Vivos Therapeutics, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Part I. “Item 1A. Risk Factors’’ and elsewhere in this Annual Report on Form 10-K. We are a revenue stage medical technology and healthcare services company focused on the development and commercialization of innovative treatment alternatives for patients with dentofacial abnormalities and/or patients diagnosed with mild to severe obstructive sleep apnea (“ OSA ”) and snoring in adults. We believe our technologies and conventions represent a significant improvement in the treatment of mild to severe OSA versus other treatments such as CPAP or palliative oral appliance therapies. Our alternative treatments are part of The Vivos Method . The Vivos Method is an advanced therapeutic protocol, which often combines the use of customized oral appliance specifications and proprietary clinical treatments developed by our company and prescribed by specially trained dentists in cooperation with their medical colleagues. Published studies have shown that using our customized appliances and clinical treatments led to significantly lower Apnea Hypopnea Index scores and have improved other conditions associated with OSA. Nearly 75,000 patients have been treated to date worldwide with our entire current suite of products by more than 2,000 trained dentists. In June 2025, we acquired all assets, including operating assets such as sleep testing, diagnostics, and treatment centers of SCN. The Acquisition marked a milestone in the pivot to our medical provider-focused sales, marketing distribution model for our innovative OSA appliances. Under the new model, SCN will provide sleep disorder patients with the opportunity to be candidates for our advanced, proprietary and FDA-cleared CARE oral medical devices, oral appliances and additional adjunctive therapies and methods. Under customary agreements designed to comply with applicable corporate practice of medicine law, our operation of SCN allows us to manage and capture both diagnostic and diagnostic consulting revenues, representing new higher margin revenue streams for us, as well as potential Vivos appliance and related product and service revenue. - 64 - See Item 1. Business of this Report for additional background information on our Company and current product and service offerings. Material Items, Trends and Risks Impacting Our Business We believe that the following items and trends may be useful in better understanding our results of operations. VIP Enrollments (Service Revenue). Enrolling dental practices as VIPs has historically been the first step in our ability to generate new revenue. As part of the VIP enrollment fee, we enter into a service contract with VIPs under which they receive training on the use of the Vivos treatment modalities. VIPs have the ability to start generating revenue for us and themselves after this training. In addition to enrollment service revenue, we offer additional services, such as our Billing Intelligence Services offering, and MyoSync (formally MyoCorrect) orofacial myofunctional therapy services, which was introduced in April 2021. Revenue for these services is recognized as our performance obligations are satisfied in accordance with ASC 606. Because of our 2024 marketing and distribution business model pivot, we have become more focused on engaging in strategic collaborations or acquisitions to market the benefits of the Vivos treatment modalities to dentists and other medical providers, including our cooperative relationships with various medical providers to deliver diagnostic and medical consultation services to people across North America who suffer from OSA. As such, while we will continue to recognize some VIP enrollment revenue through 2026, we believe such revenue will become immaterial. We recognize revenue on VIP enrollments once the contract is executed, payment is received, and as our performance obligations are satisfied in accordance with ASC 606. Product Sales Revenue. Vivos treatment case starts is paramount, as case starts lead to appliance orders and related revenue. Once a provider is fully trained, we encourage them to start cases. However, our experience has been that VIPs typically start slowly as they introduce The Vivos Method into their practices. The slow acceptance rate Vivos appliances with providers lead Vivos to consider other business models including the medical provider-focused alliance marketing and distribution model announced in 2024 to sell additional product. While we work with VIPs to screen their patients for OSA with our SleepImage ® home sleep apnea ring test (which we expect will encourage Vivos Method case starts), not all VIPs incorporate our The Vivos Method into their practices at the same rate. We believe VIPs can recoup their investment in VIP enrollment with approximately eight Vivos Method case starts, but as noted above, many VIPs start and also maintain their case starts at a significantly slower rate. We presently have a low concentration of active VIPs who regularly start new Vivos Method treatment cases. As noted, we believe that reducing our reliance on VIPs and increasing the number of strategic marketing and distribution alliances (or acquiring medical or dental practices) will provide us with a better opportunity to drive appliance sales going forward. In addition, an important aspect of our strategy to increase product revenues relates to the products and related intellectual property we acquired in March 2023 from Advanced Facialdontics, LLC (“ AFD ”), including a custom single arch device with an FDA 510(k) clearance for treating TMD and/or Bruxism (teeth grinding or clenching). We have rebranded the AFD products as Vivos Versa, Vivos Vida and Vivos Vida Sleep. Clinical Trial Work . Our efforts to engage in research to demonstrate the clinical efficacy of our products and obtain additional regulatory clearances for the use of our products is an important aspect of our overall strategy. In this regard, on May 29, 2023, we and Stanford University executed an agreement to commence a sponsored clinical research study to evaluate the efficacy of our FDA-cleared DNA appliance compared to the standard of care, CPAP for treatment of sleep apnea. Our DNA device is currently indicated for the treatment of mild to severe sleep apnea and jaw repositioning in adults (and in the case of severe OSA, along with positive airway pressure and/or myofunctional therapy, as needed) and has an FDA clearance intended to reduce nighttime snoring and to treat moderate and severe obstructive sleep apnea in children, 6- 17 years of age who are diagnosed with snoring and/or moderate or severe obstructive sleep apnea and need orthodontic treatment. Enrollment of 150 patients with moderate to severe sleep apnea (apnea-hypopnea index score of 15 or greater) will be randomly assigned to either treatment with our FDA-cleared DNA appliance or CPAP. The protocol has been finalized, and enrollment began in 2024. Late 2024, our clinical study conducted in collaboration with Stanford University and evaluating the DNA and CPAP for the treatment of OSA, was placed on hold by Stanford University. The decision to pause the study was made due to low recruitment into the study. The study is still on hold as of 2025. - 65 - We are working with Stanford University to address the concerns that led to the hold and has continued engaged discussions with the university. While we believe these efforts will facilitate the resumption of the study, there can be no assurance that the hold will be lifted in a timely manner, or at all. Any delay or failure to resolve the issues could impact the development timeline and future prospects for the study. We remain committed to the highest standards of patient safety, scientific integrity, and regulatory compliance and will provide updates as material developments occur. This trial may not meet its designated endpoints, and therefore additional FDA clearances for the DNA device may not be obtained. Distribution Agreements. During 2023, we entered into distribution collaborations with third parties to expand access of our products to potential patients. We hope that these strategic initiatives will lead to revenue growth opportunities for us in 2024 and beyond, and our ability to capitalize on these initiatives is expected to be a material aspect of our medical provider-focused sales and marketing program going forward. Also, in October 2023, we announced an exclusive distribution agreement with NOUM DMCC, a Dubai-based company focused on diagnostic testing and treatment product distribution for healthcare providers and hospital networks treating obstructive sleep apnea patients throughout the Middle East-North Africa region. With regulatory approvals pending, there was no revenue from this collaboration in 2024 or 2025. Inflation . The U.S. has been experiencing a period of inflation which has increased (and may continue to increase) our and our suppliers’ costs as well as the end cost of our products to consumers. To date, we have been able to manage inflation risk without a material adverse impact on our business or results of operations. However, inflationary pressures (including increases in the price of raw material components of our appliances) made it necessary for us to adjust our standard pricing for our appliance products in 2022 and will be revisited in 2026. The full impact of such price adjustments on sales or demand for our products is not fully known at this time and may require us to adjust other aspects of our business as we seek to grow revenue and, ultimately, achieve profitability and positive cash flow from operations. An additional inflation-related risk is the Federal Reserve’s response, which up to this point has been to slightly decrease interest rates, however, the perceived decrease was lower than what was expected. Such actions have, in times past, created unintended consequences in terms of the impact on housing starts, overall manufacturing, capital markets, and banking. If such disruptions become systemic, as occurred in the recession of 2008, then the impact on our revenue, earnings and access to capital of both inflation and inflation-fighting responses would be impossible to know or calculate. Supply Chain. From time to time, we may experience supply chain challenges due to forces beyond our control. For example, the Suez Canal blockage earlier in 2021 caused some delay in shipments of SleepImage ® rings from China. Changes in U.S. or foreign trade policy, including the imposition of new tariffs, increases in existing tariffs or changes in customs classifications, could increase our costs. Overall, however, as our appliances are made in the U.S., we have not experienced significant supply chain issues as a result of COVID-19 or otherwise, although this may change in future periods. Middle East Hostilities. In addition, geopolitical instability in the Middle East continues to create uncertainty in global economic conditions and commercial activity. Hostilities in the region, including the attacks by Hamas on Israel in October 2023, Israel’s subsequent military responses, and more recent U.S. and Israeli military actions involving Iran, have contributed to heightened regional and global tensions. These developments, combined with the ongoing effects of Russia’s invasion of Ukraine that began in February 2022, have intensified supply chain constraints, increased commodity price volatility, disrupted international trade flows, creating. If an economic recession or depression commences and is sustained, it could have a material adverse effect on our business as demand for our products could decrease. Capital markets uncertainty, with public stock price decreases and volatility, could make it more difficult for us to raise capital when needed. Potential Nasdaq Delisting . Given that our stockholders’ equity at December 31, 2025 was less than $2.5 million, we are presently not in compliance with the Nasdaq Stock Market’s (“Nasdaq”) minimum stockholders’ equity requirement (the “Equity Requirement”). We are seeking to regain compliance by raising new funding in the form of equity and reducing costs. However, we will be faced with delisting proceedings which will distract management and cost resources to remedy, - 66 - We have a history of challenges of maintaining compliance with the Nasdaq’s continuing listing requirements. We have been subject to two Nasdaq listing deficiencies, one related to Nasdaq’s $1.00 minimum bid price requirement (the “Minimum Bid Requirement”) and a second related to the Equity Requirement. On September 21, 2023, we received a written notice from the Nasdaq staff confirming that since, as of that date, we failed to meet the Minimum Bid Requirement, and because as of the period ended June 30, 2023 we also failed the Equity Requirement, Nasdaq would commence delisting proceedings against us. As permitted under Nasdaq rules, we appealed the Nasdaq staff’s determination and requested a hearing (the “Hearing”) before a Nasdaq Hearing Panel (the “Hearing Panel”). The Hearing request stayed any delisting or suspension action by the Nasdaq staff pending the issuance of the Hearing’s Panel decision. The Hearing took place on November 9, 2023. Prior to the date of the Hearing, we effectuated a reverse stock split of our issued and outstanding shares of common stock at a ratio of 1-for-25 (the “Reverse Stock Split”). The Reverse Stock Split became effective on October 25, 2023, and our common stock began trading on a post-Reverse Stock Split basis on the Nasdaq on October 27, 2023. To satisfy the Minimum Bid Requirement, our common stock was required to trade at above $1.00 per share for at least 10 trading days, and this was achieved on November 9, 2023. We therefore have regained compliance with the Minimum Bid Requirement. At the Hearing on November 9, 2023, we presented our plan to regain compliance with the Equity Requirement, which included raising additional equity capital. On November 30, 2023, we received a letter from the Hearings Panel that, subject to certain conditions, the Hearings Panel granted our request to continue to be listed on Nasdaq. On February 23, 2024 we presented our plan of compliance to the Hearings Committee. On May 6, 2024, we received written notice from the Nasdaq staff indicating that we had regained compliance with the Equity Requirement. On May 16, 2024, we received a further written notice from Nasdaq indicating that, as of March 31, 2024, we failed to comply with the Equity Requirement. On June 25, 2024, we reported in a Current Report on Form 8-K that we believed we had stockholders’ equity of at least $2.5 million as of the date of the filing of such report as a result of our closing of a $7.5 million equity private placement on June 10, 2024. On June 27, 2024, we met with the Panel to discuss our past, current, and anticipated future compliance with the Equity Requirement, and requested the continued listing of its securities on Nasdaq. On July 5, 2024, we were notified that the Panel granted our request for continued listing on Nasdaq, subject to our filing of the Form 10-Q for the quarter ended June 30, 2024, with the Securities and Exchange Commission, evidencing our compliance with the Equity Requirement. We made such filing in a timely manner. We are working diligently to ensure our continued compliance with the Equity Requirement, including additional equity capital financing or financings and cost reductions to stay above the minimum threshold of the Equity Requirement. We anticipate that our new medical provider-focused strategic marketing and distribution alliance model will also positively impact our revenue growth and stockholders’ equity in upcoming fiscal quarters. However, there is a risk that we will be unable to raise sufficient capital, reduce costs sufficiently or generate sufficient revenue or operating results to maintain compliance with the Equity Requirement. If we fail to achieve ongoing compliance and our common stock is delisted by Nasdaq, such delisting would likely have a material adverse effect on our stock price, the ability of our stockholders to buy or sell their common stock, our ability to raise capital and on our reputation, all of which could make it significantly more difficult to operate. Key Components of Consolidated Statements of Operations Net revenue. We recognize revenue when we satisfy our performance obligations over time as our customers receive the benefit of the promised goods and services, which generally occurs over a short period of time. Performance obligations with respect to appliance sales are typically satisfied at a point in time by shipping or delivering products to our VIPs or to the sleep clinic, through our new strategic alliance model. In the case of enrollment or service revenue, upon our satisfaction of performance obligations associated with VIP enrollments. Revenue consists of the gross sales price, net of estimated allowances, discounts, and personal rebates that are accounted for as a reduction from the gross sale price. - 67 - In the case of product purchased by clinics managed by our subsidiary for inclusion in a treatment protocol, the sales price of the Vivos device is recognized by us and becomes a component of cost of sales of the treatment center service provided to the patient. For the treatment centers, the intercompany account is used to fulfil the account payable obligation and recognize the expense of the goods and services in cost of sales. Cost of sales. Cost of goods sold primarily consists of direct costs attributable to the purchase from third party suppliers and related products. It also includes freight costs, fulfillment, distribution, and warehousing costs related to products sold. Sales and marketing. Sales and marketing costs primarily consist of personnel costs for employees engaged in sales and marketing activities, commissions, advertising and marketing costs, website enhancements, and conferences for our sales and marketing staff. General and administrative expenses. General and administrative (“ G&A ”) expenses consist primarily of personnel costs for our administrative, human resources, finance and accounting employees, and executives. General and administrative expenses also include contract labor and consulting costs, travel - related expenses, legal, auditing and other professional fees, rent and facilities costs, repairs and maintenance, and general corporate expenses. Depreciation and amortization expense. Depreciation and amortization expense is comprised of depreciation expense related to property and equipment, amortization expense related to leasehold improvements, and amortization expense related to identifiable intangible assets. Other income. Other income relates to the excess warrant fair value and change in fair value of warrant liability. Results of Operations Comparison of Years ended December 31, 2025 and 2024 Our consolidated statements of operations for the years ended December 31, 2025 and 2024 are presented below (dollars in thousands): 2025 2024 Change Revenue Product revenue $ 6,487 $ 7,874 $ (1,387 ) Service revenue 10,956 7,157 3,799 Total revenue 17,443 15,031 2,412 Cost of sales (exclusive of depreciation and amortization shown separately below) 6,901 6,012 889 Gross profit 10,542 9,019 1,523 Gross profit % 60 % 60 % Operating expenses General and administrative 27,727 17,878 9,849 Sales and marketing 1,400 1,731 (331 ) Depreciation and amortization 1,309 581 728 Operating loss (19,894 ) (11,171 ) (8,723 ) Non-operating income (expense) Other expense (1,481 ) (110 ) (1,371 ) Other income 145 145 - Net loss $ (21,230 ) $ (11,136 ) $ (10,094 ) Net loss attributable to non-controlling interest 60 - (60 ) Net loss attributable to stockholders $ (21,170 ) $ (11,136 ) $ (10,034 ) - 68 - Revenue Revenue increased approximately $2.4 million, or 16%, to approximately $17.5 million for the year ended December 31, 2025 compared to $15.0 million for the year ended December 31, 2024. This was due to an increase of approximately $4.8 million in Sleep testing services, and an increase of approximately $2.2 million of revenue generated from Vivos treatment to patients launched at two SCN locations. The increase in revenue during the year ended December 31, 2025 was offset by the decline in product revenue attributable to a decrease of approximately $1.4 million in appliance sales to VIPs, followed by an increase of approximately $1.0 million in tooth positioner sales to VIPs. Additionally, we had a decrease in service revenue of approximately $2.0 million in our VIP enrollment revenue, a decrease of approximately $0.7 million in sponsorship, conference and training related revenue, and a decrease of approximately $0.3 million in Myofunctional therapy and $0.2 million in BIS revenue. During the year ended December 31, 2025, we enrolled no VIPs and recognized VIP enrollment revenue of approximately $0.5 million, a decrease of approximately 80% in enrollment revenue due to the pivot to the new business model, compared to the year ended December 31, 2024, when we enrolled 112 VIPs for a total of approximately $2.5 million. Over the last year, our reliance on VIP enrollment revenue has diminished significantly as such revenues have decreased due to our pivot. Our revenue was impacted by the sales strategy shift and focus toward sleep center affiliations, coupled with lower enrollments in 2024 and 2025, which resulted in lower service revenue for the year ended December 31, 2025. For the year ended December 31, 2025, we sold 25,441 oral appliance arches and tooth positioners for a total of approximately $6.5 million, a 18% decrease in revenue from the year ended December 31, 2024, when we sold 16,182 oral appliance arches and tooth positioners for a total of approximately $7.9 million. The revenue decrease is directly attributable to an increase in discounts offered during the same period, with $1.6 million in discounts offered during the year ended December 31, 2025 when compared to approximately $0.2 million of discounts offered during the year ended December 31, 2024, coupled with an increase in tooth positioner sales, a lower price point product when compared to Vivos appliances. Cost of Sales and Gross Profit Cost of sales increased by approximately $0.9 million, or 15%, to approximately $6.9 million for the year ended December 31, 2025, compared to approximately $6.0 million for the year ended December 31, 2024. This was primarily due to approximately $1.1 million in higher costs in diagnostic services related to new sleep center affiliations, and an increase of approximately $0.5 million related to additional staff associated with the sleep center affiliations. For the year ended December 31, 2025, gross profit increased by approximately $1.5 million or 17% to $10.5 million. This increase was attributable to an increase in revenue of approximately $2.4 million, offset by an increase in cost of sales of approximately $0.9 million. Gross margin remained constant at 60% for the year ended December 31, 2025, and 2024. General and Administrative Expenses General and Administrative expenses increased $9.8 million to $27.7 million for the year ended December 31, 2025, compared to approximately $17.9 million for the year ended December 31, 2024. This increase was primarily due to approximately $6.7 million in costs associated with running SCN’s operations and related Vivos treatment centers. In addition, approximately $1.6 million related to professional fees, approximately $0.8 million associated with salaries and wages and Vivos personnel and infrastructure costs of approximately $0.6 million when compared to the year ended December 31, 2024. - 69 - Sales and Marketing Sales and marketing expense decreased by $0.3 million to $1.4 million for the year ended December 31, 2025, compared to approximately $1.7 million for the year ended December 31, 2024. This decrease was primarily driven by a $0.2 million decrease in commissions, as well as a $0.1 million decrease in conventions and tradeshow expenses. Depreciation and Amortization Depreciation and amortization expense was approximately $1.3 million for the year ended December 31, 2025, compared to approximately $0.6 million for the year ended December 31, 2024. Depreciation and amortization increased due to an increase in depreciable assets related to the new sleep center asset acquisition and affiliations. Liquidity and Capital Resources The financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. We have incurred losses since inception, including $21.2 million and $11.1 million for the years ended December 31, 2025 and 2024, respectively, resulting in an accumulated deficit of approximately $125.4 million as of December 31, 2025. Net cash used in operating activities amounted to approximately $15.3 and $12.7 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had total liabilities of approximately $26.7 million as compared with $7.3 million as of December 31, 2024. As of December 31, 2025, we had approximately $2.0 million in cash and cash equivalents, which will not be sufficient to fund operations and strategic objectives over the next twelve months from the date of issuance of these financial statements. Without additional financing, these factors raise substantial doubt regarding our ability to continue as a going concern. We have implemented cost savings measures that have reduced cash used in operations. However, sales did not grow in the year ended December 31, 2024 or in 2025 as anticipated, as our product offerings and distribution strategies continue to be improved and refined. As such, we raised equity capital throughout 2024 and 2025 and will be required to obtain additional financing to satisfy our cash needs and bolster our stockholders’ equity for Nasdaq compliance purposes, as management continues to work towards increasing revenue to achieve cash flow positive operations in the foreseeable future. Until we attain positive cash flow, our management is reviewing all options to obtain additional financing to fund our operations. We financed the SCN acquisition from the issuance of senior secured debt and equity securities. As reflected in our increase in revenue for the year ended December 31, 2025, we expect the SCN Acquisition will ultimately allow our company to achieve positive cash flows; however, there is a risk this may not occur. We originally expected the Strategic Alliance Agreement (“ SAA ”) with Rebis Health entered into in June 2024 to increase patient volume, drive top line revenue and lower customer acquisition costs and overhead. However, due to ongoing delays at Rebis Health that are beyond our control, we are currently re-evaluating expectations under this SAA. As such, we seek to acquire other sleep centers in transactions similar to the SCN Acquisition or enter into other strategic alliances with improved terms. There can be no assurances that adequate additional funding will be available on favorable terms, or at all. If such funds are not available in the future, or the SAA or similar alliances or acquisitions do not result in the patient volume, appliance sales and financial results within the timeframes we expect, we may be required to delay, significantly modify or terminate some or all of our operations, all of which could have a material adverse effect on us and our stockholders. We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. - 70 - Cash Flows The following table presents a summary of our cash flow for the years ended December 31, 2025 and 2024 (in thousands): 2025 2024 Net cash provided by (used in): Operating activities $ (15,263 ) $ (12,691 ) Investing activities (7,526 ) (568 ) Financing activities 18,558 17,876 Net cash used in operating activities of approximately $15.3 million for the year ended December 31, 2025 which represents an increase of approximately $2.6 million compared to net cash used in operating activities of approximately $12.7 million for the year ended December 31, 2024. This increase is due primarily to an increase of approximately $3.3 million in accrued expenses, an increase of approximately $1.6 million in accounts payable, an increase of approximately $0.9 million in contract liability, an increase of approximately $0.9 million in other liabilities, an increase of $0.7 million for depreciation and amortization, an increase of approximately $0.2 million for prepaid expenses and other current assets, and an increase of approximately $0.2 million for net operating lease liabilities. These are offset by an increase in our net loss of approximately $10.1 million, a decrease of approximately $0.1 million for stock-based compensation and a decrease of approximately $0.1 million for deposits. For the year ended December 31, 2025, net cash used in investing activities consisted of capital expenditures of approximately $5.2 million for the SCN Acquisition in June 2025, assets placed in service in 2025 related to the integration of SCN and capital expenditures of approximately $2.3 million related to the development of software for internal use that was also placed in service in the first quarter of the fiscal year ended December 31, 2025. This compares to net cash used in investing activities for the year ended December 31, 2024 of $0.6 million due to capital expenditures for the development of software for internal use. Net cash provided by financing activities of $18.6 million for the years ended December 31, 2025, is attributable to proceeds of approximately $5.6 million from the issuance of common stock, approximately $10.7 million from the issuance of debt, approximately $2.3 million from the issuance of warrants, and approximately $0.9 million from the exercise of warrants, net of approximately $0.8 million of professional fees and other issuance costs. This compares to net cash provided by investing financing for the year ended December 31, 2024 of $17.9 million, attributable to proceeds of $19.2 million from the issuance of common stock and warrants, net of approximately $1.4 million of professional fees and other issuance costs, in our February 2024 warrant inducement, as well as the June, September and December 2024 private placements. Critical Accounting Policies Involving Management Estimates and Assumptions Basis of Presentation and Consolidation Our accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. As disclosed in Note 1, 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, Vivos Therapeutics DSO LLC, a Colorado limited liability company, Vivos Airway Alliance, LLC, a Colorado limited liability company, Vivos Providers Network, LLC, a Colorado limited liability company, Airway Integrated Management Company, LLC and Airway Intelligence Center, LLC. Additionally, Sleep Center of Nevada, Rachakonda & Associates, PLLC, Nevada Sleep and Airway, Patterson & Associates, PLLC, AIM – Detroit, LLC, Sleep Medicine of Detroit, P.C., and Sleep Dentistry of Detroit, P.C.), are not wholly owned but are controlled by Vivos and 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. Purchase Price Allocation We account for business combinations in accordance with ASC Topic 805, Business Combinations, which requires the assets acquired and liabilities assumed in business combinations based on their estimated fair values at the date of acquisition, which involves a number of assumptions, estimates, and judgments, which are inherently uncertain and subject to refinement. We determine the estimated fair values with the assistance of valuations performed by third party specialists, discounted cash flow analysis, and estimates made by management derived from comparable market data and cash flow projections used to value the acquired business. Our ability to realize the future cash flows used in our fair value estimates may be affected by changes in our financial condition, financial performance, or business strategies. Our assumptions and estimates are also used to allocate goodwill to our reporting units that are expected to benefit from the business combination. During the measurement period, which may be up to one year from the acquisition date, we may recognize adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustment to our preliminary estimates to goodwill provided that we are within the measurement period. Upon the earlier of the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, any subsequent adjustments are included in our consolidated results of operations. Refer to Note 3. - 71 - Emerging Growth Company Status Effective January 1, 2026, the Company is no longer an “emerging growth company” (an “EGC”), as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and must comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Revenue Recognition We generate revenue from the sale of products and services. Historically, a significant majority of our revenues are generated from enrolling dentists as either (i) Guided Growth and Development VIPs; (ii) Lifeline VIPs; (iii) combined Guided Growth and Development and Lifeline VIPs; or Premier Vivos Integrated Providers (“ Premier VIPs ”). Prior to the second quarter of 2023, the majority of VIP enrollments were Premier VIPs. The other, lower priced enrollments were piloted in fiscal quarters prior to second quarter of 2023, and on a limited basis. They were officially adopted during the second quarter of 2023. For each VIP program, revenue is recognized when control of the products or services is transferred to customers (i.e., VIP dentists ordering such products or services for their patients) in a manner that reflects the consideration we expect to be entitled to in exchange for those products and services. Following the guidance of ASC Topic 606, Revenue from Contracts with Customers (“ ASC 606 ”) and the applicable provisions of ASC Topic 842 , Leases (“ ASC 842 ”), we determine revenue recognition through the following five-step model, which entails: 1) identification of the promised goods or services in the contract; 2) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; 3) measurement of the transaction price, including the constraint on variable consideration; 4) allocation of the transaction price to the performance obligations; and 5) recognition of revenue when, or as we satisfy each performance obligation. Service Revenue VIP Enrollment Revenue We review our VIP enrollment contracts from a revenue recognition perspective using the 5-step method outlined above. All program enrollees, irrespective of their level of enrollment, are commonly referred to as VIPs, unless it is necessary to specify their particular program. Once it is determined that a contract exists (i.e., a VIP enrollment agreement is executed and payment is received), service revenue related to VIP enrollments is recognized when the underlying services are performed. The price of the Premier VIP enrollment that the VIP pays upon execution of the contract is significant, running at approximately $23,200, with different entry levels for the various programs described above. Unearned revenue reported on the balance sheet as contract liability represents the portion of fees paid by VIP customers for services that have not yet been performed as of the reporting date and are recorded as the service is rendered. we recognize this revenue as performance obligations are met. Accordingly, the contract liability for unearned revenue is a significant liability for us. Provisions for discounts are provided in the same period that the related revenue from the products and/or services is recorded. We enter into programs that may provide for multiple performance obligations. Commencing in 2018, we began enrolling medical and dental professionals in a one-year program (now known as the Premier VIP Program) which includes training in a highly personalized, deep immersion workshop format which provides the Premier VIP dentist access to a team who is dedicated to creating a successful integrated practice. VIP enrollment fees include multiple performance obligations which vary on a contract-by-contract basis. The performance obligations included with enrollments may include sleep apnea rings, a six or twelve month BIS subscription, a marketing package, lab credits and the right to sell our appliances. We allocate the transaction price of a VIP enrollment contract to each performance obligation under such contract using the relative standalone selling price method. The relative standalone price method is based on the proportion of the standalone selling price of each performance obligation to the sum of the total standalone selling prices of all the performance obligations in the contract. - 72 - The right to sell is similar to a license of intellectual property, because without the right, the VIP cannot purchase appliances from us. The right to sell performance obligation includes the Vivos training and enrollment materials which prepare dentists for treating their patients using The Vivos Method. Because the right to sell is never sold outside of VIP contracts, and VIP contracts are sold for varying prices, we believe that it is appropriate to estimate the standalone selling price of this performance obligation using the residual method. As such, the observable prices of other performance obligations under a VIP contract will be deducted from the contract price, with the residual being allocated to the right to sell performance obligation. We use significant judgements in revenue recognition including an estimation of customer life over which it recognizes the right to sell. We have determined that Premier VIPs who do not complete sessions 1 and 2 of training rarely complete training at all and fail to participate in the Premier VIP program long term. Since the beginning of the Premier VIP program, just under one-third of new VIP members fall into this category, and the revenue allocated to the right to sell for those VIPs is accelerated at the time in which it becomes remote that a VIP will continue in the program. Revenue is recognized in accordance with each individual performance obligation unless it becomes remote the VIP will continue, at which time the remainder of revenue is accelerated and recognized in the following month. Those VIPs who complete training typically remain active for a much longer period, and revenue from the right to sell for those VIPs is recognized over the estimated period of which those VIPs will remain active. Because of various factors occurring year to year, we have estimated customer life for each year a contract is initiated. Estimated customer lives have been calculated separately for each year and were estimated between 14 months and 27 months for the years 2020 through 2024, depending upon the length of time customers stayed active each year. The right to sell is recognized on a sum of the years’ digits method over the estimated customer life for each year as this approximates the rate of decline in VIPs purchasing behaviors we have observed. Given that our alliance-based marketing and distribution model is relatively new and has yet to generate significant revenues, we are in the process of developing and implementing our revenue recognition plan for revenues derived from this model. Other Service Revenue In addition to VIP enrollment service revenue, in 2020 we launched BIS, an additional service on a monthly subscription basis, which includes our AireO2 medical billing and practice management software. Revenue for these services is recognized monthly during the month the services are rendered. We also offer our VIPs the ability to provide MyoSync to the VIP’s patients as part of treatment with The Vivos Method. The program includes packages of treatment sessions that are sold to the VIPs and resold to their patients. Revenue for MyoSync services is recognized over the 12-month performance period as therapy sessions occur. Allocation of Revenue to Performance Obligations We identify all goods and services that are delivered separately under a sales arrangement and allocate revenue to each performance obligation based on relative fair values. These fair values approximate the prices for the relevant performance obligation that would be charged if those services were sold separately and are recognized over the relevant service period of each performance obligation. After allocation to the performance obligations, any remainder is allocated to the right to sell under the residual method and is recognized over the estimated customer life. In general, revenues are separated between durable medical equipment (product revenue) and education and training services (service revenue). - 73 - Treatment of Discounts and Promotions From time to time, we offer various discounts to its customers. These include the following: 1) Discount for cash paid in full 2) Conference or trade show incentives, such as subscription enrollment into the SleepImage ® home sleep test program, or a free trial period for the SleepImage ® lease program 3) Negotiated concessions on annual enrollment fee 4) Credits/rebates to be used towards future product orders such as lab rebates The amount of the discount is determined up front prior to the sale. Accordingly, measurement is determined before the sale occurs and revenue is recognized based on the terms agreed upon between us and the 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, we and the customer agree upon the amount of consideration that the customer will pay in exchange for the services we provide. The net consideration that the customer has agreed to pay is the expected value that is recognized as revenue over the service period. At the end of each reporting period, we update the transaction price to represent the circumstances present at the end of the reporting period and any changes in circumstances during the reporting period. Product Revenue In addition to revenue from services, we also generate revenue from the sale of our line of oral devices and preformed tooth positioners (known as appliances or systems) to our customers, the VIP dentists, or to OSA patients directly now in our strategic alliance model. These include the DNA appliance®, mRNA appliance®, the mmRNA appliance, the Versa, the Vida, the Vida Sleep and others. We expanded our product offerings in the first quarter of 2023 via the acquisition of certain U.S. and international patents, product rights, and other miscellaneous intellectual property from Advanced Facialdontics, LLC, a New York limited liability company (“AFD”). Revenue from appliance sales is recognized when the control of a product is transferred to the VIP in an amount that reflects the consideration it expects to be entitled to in exchange for those products. The VIP in turn charges the VIP’s patient and or patient’s insurance a fee for the appliance and for his or her professional services in measuring, fitting, and installing the appliance and educating the patient as to its use. We contract with VIPs for the sale of the appliance and are not involved in the sale of the products and services from the VIP to the VIP’s patient. We utilize third party contract manufacturers or labs to produce its patient-customized, patented appliances and its preformed tooth positioners. The manufacturer designated by us produces the appliance in strict adherence to our patents, design files, treatments, processes and procedures and under the direction and our specific instruction, ships the appliance to the VIP who ordered the appliance from us. All of our contract manufacturers are required to follow our master design files in production of appliances or the lab will be in violation of the FDA’s rules and regulations. We performed an analysis and concluded it is the principal in the transaction since it has control of the product and are reporting revenue gross. We bill the VIP the contracted price for the appliance which is recorded as product revenue. Product revenue is recognized once the appliance ships to the VIP under our direction. In support of the VIPs using our appliances for their patients, we utilize a team of trained technicians to measure, order and fit each appliance. Revenue is recognized differently for Company owned centers and distribution alliances with third party sleep centers than it does for revenue from VIPs. Upon scheduling the patient (which is our customer in this case), we owned center takes a deposit and reviews the patient’s insurance coverage. We recognize revenue in the centers after the appliance is received from the manufacturer and once the appliance is fitted and provided to the patient. We offer certain dentists (known as Clinical Advisors) discounts to standard VIP pricing. This is done to help encourage Clinical Advisors, who help the VIPs with technical aspects of our products, to purchase our products for their own practices. In addition, from time to time, we offer credits to incentivize VIPs to adopt our products and increase case volume within their practices. These incentives are recorded as a liability at issuance and are deducted from the related product sale at the time the credit is used. - 74 - Goodwill and Intangible Assets, Net Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. Goodwill is not amortized but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. We test for impairment annually as of December 31. There were no quantitative or qualitative indicators of impairment that occurred for the year ended December 31, 2025, accordingly no impairment was required. Intangible assets consist of assets acquired from First Vivos, costs paid to (i) MyoSync, (ii) Lyon Management and Consulting, LLC and its affiliates (“Lyon Dental”), (iii) AFD, and (iv) SCN, from whom we acquired tradenames and referral relationships. The identifiable intangible assets acquired are amortized using the straight-line method over the estimated life of the assets, which ranges between five and 15 years (See Note 6). Impairment of Long-lived Assets We review and evaluate the recoverability of long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to, (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an adverse action or assessment by a regulator. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. There were no quantitative or qualitative indicators of impairment that occurred for the year ended December 31, 2025, accordingly no impairment was required. Income Taxes We account 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, we consider tax regulations of the jurisdictions in which we operate, 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, we recognize 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. We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Warrant Accounting We account for our warrants and financial instruments as either equity or liabilities based upon the characteristics and provisions of each instrument, in accordance with ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity . Warrants classified as equity are recorded at fair value as of the date of issuance on our consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as liabilities and other financial instruments that require separate accounting as liabilities are recorded on our consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. Management estimates the fair value of these liabilities using the Black-Scholes model and assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate. Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 1 to our financial statements contained in this Annual Report on Form 10-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. - 75 -