2007 as an Oregon limited liability company, and subsequently incorporated in 2013. On August 16, 2016, BioModeling entered into a share exchange agreement (the “SEA”) with First Vivos, Inc. (“First Vivos”), and Vivos Therapeutics, Inc. (“Vivos”), a Wyoming corporation established on July 7, 2016 to facilitate this merger. Vivos was formerly named Corrective BioTechnologies, Inc. until its name changed on September 6, 2016 to Vivos Biotechnologies and on March 2, 2018 to Vivos Therapeutics, Inc. and had no substantial pre-combination business activities. First Vivos was incorporated in Texas on November 10, 2015. Pursuant to the SEA, all of the outstanding shares of common stock and warrants of BioModeling and all of the shares of commons stock of First Vivos were exchanged for newly issued shares of Class A common stock and warrants of Vivos, the legal acquirer, collectively the “Company”. The transaction was accounted for as a reverse acquisition and recapitalization, with BioModeling as the acquirer for financial reporting and accounting purposes. Upon the consummation of the merger, the historical financial statements of BioModeling became the Company’s historical financial statements and continued to be recorded at their historical carrying amounts. On August 12, 2020, the Company reincorporated from Wyoming to become a domestic Delaware corporation under Delaware General Corporate Law. Description of Business The Company is a medical technology company focused on the development and commercialization to dental practices of a patented oral appliance technology and related protocols called The Vivos Method. The Company believes The Vivos Method represents the first non-surgical, non-invasive and cost-effective treatment for people with dentofacial abnormalities and/or mild to moderate OSA and snoring. The Company’s business model is focused around dentists, and the Company’s program to train dentists and offer them other value-added services in connection with their ordering and use of The Vivos Method for patients is called the Vivos Integrated Practice (“VIP”) program. Basis of Presentation and Consolidation The accompanying consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries (BioModeling, First Vivos, Vivos Therapeutics (Canada) Inc., Vivos Management and Development, LLC and Vivos Del Mar Management, LLC), are prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany balances and transactions have been eliminated in consolidation. Emerging Growth Company The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. - 80 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company currently expects to retain its status as an emerging growth company until the year ending December 31, 2026, but this status could end sooner under certain circumstances. Revenue Recognition The Company generates revenue from the sale of products and services. Revenue is recognized when control of the products or services is transferred to our customers in a way that reflects the consideration we expect to be entitled to in exchange for those products and services. The Company determines revenue recognition through the following five-step model, which entails: 1) identification of the promised goods or services in the contract; 2) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; 3) measurement of the transaction price, including the constraint on variable consideration; 4) allocation of the transaction price to the performance obligations; and 5) recognition of revenue when, or as the Company satisfies each performance obligation. Service revenue We review our VIP contracts using the 5-step method outlined above. Once it is determined that a contract exists, service revenue is recognized when the underlying training or other services are performed. Unearned revenue reported on the balance sheet as contract liability represents the portion of fees paid by customers for services that have not yet been performed as of the reporting date and are recorded as the service is rendered. The Company recognizes this revenue over the twelve-month life of the contract. Provisions for discounts are provided in the same period that the related revenue from the products and/or services is recorded. The Company enters into programs that may provide for multiple element deliverables. Commencing in 2018, the Company began enrolling medical and dental professionals in a one-year program which includes training in a highly personalized, deep immersion workshop format which provides the dentist access to a global team who is dedicated to creating a successful integrated practice. The key topics covered in training include case selection, clinical diagnosis, appliance design, adjunctive therapies, instructions on ordering the Company’s products, guidance on pricing, instruction on insurance reimbursement protocols and interacting with our proprietary software system and the many features on the Company’s website. The initial training and educational workshop is typically provided in the first month that a Vivos Integrated Provider (“VIP” or “Provider”) enrolls. Since Providers are able to begin generating revenue after the first training workshop, we recognize 50% of the service revenue in the second month of enrollment and the remaining 50% prorata throughout the following eleven months of the service contract. Ongoing support and additional training is provided throughout the year and includes access to the Company’s proprietary Airway Intelligence Service (“AIS”) which provides the Provider with resources to help simplify the diagnostic and treatment planning process. AIS is provided as part of the price of each appliance and is not a separate revenue stream. Following the year of training and support, the Provider may pay for seminars and training courses that meet the Provider’s needs on a subscription or a course-by-course basis. In addition to enrollment service revenue, in 2020 the Company launched an additional service on a monthly subscription basis, its Billing Intelligence Service (“BIS”). Revenue for these services is recognized monthly during the month the services are rendered. - 81 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements The Company identifies all goods and services that are delivered separately under a sales arrangement and allocates revenue to each deliverable based on relative fair values. Fair values are generally established based on the relevant service period which approximates the prices for relevant training that would be charged if those services were sold separately. In general, revenues are separated between durable medical equipment (product revenue) and education and training services (service revenue). The allocated revenue for each deliverable is then recognized ratably based on relative fair values of the components of the sale. Revenue from training is recognized over the relevant service period, i.e., as the Company satisfies its performance obligations and creates value for the Provider. The Company also evaluates the impact of undelivered items on the functionality of delivered items for each sales transaction and, where appropriate, defers revenue on delivered items when that functionality has been affected. Functionality is determined to be met if the delivered products or services represent a separate earnings process. From time to time, we offer various discounts to our customers. These include the following: 1) Discount for cash paid in full 2) Conference or trade show incentives 3) Negotiated concessions on annual enrollment fee The amount of the discount is determined up front prior to the sale. Accordingly, measurement is determined before the sale occurs and revenue is recognized based on the terms agreed upon between the Company and the customer over the performance period. In rare circumstances, a discount has been given after the sale during a conference which is offering a discount to full price. In this situation revenue is measured and the change in transaction price is allocated over the remaining performance obligation. The amount of consideration can vary by customer due to promotions and discounts authorized to incentivize a sale. Prior to the sale, the customer and the Company agree upon the amount of consideration that the customer will pay in exchange for the services the Company provides. The net consideration that the customer has agreed to pay is the expected value that is recognized as revenue over the service period. Any overpayments are refunded during the reporting period so that no refund liability is recognized. At the end of each reporting period, the Company updates the transaction price to represent the circumstances present at the end of the reporting period and any changes in circumstances during the reporting period. Product revenue In addition to revenue from services, the Company also generates revenue from the sale of its patented oral devices and preformed guides, known as appliances or systems to its customer, the Provider. Revenue from the appliance sale is recognized when control of product is transferred to the Provider in an amount that reflects the consideration it expects to be entitled to in exchange for those products. The Provider in turn charges the Provider’s patient and or patient’s insurance a fee for the appliance and for his or her professional services in measuring, fitting, installing the appliance and educating the patient as to its use. The Company is contracted with the Provider for the sale of the appliance and is not involved in the sale of the products and services from the Provider to the Provider’s patient. The appliance is similar to a retainer that is worn after braces are removed. Each appliance is unique and is fitted to the patient. The Company utilizes its network of certified dental Providers throughout the country to sell the appliances to their customers as well as in two centers that the Company operates. The Company utilizes third party contract manufacturers or labs to produce its unique, patented appliances and preformed guides. The manufacturer designated by the Company produces the appliance in strict adherence to the Company’s patents, design files, protocols, processes and procedures and under the direction and specific instruction of the Company, ships the appliance to the Provider who ordered the appliance from the Company. All of the Company’s contract manufacturers are required to follow the Company’s master design files in production of appliances or the lab will be in violation of the FDA’s rules and regulations. The Company performed an analysis under ASC Topic 606-10-55-36 through 55-40 and concluded it is the principal in the transaction and is reporting revenue gross. The Company bills the Provider the contracted price for the appliance which is recorded as product revenue. Product revenue is recognized once the appliance ships to the Provider under the direction of the Company. - 82 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Within each center, the Company utilizes a team of medical professionals to measure, order and fit each appliance. Upon scheduling the patient (which is the Company’s customer in this case), the center takes a deposit and reviews the patient’s insurance coverage. Revenue is recognized differently for our Company owned centers than for its Providers. The Company recognizes revenue in the centers after the appliance is received from the manufacturer and once the appliance is fitted and provided to the patient. The Company offers its Clinical Advisors discounts from our standard Provider pricing. This is done to help encourage our Clinical Advisors, who help the Provider with technical aspects of our products, to purchase our products for their own practices. In addition, from time to time, we offer buy one get one offers and other credits to incentivize our Providers to embrace our products and increase volume within their practices. Use of Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. The Company bases its estimates and assumptions on existing facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s significant accounting estimates include, but are not necessarily limited to, assessing collectability on accounts receivable and notes receivable, impairment of goodwill and long-lived assets; valuation assumptions for assets acquired in business combinations; valuation assumptions for stock options, warrants and equity instruments issued for goods or services; deferred income taxes and the related valuation allowances; and the evaluation and measurement of contingencies. Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operations will be affected. Cash and Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less that are freely available for the Company’s immediate and general business use are classified as cash and cash equivalents. Accounts Receivable, Net The accounts receivable in the accompanying financial statements are stated at the amounts management expects to collect. The Company performs credit evaluations of its customers’ financial condition and may require a prepayment for a portion of the services to be performed. The Company reduces accounts receivable by estimating an allowance that may become uncollectible in the future. Management determines the estimated allowance for uncollectible amounts based on its judgements in evaluating the aging of the receivables and the financial condition of our clients. Note Receivable from Related Party, net Due to uncertainty around collections, the note receivable due from a related party was impaired as of December 31, 2021. To the extend cash is collected in the future, we will recognize income in the period cash is collected. Property and Equipment, Net Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which ranges from 4 to 5 years. Amortization of leasehold improvements is recognized using the straight-line method over the shorter of the life of the improvement or the term of the respective leases which range between 5 and 7 years. The Company does not begin depreciating assets until they are placed in service. - 83 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Intangible Assets, Net Intangible assets consist of assets acquired from First Vivos and costs paid to OMT and Lyon Dental for work related to the Company’s patents, intellectual property and customer contracts. The identifiable intangible assets acquired from First Vivos and Lyon Dental for customer contracts are amortized using the straight-line method over the estimated life of the assets, which approximates 5 years (See Note 5). The costs paid to OMT and Lyon Dental for patents and intellectual property are amortized over the life of the underlying patents, which approximates 15 years. The Company initially determined the fair value of identifiable intangible assets using a discounted cash flow valuation model. Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but tested for impairment annually after the close of the year, or more frequently when events or circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered more likely than not that the fair value of the reporting unit is greater than the carrying amount, further testing of goodwill for impairment is not required. If, on the basis of quantitative factors, the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Impairment of Long-lived Assets Long-lived assets consist of identifiable intangible assets, property and equipment, which are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists for long-lived assets if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. An impairment charge is recognized for the amount by which the carrying amount of the asset, or asset group, exceeds its fair value. Equity Offering Costs Commissions, legal fees and other costs that are directly associated with equity offerings are capitalized as deferred offering costs, pending a determination of the success of the offering. Deferred offering costs related to successful offerings are charged to additional paid-in capital in the period it is determined that the offering was successful. Deferred offering costs related to unsuccessful equity offerings are recorded as expense in the period when it is determined that an offering is unsuccessful. Accounting for Payroll Protection Program Loan The Company is accounting for the PPP loan as a debt instrument under ASC 470, Debt . The Company recognized the original principal balance as a financial liability with interest accrued at the contractual rate over the term of the loan. On January 21, 2022 the PPP loan received by the Company on May 8, 2020, was forgiven by the SBA in its entirety, which includes approximately $ 1.3 million in principal. As a result, the Company will record a gain on the forgiveness of the loan in the first quarter of 2022. Loss and Gain Contingencies The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. An estimated loss contingency is accrued when it is probable that an asset has been impaired, or a liability has been incurred, and the amount of loss can be reasonably estimated. If some amount within a range of loss appears to be a better estimate than any other amount within the range, the Company accrues that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the Company accrues the lowest amount in the range. If the Company determines that a loss is reasonably possible and the range of the loss is estimable, then the Company discloses the range of the possible loss. If the Company cannot estimate the range of loss, it will disclose the reason why it cannot estimate the range of loss. The Company regularly evaluates current information available to it to determine whether an accrual is required, an accrual should be adjusted and if a range of possible loss should be disclosed. Legal fees related to contingencies are charged to general and administrative expense as incurred. Contingencies that may result in gains are not recognized until realization is assured, which typically requires collection in cash. - 84 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Share-Based Compensation The Company measures the cost of employee and director services received in exchange for all equity awards granted, including stock options, based on the fair market value of the award as of the grant date. The Company computes the fair value of stock options using the Black-Scholes-Merton (“BSM”) option pricing model. The Company estimates the expected term using the simplified method which is the average of the vesting term and the contractual term of the respective options. The Company determines the expected price volatility based on the historical volatilities of their peer group as the Company does not have a sufficient trading history for their common stock. Industry peers consist of several public companies in the bio-tech industry similar to the Company in size, stage of life cycle and financial leverage. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to Vivos, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. The Company recognizes the cost of the equity awards over the period that services are provided to earn the award, usually the vesting period. For awards granted which contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award were, in substance, a single award. The Company recognizes the impact of forfeitures in the period that the forfeiture occurs, rather than estimating the number of awards that are not expected to vest in accounting for stock-based compensation. Prior to public trading of the Company’s shares which commenced in December 2020, the Company estimated fair value of its shares based on the most recent sales to third parties. Income Taxes The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes, under which deferred income taxes are recognized based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results, or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. The recorded valuation allowance is based on significant estimates and judgments and if the facts and circumstances change, the valuation allowance could materially change. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Basic and Diluted Net Loss Per Share Basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for each period presented. Diluted net loss per common share is computed by giving effect to all potential shares of Common Stock, including stock options, convertible debt, Preferred Stock, and warrants, to the extent dilutive. Recent Accounting Pronouncements Presented below is a discussion of new accounting standards including deadlines for adoption assuming that the Company retains its designation as an EGC. - 85 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Standards Required to be Adopted in Future Years. The following accounting standards are not yet effective as of December 31, 2021. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires the Company to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11 Targeted Improvements , which provides lessees the option to adopt either (i) retrospectively to each prior reporting period presented upon initial adoption, or (ii) apply the new leasing standard to all open leases as of the adoption date by recognizing a cumulative-effect adjustment to accumulated deficit in the period of adoption without restating prior periods. The Company adopted the new accounting standard on January 1, 2022, this adoption required the company to recognize a current and long-term lease liability of approximately within the range of $ 2.4 million to $ 2.2 million and a right-of-use (ROU) asset of approximately within the range of $ 1.7 million to $ 1.5 million. We applied the new lease standard to all open leases as of the adoption date, with no retrospective adjustments to prior comparative periods. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This guidance requires use of an impairment model (known as the “current expected credit losses”, or CECL model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. ASU 2016-13 is effective for the Company beginning in the first quarter of 2023. The Company is still evaluating the impact the adoption of ASU 2016-13 will have on its results of operations or financial position. In December 2019, the FASB issued ASU 2019-12 , Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2022. Early adoption is permitted, including adoption in an interim period. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not currently expected to have a material impact on the Company’s financial statements upon adoption. Recently Adopted Standards. The following recently issued accounting standards were adopted by the Company during the year ended December 31, 2021: In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, which results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Additionally, ASU 2020-06 affects the diluted earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. Effective January 1, 2021, the Company elected to adopt ASU 2020-06 using the modified retrospective transition method which did not result in any changes to the Company’s financial statements upon adoption. NOTE 2 – LIQUIDITY As of December 31, 2021, the Company had an accumulated deficit of $ 55.6 million. For the years ended December 31, 2021 and 2020, the Company incurred a net loss of $ 20.3 and $ 12.1 million, respectively. Net cash used in operating activities amounted to $ 15.7 million and $ 5.7 million for the years ended December 31, 2021 and 2020, respectively. Since March 2020, the Company’s business has been negatively impacted as a result of the COVID-19 pandemic. Revenue growth and collections in 2021 were impacted by significant headwinds throughout the Company’s core customer base, mostly driven by COVID-19 Delta and Omicron variant resurgences in the middle and latter part of the year as discussed in Note 13. - 86 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements As discussed in Note 9, in December 2020 the Company completed an IPO of approximately 4.0 million shares of Common Stock for net proceeds of approximately $ 21.6 million, and in May 2021, the Company completed a follow-on underwritten public offering of 4.6 million shares of Common Stock for net proceeds of approximately $ 25.4 million. As of December 31, 2021, the Company has cash and cash equivalents of $ 24.0 million and total liabilities of $ 8.1 million. Management believes the Company’s existing cash resources will be sufficient to fund the Company’s contractual obligations and working capital requirements at least through the first quarter of 2023. NOTE 3 – RECEIVABLES, CONTRACT ASSETS AND CONTRACT LIABILITIES Net Revenue For the years ended December 31, 2021 and 2020, the components of revenue from contracts with customers and the related timing of revenue recognition is set forth in the table below (in thousands): SCHEDULE OF REVENUE FROM CONTRACT WITH CUSTOMERS Year Ended December 31, 2021 2020 Product revenue: Appliance sales to VIPs $ 6,040 (1) $ 4,548 (1) Center revenue 480 342 Total product revenue 6,520 4,890 Service revenue VIP 8,517 7,541 Billing intelligence services 905 (2) 620 (2) Management service revenue (includes MID) 313 - Sponsorship/seminar/other 630 15 Total service revenue 10,365 8,176 Total revenue $ 16,885 $ 13,066 (1) Revenue from the sale of products is typically fixed at inception of the contract and is recognized at the point in time when shipment of the related products occurs. (2) Revenue from maintenance and subscription contracts is typically fixed at inception of the contract and is recognized ratably over time as the services are performed and the performance obligations completed. Changes in Contract Liabilities The key components of changes in contract liabilities for the years ended December 31, 2021 and 2020 are as follows (in thousands): SCHEDULE OF CONTRACT LIABILITY December 31, 2021 2020 Balance at beginning of year $ 2,938 $ 2,948 New contracts, net of cancellations 7,978 7,531 Revenue recognized ( 8,517 ) ( 7,541 ) Balance at end of year $ 2,399 $ 2,938 - 87 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Shipping Costs Shipping costs for product deliveries to customers are expensed as incurred and totaled approximately $ 0.1 million for the years ended December 31, 2021 and 2020. Shipping costs for product deliveries to customers are included in cost of goods sold in the accompanying consolidated statement of operations. NOTE 4 - PROPERTY AND EQUIPMENT, NET As of December 31, 2021 and 2020, property and equipment consist of the following (in thousands): SCHEDULE OF PROPERTY AND EQUIPMENT December 31, 2021 2020 Furniture and equipment $ 1,394 $ 936 Leasehold improvements 2,387 519 Construction in progress 212 143 Molds 75 75 Gross property and equipment 4,068 1,673 Less accumulated depreciation ( 1,243 ) ( 801 ) Net Property and equipment $ 2,825 $ 872 Leasehold improvements relate to the Vivos Institute and the two Company-owned dental centers in Colorado. Total depreciation and amortization expense was $ 0.4 million and $ 0.3 million for the years ended December 31, 2021 and 2020, respectively. NOTE 5 – GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill by reporting unit consisted of the following as of December 31, 2021 and 2020 (in thousands): SCHEDULE OF GOODWILL December 31, Reporting Unit 2021 2020 Vivos Solutions $ 2,619 $ 2,619 Empowered Dental 52 52 Lyon Dental 172 - Total goodwill $ 2,843 $ 2,671 On April 14, 2021, we acquired Lyon Management and Consulting, LLC (Lyon Dental). The business acquisition allows us to expand and enhance its current medical billing practice services which are conducted through our BIS offering. The consideration transferred includes $ 0.2 million in cash and 25,000 warrants at a price of $ 8.90 per share fair valued using a Black-Scholes Model as of April 14, 2021 for a total of $ 0.2 million, when combined the total consideration exchanged is $ 0.4 million, the excess of the consideration transferred over the fair value of the acquired assets was allocated to Goodwill. - 88 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Intangible Assets As of December 31, 2021 and 2020, identifiable intangible assets were as follows (in thousands): SCHEDULE OF IDENTIFIABLE INTANGIBLES 2021 2020 December 31, 2021 2020 Patents and developed technology $ 2,136 $ 1,775 Trade name 330 330 Other 27 27 Total intangible assets 2,493 2,132 Less accumulated amortization ( 2,152 ) ( 1,862 ) Net intangible assets $ 341 $ 270 Amortization expense of identifiable intangible assets was $ 0.3 million and $ 0.4 million for the years ended December 31, 2021 and 2020. The estimated future amortization of identifiable intangible assets is as follows (in thousands): SCHEDULE OF ESTIMATED FUTURE AMORTIZATION OF IDENTIFIABLE INTANGIBLE ASSETS Year Ending December 31, 2022 $ 39 2023 39 2024 39 2025 39 2026 23 Thereafter 162 Total $ 341 NOTE 6 – OTHER FINANCIAL INFORMATION Note Receivable In October 2019, the Company sold its dental center in Utah to an entity controlled by the spouse of an employee for total consideration of approximately $ 1.2 million, including a note receivable of approximately $ 1.0 million. This note receivable provides for stated interest rate of 6.0 %. Based on consideration of prevailing market interest rates at the time of sale and the credit risk of the purchaser, the Company recorded a discount on the note receivable of approximately $ 0.1 million that is being accreted to interest income over a five-year period. Interest income related to the note receivable amounted to approximately $ 0.1 million for each of the years ended December 31, 2021 and 2020. Due to uncertainty around collections, the note receivable was impaired as of December 31, 2021. To the extend cash is collected in the future, we will recognize income in the period cash is collected. Accrued Expenses Accrued expenses consist of the following (in thousands): SCHEDULE OF ACCRUED EXPENSES 2021 2020 December 31, 2021 2020 Accrued payroll $ 1,397 $ 1,025 Accrued legal and other 990 412 Lab rebate liabilities 466 300 Total accrued liabilities $ 2,853 $ 1,737 - 89 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements NOTE 7 - DEBT Summary of Debt As of December 31, 2021 and 2020, the Company’s debt consisted of the following (in thousands): SCHEDULE OF OUTSTANDING DEBT 2021 2020 December 31, 2021 2020 Empowered Dental loan, due December 2020 $ - $ 25 PPP loan maturing May 2022 1,265 (1) 1,265 (1) Total debt 1,265 1,290 Less current maturities 1,265 867 Long-term debt, net of current maturities $ - $ 423 (1) Please see caption below for further discussion of the terms of the PPP loan. In November 2018, the Company issued convertible debt of $ 25,000 as part of the consideration in an asset purchase agreement with Empowered Dental Lab, LLC. The debt was convertible into shares of the Company’s common stock at a conversion rate of $ 7.50 per share. The interest rate on the debt was 10.0 % per annum beginning July 1, 2020, and the maturity date was extended to December 31, 2020 . The Company repaid this convertible debt plus interest in January 2021. PPP Loan On May 8, 2020, the Company received approximately $ 1.3 million in funding through the U.S. Small Business Administration’s Payroll Protection Program (PPP) that was part of the Coronavirus Aid, Relief, and Economic Security Act signed into law in March 2020. The interest rate on the loan is 1.00 % per year and matures on May 5, 2022 . The Company used these funds to assist with payroll, rent and utilities. The Company has spent the funding in a manner in which it believes the entire balance of the outstanding promissory note will be eligible for forgiveness through the terms of the PPP. An application to forgive the entire amount was submitted with the lender in January 2021, as of December 31, 2021 the application was under review. On January 21, 2022 the PPP loan was forgiven by the SBA in its entirety. As a result, the Company will record other income on the forgiveness of the loan in the first quarter of 2022. Convertible Notes In April 2019, the Company began offering 6.0 % convertible notes (the “Convertible Notes”) to accredited investors in a private placement. Upon the closing of an aggregate gross cash consideration to the Company of at least $ 10 million (a “Qualified Financing”), the outstanding loan balance of the Convertible Notes (the “Loan Balance”) shall be automatically converted into that number or principal amount of the securities of the Company issued in the Qualified Financing (the “New Securities”) at a conversion price equal to (a) seventy-five percent (75%) of the price per share (or conversion price per share as the case may be) of New Securities paid by the investors in such Qualified Financing if the Qualified Financing occurs on or prior to December 31, 2019 and (b) fifty percent (50%) of the price per share (or conversion price per share as the case may be) of New Securities paid by the investors in such Qualified Financing if the Qualified Financing occurs after December 31, 2019; provided, however, that in no event for purposes of any mandatory conversion shall the Loan Balance be convertible at a price lower than $7.50 per share, which shall serve as a floor price . In any such conversion, the holders of the Convertible Notes shall be provided with all of the same rights, privileges and preferences (including contractual rights and protections such as pre-emptive rights, rights of first refusal, co-sale rights, information and registration rights) as are provided to the holders of the New Securities issued in such Qualified Financing. The Company incurred less than $ 0.1 million in issuance costs associated with the Convertible Notes. The maturity date of the Convertible Notes was March 31, 2020. One holder of a less than $ 0.1 million note elected to be paid out the principal and interest which was repaid in December 2020. During the year ended December 31, 2020, holders of $ 2.9 million exchanged outstanding principal and interest on the notes into Series B preferred units discussed in Note 8. Holders of $ 0.8 million of principal (plus $ 26 thousand in accrued interest) exchanged their Convertible Notes into the Company Class A common stock. - 90 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements NOTE 8 – PREFERRED STOCK The Company’s Board of Directors has authority to issue up to 50,000,000 shares of Preferred Stock. Through December 31, 2020, the Board of Directors had designated 1.0 million and 1.2 million shares of Preferred Stock as Series A and Series B, respectively. Through December 31, 2020, all previously issued shares of Preferred Stock had been redeemed or converted to shares of Common Stock. As of December 31, 2021, the Board of Directors has authority to designate up to an additional 47.8 million shares of Preferred Stock in various series that provide for liquidation preferences, and voting, dividend, conversion, and redemption rights as determined at the discretion of the Board of Directors. Further details about the terms of the Series A and Series B Preferred Stock are set forth below. Redeemable Series A Preferred Stock In May 2017, the Company entered into a Definitive Purchase Agreement (the “DPA”) to acquire all of the licensed intellectual property, consisting primarily of patents, from its largest shareholder, current Chief Medical Officer and former majority shareholder of BioModeling. The Company’s Board of Directors previously authorized the issuance of 1,000,000 shares of Series A convertible preferred stock (“Series A Preferred Stock”) with a stated value of $ 5.00 per share. Each share was convertible at any time into one share of Class A common stock and each share of Series A Preferred Stock was also entitled to one vote. The Series A Preferred Stock was redeemable at the Company’s option at any time for the stated value and at the option of the holder at 20 % each year, commencing twelve months from the closing date with a limitation of $ 1.0 million in any twelve-month period unless otherwise authorized by the Board of Directors. In accordance with ASC 480, the Company accounted for the Series A Preferred Stock as temporary equity. As such, the carrying value of the shares was accreted over time such that the carrying value of the shares was at least equal to the then current redemption value of the shares. The accretion was recorded as a reduction of Additional Paid-In Capital and an increase to Series A Preferred Stock. As a result of the IPO that was completed in December 2020, the Company agreed to redeem all remaining Series A Preferred Stock in December 2020 representing 700,000 shares and $ 3.5 million. During the year ended December 31, 2020, the Company recognized accretion of $ 2.3 million for the remaining redemption value. For the year ended December 31, 2020, the Company agreed to redeem 730,000 shares of the Series A Preferred Stock for a total redemption price of $ 3.7 million. The redemption price was paid in 2020 for a total of $ 2.2 million and $ 1.5 million was recognized as a current liability that was paid in January 2021. Series B Preferred Stock On January 9, 2020, the Company’s Board of Directors designated 1,200,000 shares of Preferred Stock as Series B. The terms of the Series B Preferred Stock provided for par value of $ 0.0001 per share and an issuance price of $ 15.00 per share. The shares of Series B Preferred Stock did not provide the holders with rights to demand redemption, dividends, or to vote as a class with the Company’s holders of Common Stock. Upon liquidation, the shares of Series B Preferred had priority over the holders of shares of Common Stock. The terms of the Series B Preferred Stock provided for mandatory conversion to shares of Common Stock upon a sale of the Company or upon completion of a qualified financing for aggregate gross cash proceeds of at least $ 15.0 million (referred to as an “MC Event”). Upon a MC Event, the shares of Series B Preferred automatically converted to shares of Common Stock based on a conversion price equal to 75 % of the price paid by investors in a sale of the Company or a qualified financing. - 91 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements The Company commenced a private placement of units (the “Series B Units”) consisting of (i) one share of Series B Preferred, and (ii) one warrant to be issued for the number of shares of common stock into which the Series B Preferred stock was convertible upon a MC Event (the “Contingent Warrants”). The Contingent Warrants provided for an exercise price equal to 125 % of the price of the Company’s shares of Common Stock on the date of a MC Event. The Company reported no beneficial conversion on the Contingent Warrants as the warrant has a contingent beneficial conversion feature that is not calculated as a separate derivative until the contingent event has occurred. The private placement provided for the sale of units at an issuance price of $ 15.00 per unit. Based on the terms of the Series B Preferred, the Company classified it within permanent equity during the periods it was outstanding. For the year ended December 31, 2020, the Company issued 163,500 Series B Units for net proceeds of approximately $ 2.5 million. Additionally, holders of the Convertible Notes discussed in Note 7 agreed to exchange an aggregate principal and accrued interest balance of approximately $ 2.9 million into 196,258 shares of Series B Preferred. Offering costs associated with this issuance of Series B Unites amounted to approximately less than $ 0.1 million. In December 2020, all shares of Series B Preferred Stock were converted into 1,199,195 shares of Common Stock since the IPO discussed in Note 9 triggered the MC Event. In addition, as discussed in Note 10, the MC Event resulted in the issuance of the Contingent Warrants that provide for the purchase of 1,199,195 shares of Common Stock at an exercise price of $ 7.50 per share. NOTE 9 – COMMON STOCK The Company is authorized to issue 200,000,000 shares of common stock, par value of $ 0.0001 per share and 50,000,000 of preferred stock, par value of $ 0.0001 per share. Holders of the common stock are entitled to one vote for each share held. The Company’s Board of Directors may declare dividends payable to the holders of Common Stock. For the years ended December 31, 2021 and 2020, the Company completed initial public offerings of its shares of Common Stock as discussed below. May 2021 Follow-on Offering In May 2021, the Company completed a follow-on offering of 4.6 million shares of Common Stock at an issuance price of $ 6.00 per share for gross proceeds of $ 27.6 million. The net proceeds amounted to approximately $ 25.4 million after deducting an aggregate of $ 2.2 million for underwriting discounts and commissions and offering expenses payable by the Company. December 2020 IPO For the year ended December 31, 2020, the Company issued 4,025,000 shares of common stock for net proceeds of approximately $ 21.6 million in an initial underwritten public offering. Offering costs associated with this stock issuance were approximately $ .07 million. The Company also issued 1,199,195 shares issued through the conversion of all shares of Series B Preferred Stock. NOTE 10 – STOCK OPTIONS AND WARRANTS Stock Options In 2017, the Company’s shareholders approved the adoption of a stock and option award plan (the “2017 Plan”), under which shares were reserved for future issuance for options, restricted stock awards and other equity awards. The 2017 Plan permits grants of equity awards to employees, directors, consultants and other independent contractors. The Company’s shareholders have approved a total reserve of 1,333,333 million shares for issuance under the 2017 Plan. In April 2019, the Company’s shareholders approved the adoption of a stock and option award plan (the “2019 Plan”), under which shares were reserved for future issuance for options, restricted stock awards and other equity awards. The 2019 Plan permits grants of equity awards to employees, directors, consultants and other independent contractors. The Company’s shareholders have approved a total reserve of 333,334 shares for issuance under the 2019 Plan. Consecutively, on June 18, 2020, and July 28, 2021 the Company’s stockholders approved an amendment and restatement of the 2019 Plan to increase the number of shares of Common Stock available for issuance thereunder by 2,033,333 shares of Common Stock such that, after amendment and restatement of the 2019 Plan, and prior to any grants, 2,366,667 shares of Common Stock were available under the 2019 Plan. - 92 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements During the years ended December 31, 2021 and 2020, the Company issued stock options to purchase 969,000 and 429,012 shares at a weighted average exercise price of $ 5.23 and $ 7.50 per share of the Company’s common stock, respectively, to certain members of the Board of Directors, employees and consultants. The stock options allow the holders to purchase shares of the Company’s common stock at prices between $ 1.50 and $ 7.50 per share. Options for the purchase of 220,001 and 26,667 shares of common stock expired as of December 31, 2021 and 2020, respectively. The following table summarizes all stock options as of December 31, 2021 and 2020 (shares in thousands): SCHEDULE OF STOCK OPTIONS 2021 2020 Shares Price (1) Term (2) Shares Price (1) Term (2) Outstanding, beginning of year 2,302 $ 4.84 1.3 1,900 $ 4.29 3.1 Grants 969 5.23 429 7.50 Forfeited ( 220 ) 6.25 ( 27 ) 7.50 Exercised ( 200 ) (3) 1.65 - - Outstanding, end of year 2,851 (4) 4.96 3.3 2,302 (4) 4.84 1.3 Vested, end of year 1,898 (5) 4.53 2.7 1,673 (5) 4.10 2.5 (1) Represents the weighted average exercise price. (2) Represents the weighted average remaining contractual term until the stock options expire. (3) On the respective exercise dates, the aggregate intrinsic value of shares of Common Stock issued upon exercise of stock options amounted to $ 0.6 million. (4) As of December 31, 2021 and 2020, the aggregate intrinsic value of stock options outstanding was $ 0 million and $ 3.1 million, respectively. (5) As of December 31, 2021 and 2020, the aggregate intrinsic value of vested stock options was $ 0 million and $ 2.0 million, respectively. For the years ended December 31, 2021 and 2020, the valuation assumptions for stock options granted under the 2017 Plan and the 2019 Plan were estimated on the date of grant using the BSM option-pricing model with the following weighted-average assumptions: SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS USED IN THE FAIR VALUE 2021 2020 Grant date closing price of Common Stock $ 5.23 $ 7.50 Expected term (years) 3.5 3.2 Risk-free interest rate 0.8 % 0.4 % Volatility 141 % 134 % Dividend yield 0 % 0 % Based on the assumptions set forth above, the weighted-average grant date fair value per share for stock options granted for the years ended December 31, 2021 and 2020 was $ 4.96 and $ 4.84 , respectively. For the years ended December 31, 2021 and 2020, the Company recognized approximately $ 2.7 million and $ 2.2 million, respectively, of share-based compensation expense relating to the vesting of stock options. Unrecognized expense relating to these awards as of December 31, 2021 was approximately $ 4.8 million, which will be recognized over the weighted average remaining term of 2.9 years as of December 31, 2021. - 93 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Warrants The following table sets forth warrant activity for the years ended December 31, 2021 and 2020 (shares in thousands): SCHEDULE OF WARRANT OUTSTANDING 2021 2020 Shares Price (1) Term (2) Shares Price (1) Term (2) Outstanding, beginning of year 1,960 $ 7.44 3.5 33 $ 1.50 1.5 Grants of warrants: Underwriter pursuant to IPOs 276 (3) 7.50 403 (4) 7.50 Consultants for services 95 (5) 7.50 - - Acquisition of assets 200 (6) 7.50 - - Business combination 25 (7) 8.90 - - Contingent warrants - - 1,199 (8) $ 7.50 Settlement warrants - - 325 (9) 7.50 Outstanding, end of year 2,556 (10) 7.44 2.6 1,960 (10) 7.44 3.5 Vested, end of year 2,311 (11) 7.42 2.2 1,960 (11) 7.40 3.5 (1) Represents the weighted average exercise price. (2) Represents the weighted average remaining contractual term until the warrants expire. (3) In connection with its registered underwritten follow-on offering in May 2021, the Company granted warrants to the underwriter that provide for the purchase of 276,000 shares of Common Stock at an exercise price of $ 7.50 per share with a fair value of approximately $ 1.5 million. These warrants became exercisable in November 2021 and expire in May 2026. (4) In connection with the IPO in December 2020, the Company granted warrants to the underwriter that provide for the purchase of 402,500 shares of common stock at an exercise price of $ 7.50 per share. These warrants became exercisable in June 2021 and expire in December 2025 . (5) In March 2021, the Company granted warrants to consultants in exchange for services. Warrants issued in March 2021 provide for the purchase of an aggregate of 95,000 shares of Common Stock and are exercisable at $ 7.50 per share. The aggregate fair value of the March warrants amounted to $ 0.2 million which is being recognized over the period that the services are provided. For the year ended December 31, 2021, the Company recognized expense of $ 0.2 million. (6) In March 2021, the Company granted warrants in connection with the acquisition of certain assets from MyoCorrect, LLC (“MyoCorrect”) that provide for the purchase of up to 200,000 shares of Common Stock through March 2026. The aggregate fair value of these warrants amounted to $ 0.1 million which is being recognized over the vesting period. Warrants to purchase 25,000 shares of Common Stock vested in March 2021 and the remainder vest upon the achievement of pre-determined performance metrics related to the utilization of MyoCorrect, with a five-year term. (7) In April, 2021, the Company granted warrants in connection with a business combination. Warrants granted in April 2021 provide for the purchase of an aggregate of 25,000 shares of Common Stock and are exercisable at $ 8.90 per share. The aggregate fair value of the April warrants amounted to $ 0.2 million which is being recognized over the period that the services are provided. For the year ended December 31, 2021, the Company recognized expense of $ 0.2 million. (8) Pursuant to the terms of the Series B Units and in connection with the IPO which qualified as a MC Event, approximately 1,199,000 Contingent Warrants were issued at an exercise price equal to 125 % of the price of the Company’s shares of common stock on the date of an MC event, or $ 7.50 per share based on the IPO price of $ 6.00 per share. - 94 - (9) On October 22, 2020, two minority stockholders initiated a derivative demand which resulted in a settlement and release agreement that was entered into on November 6, 2020. Pursuant to the settlement, the Company issued warrants to purchase an aggregate of 325,000 shares of common stock (the “Settlement Warrants”). The Settlement Warrants are exercisable on a cash only basis at an exercise price of $ 7.50 per share, are exercisable beginning on June 15, 2021, and expire on May 6, 2024. (10) As of December 31, 2021 and 2020, the aggregate intrinsic value of warrants outstanding was $ 0 . (11) As of December 31, 2021 and 2020, the aggregate intrinsic value of vested warrants was $ 0 . For the years ended December 31, 2021 and 2020, the valuation assumptions for warrants were estimated on the measurement date using the BSM option-pricing model with the following weighted-average assumptions: SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS USED IN THE FAIR VALUE 2021 2020 Measurement date closing price of Common Stock (1) $ 7.44 $ 7.50 Contractual term (years) (2) 2.6 3.5 Risk-free interest rate 0.3 % 0.3 % Volatility 138 % 139 % Dividend yield 0 % 0 % (1) Weighted average grant price. (2) The valuation of warrants is based on the contractual term of the warrant rather than the expected term. NOTE 11 - RELATED PARTY TRANSACTIONS The Company was a party to a management agreement with Upeva, Inc., a company for which the Company’s prior Secretary and one of the Company’s former board members serves as chief executive officer. In return for various legal and other consulting services, the Company paid Upeva a monthly fee of $ 10,000 . This agreement terminated on April 30, 2020. As of December 31, 2020, the Company owed Upeva, Inc. approximately $ 10,000 . The former Secretary and director is the beneficial owner of 254,902 common shares of the Company through Spire Family Holdings, L.P. Additionally, the former Secretary and director is the beneficial owner of 254,902 common shares of the Company through Spire Family Holdings, L.P. The payment was made early 2021, no outstanding fees are due. During the year ended December 31, 2020, one of the Company’s former directors who held $ 0.2 million in 2019 Notes exchanged her outstanding notes for Series B preferred units, which converted into 45,252 common shares. During 2020, one of the Company’s Directors and holder of the Company’s Series A preferred stock, exercised his right to redeem 730,000 shares of the Series A preferred stock for $ 5.00 per share for a total of $ 3.7 million. Per the director’s request, $ 2 million was paid in December 2020, and the rest was paid in full in January 2021. In July 2020, two of the directors voluntarily entered into separation agreements with our company. Such agreements contained customary releases, confidentiality and non-disparagement provisions. As consideration for the entering the separation agreements, each director received an equity grant in the amount 16,667 shares and the ability to retain and exercise their previously granted and vested options, and the Company also committed to providing continued indemnification obligations consistent with organizational documents and to retain director’s and officer’s insurance for a period of twenty-four months in connection with two of the directors’ prior service on the board. In August 2020, the Company also entered into a Separation Agreement with another director pursuant to which the Company is required to purchase from the director and her affiliated entities 13,575 shares of Series B Preferred Stock and warrants to purchase common stock and 16,667 shares of common stock held for an aggregate purchase price of $ 0.3 million. If the Company was unable to close a qualified financing, as defined in the agreement of at least $3 million of equity or equity-linked securities by September 15, 2020 (as was extended up to October 28, 2020), a modified consideration would include 16,667 shares of unrestricted, fully vested common stock, a grant of stock options to purchase 33,334 shares of common stock at a price of $ 7.50 that will be fully vested and exercisable and $ 22 thousand in cash . The Company recorded general and administrative expense and accrued expenses of approximately $ 0.3 million for cash and equity issuances with this settlement. In November 2020, the Company granted this former director 16,667 shares of unrestricted, fully vested common stock, a grant of stock options to purchase 33,334 shares of common stock at a price of $ 7.50 that will be fully vested and exercisable and paid $ 47 thousand in cash (including $ 25 thousand for legal fees) to settle terms outlined in her separation agreement. - 95 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements On October 22, 2020, two minority stockholders of the Company, Lazarus Asset Management, LLC and a former director of the Company (who we refer to as the Demanding Stockholders), sent a derivative demand to the Company through counsel asking the board of directors to review and investigate certain recent actions taken by the board of directors, or members thereof, and senior management including (i) pursuit of the initial public offering described in the Company’s filing on Form S-1, (ii) the board of directors’ previous rejection (on two occasions) of a “reverse merger” transaction proposal made by Lazarus Asset Management, LLC, (iii) purported mismanagement of corporate assets, and (iv) various matters related to stock sales and other matters. After discussions with the Demanding Stockholders and their counsel, the Company ascertained that the Demanding Stockholders were acting for themselves and on behalf of an additional group of minority shareholders, (we refer to the Demanding Stockholders and all such other minority shareholders they acted on behalf of collectively as the Stockholder Group). While the Company believes that the assertions of the Demanding Stockholders lacked any merit in fact and in law, rather than expending resources investigating or litigating the claims of the Demanding Stockholders, and in order to proceed with the Company’s initial public offering, on November 6, 2020, without admitting or denying any claims asserted by the Demanding Stockholders, the Company entered into a Settlement and Release Agreement with each member of the Stockholder Group (which the Company refers to as the Settlement and Release Agreement). Pursuant to the Settlement and Release Agreement, all claims of the Demanding Stockholders were withdrawn with prejudice, and the Company and the Stockholder Group provided each other with full releases of any claims. In consideration of such withdrawal and releases, the members of the Stockholder Group have received: (i) an aggregate of 300,000 shares of Company common stock and (ii) warrants to purchase an aggregate of 325,000 shares of common stock (see Note 9). Such warrants (x) will be exercisable on a cash only basis at a strike price of 125 % of the public offering price per share in a Company qualified public offering of more than $ 10 million, (y) will be exercisable for a period of 36 months, beginning six months after the consummation of a qualified public offering and ending on the forty-second month anniversary of a Company qualified public offering . Finally, the Settlement and Release Agreement contains customary representations, warranties and covenants, including relating to confidentiality and non-disparagement, and the Company agreed to reimburse the Demanding Stockholders for up to $ 50 thousand of their legal fees associated with the demand letter the Company received on October 22, 2020 from them. For the year ended December 31, 2021 and 2020, options for the purchase of 539,000 and 429,012 shares, respectively, of the Company’s common stock were granted to the Company’s directors, officers, employees and consultants. NOTE 12 - INCOME TAXES For the years ended December 31, 2021 and 2020, the domestic and foreign components of loss before income taxes consist of the following (in thousands): SCHEDULE OF LOSS BEFORE INCOME TAX 2021 2020 Domestic $ ( 20,307 ) $ ( 12,072 ) International 19 15 Loss before income taxes $ ( 20,288 ) $ ( 12,057 ) For the years ended December 31, 2021 and 2020, income tax expense (benefit) consists of the following (in thousands): SCHEDULE OF INCOME TAX EXPENSE (BENEFIT) 2021 2020 Current income tax benefit (expense): Federal $ - $ - States - - Total current income tax benefit (expense) - - Deferred income tax benefit (expense): Federal - - States - - Total deferred income tax benefit (expense) - - Total income tax expense (benefit) $ - $ - For the years ended December 31, 2021 and 2020, income tax benefit differed from amounts that would result from applying the U.S. statutory income tax rate of 21.0% to the Company’s loss before income taxes as follows (in thousands): SCHEDULE OF INCOME TAX EXPENSE (BENEFIT) DIFFERED FROM LOSS BEFORE INCOME TAXES 2021 2020 Income tax benefit computed at federal statutory rate $ ( 4,261 ) $ ( 2,507 ) Permanent differences 109 1,622 State tax expenses ( 502 ) ( 181 ) Prior year adjustment to state NOL ( 275 ) Change in valuation allowance 4,929 1,066 Total income tax benefit $ - $ - As of December 31, 2021 and 2020, the principal components of deferred tax assets and liabilities were as follows (in thousands): SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2021 2020 Deferred tax assets: Net operating loss carryforwards 9,150 5,105 Stock based compensation 1,005 609 Other 699 336 Total deferred tax assets before valuation allowance 10,854 6,050 Valuation allowance ( 10,766 ) ( 5,837 ) Total deferred income tax assets after valuation allowance 88 213 Deferred tax liabilities: Property, equipment and intangibles ( 88 ) ( 213 ) Other - - Total deferred income tax liabilities ( 88 ) ( 213 ) Net deferred tax assets and liabilities $ - $ - Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred since inception. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $ 10.8 million has been recorded to record the deferred tax asset that is more likely than not to be realized. The net change during the year in the total valuation allowance is an increase of $ 4.9 million. - 96 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements The Company has federal net operating loss carry forwards of $ 38.4 million. The Company also has various state net operating loss carry forwards. The determination of the state net operating loss carry forwards is dependent upon the apportionment percentages and state laws that can change from year to year and impact the amount of such carry forwards. If federal net operating loss carry forwards are not utilized, approximately $ 3.3 million will begin to expire in 2036 . As of December 31, 2021, the remaining federal net operating losses of $ 35.1 million have no expiration dates. Federal and state laws impose substantial restrictions on the utilization of net operating loss (“NOL”) carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”). Pursuant to IRC Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382 analysis regarding the limitation of NOL carryforwards. However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was generated prior to any change of control. The Company’s ability to use its remaining NOL carryforwards may be further limited if the Company experiences an IRC Section 382 ownership change in connection with future changes in the Company’s stock ownership. Management does not believe that there are significant uncertain tax positions related to the 2021 and 2020 taxable periods. There are no interest and penalties related to uncertain tax positions for the years ended December 31, 2021 and 2020. The Company files income tax returns in the United States federal and various state jurisdictions. The Company is no longer subject to income tax examinations for federal income taxes before 2016 or for states before 2015. Net operating loss carryforwards are subject to examination in the year they are utilized regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOL’s generated as such NOL’s are utilized. As of December 31, 2021, the Company has filed all appropriate foreign operation tax returns. NOTE 13 – COMMITMENTS AND CONTINGENCIES COVID-19 Pandemic In December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread of the virus resulted in a world-wide pandemic. By March 2020, the U.S. economy had been largely shut down by mass quarantines and government mandated stay-in-place orders (the “Orders”) to halt the spread of the virus. Many of these Orders have been relaxed or lifted in jurisdictions where large portions of the population have been vaccinated, but there is considerable uncertainty about whether the Orders will need to be reinstated due to the ongoing spread of new variants of COVID-19. A significant portion of the worldwide population remains unvaccinated, and uncertainty also exists about whether existing vaccines will be effective as new variants of COVID-19 emerge. Accordingly, the overall impact of COVID-19 continues to have an adverse impact on global business activities. Many of the Company’s VIPs and potential VIPs closed their offices during periods of 2020 as a result of COVID-19, although some remained open to specifically provide patients with Company products as Company appliances and VIPs were deemed an essential business for health considerations in many jurisdictions. In the face of the pandemic and the results potential for revenue reduction, Company management worked diligently to reduce expenses and maintain revenues during 2020. While revenue growth flattened in March and April 2020, expenses were reduced and the Company aggressively expanded its network of healthcare providers familiar with its products by offering online continuing education courses which introduced many in the medical and dental communities to the Company’s product line. As businesses continued to reopen through 2021, the impact of COVID-19 on the Company began to diminish, although the Company is closely monitoring the potential impact of COVID-19 variants on its business. Of note, second half of the year, many of the Company’s Canadian VIPs have not traveled to the US for training in light of travel restrictions. As of August 9, 2021, the Government of Canada imposed further restrictions on unvaccinated travelers, which has caused delays with some of the Company’s Canadian VIPs receiving required training and commencing Vivos Method cases. Fourth quarter 2021 revenue growth was impacted by lower VIP enrollments due largely to the COVID-19 Delta and Omicron variant resurgences. The Company achieved sales growth despite seeing significant headwinds throughout our core customer base, mostly driven by such COVID-19 variant resurgences in the middle and latter part of the year. In December 2021, the American Dental Association reported that just 60% of dental practices were open and operating with business as usual. Another industry source reported 92% of dental practices were struggling to hire or replace hygienists, and 77% reported difficulty hiring front desk positions. These challenges across the dental community have impacted both doctor enrollments and patient case starts, as replacement dental personnel must be trained in The Vivos Method. - 97 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements The world-wide response to the pandemic resulted in a significant downturn in economic activity and there is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the pandemic. In addition, worldwide supply chain constraints and inflation have emerged as new barriers to long-term economic recovery. If an economic recession or depression is sustained, it could have a material adverse effect on the Company’s business as demand for its products could decrease. While the current disruption to the Company’s business is expected to be temporary, the long-term financial impact on the Company’s business cannot be reasonably estimated at this time. Litigation Settlement In October 2020, the Company received a derivative demand from certain stockholders (the “Derivative Action”) asking the Board of Directors to review and investigate certain recent actions taken on behalf of the Company. Upon further investigation, the Company determined that the assertions of the Derivative Action lacked merit in fact and in law. However, rather than expending resources investigating or litigating the claims set forth in the Derivative Action, and in order to proceed with the Company’s December 2020 IPO discussed in Note 9, the Company entered into a Settlement and Release Agreement in November 2020 without admitting or denying any of the claims that were asserted. Pursuant to the Settlement and Release Agreement, all claims under the Derivative Action were withdrawn with prejudice, and the parties provided each other with full releases of any claims. In consideration of such withdrawal and releases, the parties to the Derivative Action received (i) an aggregate of 300,000 shares of Common Stock with a fair value of $ 1.8 million, (ii) warrants to purchase an aggregate of 325,000 shares of Common Stock with an estimated fair value $ 1.5 million, and (iii) reimbursement of up to $ 50 thousand for legal fees incurred. The warrants to purchase 325,000 shares of Common Stock are exercisable by paying the exercise price of $ 7.50 per share in cash, and are exercisable for the period from June 2021 until June 2024 when they expire if not previously exercised. The total costs to settle the Derivative Action amounted to $ 3.3 million, which is included in the accompanying statement of operations for the year ended December 31, 2020. Operating Leases The Company leases office properties under various lease terms. Rent expense, including real estate taxes and related costs, for the years ended December 31, 2021 and 2020 aggregated approximately $ 0.6 million and $ 0.5 million, respectively. In connection with some of the Company’s leases, lease incentives were granted. Deferred lease incentives are being amortized on a straight-line basis over the term of the lease. Future rental payments over the term of the Company’s leases are as follows (in thousands): SCHEDULE OF FUTURE RENTAL PAYMENTS OF LEASES Years Ending December 31, 2022 $ 491 2023 479 2024 495 2025 440 2026 345 Thereafter 555 Total operating lease payments $ 2,805 Employment Agreements During 2020, the Company entered into new employment agreements with its chief executive officer, chief medical officer and chief financial officer. The agreements include incentive compensation in the form of cash bonuses and stock options. The employment agreements require the continuation of salary and benefits for up to two years in the event the employee is terminated without cause. - 98 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Regulatory status In September 2017, BioModeling was the subject of a routine FDA audit. The audit resulted in certain findings that BioModeling was required to remediate. On September 27, 2017, BioModeling believed that it had filed its response letter to the audit findings with the FDA. In January 2018, BioModeling received notice that the FDA had posted a Warning Letter on its website alleging failure by BioModeling to reply in a timely manner to the September 2017 audit findings. The Company and BioModeling immediately contacted the FDA in January 2018 and resubmitted the September 27, 2017 audit response letter. In April 2018, the FDA completed a second audit of BioModeling which focused on the September 2017 response letter and the Warning Letter. The Company believes that this issue has been satisfactorily resolved although no definitive statement to that effect has been made by the FDA. 401(k) Plan The Company has a defined contribution employee benefit plan under section 401(k) of the Code (the “401(k) Plan”). The 401(k) Plan covers all eligible U.S. employees that are entitled to participate at the beginning of the first full quarter following commencement of employment. The Company matches the entire amount of the employee contributions up to 3% of the participating employee’s compensation, and then 50 % of employee contributions between 4% and 5% of the participating employee’s compensation. These matching contributions vest for 100 % when the matching contributions are made. Total contributions to the 401(k) Plan amounted to $ 0.4 million and $ 0.3 million for the years ended December 31, 2021 and 2020, respectively. NOTE 14 – NET LOSS PER SHARE OF COMMON STOCK Basic and diluted net loss per share of Common Stock (“EPS”) is computed by dividing (i) net loss, as adjusted for beneficial conversion features and accretion related to Preferred Stock (the “Numerator”), by (ii) the weighted average number of common shares outstanding during the period (the “Denominator”). The calculation of diluted EPS is also required to include the dilutive effect, if any, of stock options, unvested restricted stock awards, convertible debt and Preferred Stock, and other Common Stock equivalents computed using the treasury stock method, in order to compute the weighted average number of shares outstanding. For the years ended December 31, 2021 and 2020, all Common Stock equivalents were antidilutive. Presented below are the calculations of the Numerators and the Denominators for basic and diluted EPS (dollars in thousands, except per share amounts): SCHEDULE OF COMPUTATION OF ANTI-DILUTIVE WEIGHTED-AVERAGE SHARES OUTSTANDING 2021 2020 Calculation of Numerator: Net loss $ ( 20,288 ) ( 12,057 ) Warrant beneficial conversion feature - ( 3,598 ) (1) Accretion of Series A Preferred Stock redemption amount - ( 2,333 ) (2) Loss applicable to common stockholders $ ( 20,288 ) $ ( 17,988 ) Calculation of Denominator: Weighted average number of shares of Common Stock outstanding 21,233 12,869 Net loss per share of Common Stock (basic and diluted) $ ( 0.96 ) $ ( 1.40 ) (1) Represents the beneficial conversion feature related to warrants issued in settlement as discussed in Note 9. (2) Represents accretion of the Series A Preferred Stock redemption premium discussed in Note 8. The holder of the Series A Preferred Stock discussed in Note 8 was entitled to participate in Common Stock dividends, if and when declared, on a one-to-one per-share basis. Accordingly, in any periods in which the Company has net income, earnings per share was required to be computed using the two-class method whereby the pro rata dividends distributable to the holder of Series A Preferred Stock would have been deducted from earnings applicable to common stockholders, regardless of whether a dividend was declared for such undistributed earnings. For the years ended December 31, 2021 and 2020, the Company incurred a net loss and, accordingly, there were no undistributed earnings to allocate under the two-class method. - 99 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements As of December 31, 2021, the following potential Common Stock equivalents were excluded from the computation of diluted net loss per share of Common Stock since the impact of inclusion was antidilutive (in thousands): SCHEDULE OF OUTSTANDING COMMON STOCK SECURITIES NOT INCLUDED IN THE COMPUTATION OF DILUTED NET LOSS PER SHARE 2021 2020 Common stock warrants 2,556 1,960 Common stock options 2,851 2,302 Total 5,407 4,262 NOTE 15 - FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS Fair Value Measurements Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the measurement of fair value: Level 1—Quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date Level 2—Other than quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly through market collaboration, for substantially the full term of the asset or liability Level 3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any market activity for the asset or liability at measurement date As of December 31, 2021 and 2020, the fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximated their carrying values due to the short-term nature of these instruments. Due to the U.S. government guarantee and the otherwise unique terms of the PPP Loan discussed in Note 7, it was not possible to determine fair value of this debt instrument. Recurring Fair Value Measurements For the years ended December 31, 2021 and 2020, the Company did not have any recurring measurements for the fair value of assets and liabilities. The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the years ended December 31, 2021 and 2020, the Company had no transfers of its assets or liabilities between levels of the fair value hierarchy. Significant Concentrations Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash at high-quality financial institutions. Cash deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. As of December 31, 2021, the Company had cash and cash equivalents with two financial institutions in the United States with an aggregate balance of $ 24.0 million. As of December 31, 2020, the Company had cash and cash equivalents with two financial institutions in the United States with an aggregate balance of $ 18.2 million. The Company has never experienced any losses related to its investments in cash, cash equivalents and restricted cash. - 100 - VIVOS THERAPEUTICS INC. Notes to Consolidated Financial Statements Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer base and their dispersion across different geographies and industries. The Company performs ongoing credit evaluations on certain customers and generally does not require collateral on accounts receivable. The Company maintains reserves for potential bad debts. NOTE 16 - SUBSEQUENT EVENTS On February 7, 2022 the Company filed a Form S-3 with the Securities and Exchange Commission, or SEC, utilizing a “shelf” registration process. Under this shelf registration process, the Company may offer and sell, either individually or in combination, in one or more offerings, any of the securities described within the Form S-3, for total gross proceeds of up to $ 75 million. On February 25, 2022 the Company issued 290,000 stock options to certain employees and officers with an exercise price of $ 3.27 per share, one-fifth vested on the date of grant, and one-fifth vests annually through February 25, 2027. Additionally, the Company issued warrants to purchase 80,000 shares of the Company’s common stock to certain consultants for sales consulting services with an exercise price of $ 3.27 per share, vesting monthly over one year term of the agreement. - 101 - Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.