VIVOS INC. The following discussion and analysis is intended as a review of significant factors affecting the Company's financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the Company's financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those anticipated in these forward-looking statements as a result of the risk factors set forth above in Item 1A and other factors discussed in this Annual Report. 25 Results of Operations
Comparison for the Year Ended
The following table sets forth information from the Company's statements of
operations for the years ended
Year Ended Year Ended
December 31, 2021 December 31, 2020
Revenues, net $ 14,887 $ 7,000
Cost of goods sold 12,000 5,608
Gross profit 2,887 1,392
Operating expense 2,504,685 673,913
Operating loss (2,501,798 ) (672,521 )
Non-operating expense (25,968 ) (284,471 )
Net loss $ (2,527,766 ) $ (956,992 )
Revenue and Cost of Goods Sold
We had$14,887 in revenues for the year endedDecember 31, 2021 , compared to$7,000 in revenue for the year endedDecember 31, 2020 , a period over period increase of$7,887 . These revenues are reflected net of discounts relate to consulting income with respect to the IsoPet® therapies.
We had
Management does not anticipate that the Company will generate sufficient revenue to sustain operations until such time as the Company secures multiple revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies. Operating Expenses Operating expenses for the years endedDecember 31, 2021 and 2020 consisted of the following: Year ended Year ended December 31, 2021 December 31, 2020 Professional fees $ 224,323 $ 243,942
RSUs, stock options and warrants consideration 1,614,000
2,176
Payroll expense 267,477 234,094
Research and development 286,848 84,668General and administrative expense 112,037
109,033
$ 2,504,685 $ 673,913
Operating expenses for the years ended December 31, 2021 and 2020 was $2,504,685
and $673,913 , respectively. The increase in operating expenses from 2020 to 2021
can be attributed to the decrease in professional fees ($243,942 for the year
ended December 31, 2020 versus $224,323 for the year ended December 31, 2021 ) as
the Company utilized more services due to amending their Regulation A+ and the
fees incurred for the consultants engaged; the increase in general and
administrative expense ($109,033 for the year ended December 31, 2020 versus
$112,037 for the year ended December 31, 2021 ); the increase in research and
development ($84,668 for the year ended December 31, 2020 versus $286,848 for
the year ended December 31, 2021 ) as the Company ramped up the development of
their products with the recent raising of capital, an increase in payroll
expenses ($234,094 for the year ended December 31, 2020 versus $267,477 for the
year ended December 31, 2021 ) related to the deferred compensation criteria in
the CEOs employment contract taking effect, and an increase in stock-based
compensation related to RSUs granted to consultants ($2,176 for the year ended
December 31, 2020 versus $1,614,000 for the year ended December 31 , 2021).26
Non-Operating Income (Expense)
Non-Operating income (expense) for the years endedDecember 31, 2021 and 2020 consisted of the following: Year ended Year ended December 31, 2021 December 31, 2020 Interest expense $ (25,375 ) $ (287,471 ) Loss on debt extinguishment (137,038 ) - Forgiveness of debt 136,445 - Other income - 3,000 $ (25,968 ) $ (284,471 )
Non-operating income (expense) for the year endedDecember 31, 2021 varied from the year endedDecember 31, 2020 primarily due to a decrease in interest expense from$287,471 for the year endedDecember 31, 2020 to$25,375 for the year endedDecember 31, 2021 as a result of conversions of notes payable. The majority of the interest recorded by the Company consists of amortization of debt discount, BCF discount and the exchange premium resulting in additional shares to the noteholders on conversion. In addition, the Company converted a note inJanuary 2021 which resulted in a loss on conversion and recognized a gain on forgiveness of debt on old payables as they satisfied the agreement with this vendor to pay a portion of the payable with the remaining amount forgiven. Net Loss
The Company's net loss for the years ended
Liquidity and Capital Resources
AtDecember 31, 2021 , the Company had working capital of$1,467,383 , as compared to working capital of$32,034 atDecember 31, 2020 . During the year endedDecember 31, 2021 , the Company experienced negative cash flow from operations of$963,819 and realized$1,666,238 of cash flows from financing activities. As ofDecember 31, 2021 , the Company did not have any commitments for capital expenditures. Cash used in operating activities increased from$875,807 for the year endedDecember 31, 2020 to$963,819 for the year endedDecember 31, 2021 . Cash used in operating activities was primarily a result of the Company's non-cash items, such as loss from operations, loss on conversion of debt and share based compensation offset by forgiveness of debt. Cash provided from financing activities decreased from$1,759,130 for the year endedDecember 31, 2020 to$1,666,238 for the year endedDecember 31, 2021 . The cash provided from financing activities for 2020 was primarily a result of increase in proceeds from the Regulation A+ where the Company raised$1,662,780 from common stock and warrant issuances,$60,000 from the exercise of stock options, plus proceeds of$150,000 from convertible notes, which$50,000 was repaid. In 2021, the Company raised$1,811,238 from sales of common stock and warrants offset by repayments of convertible notes of$50,000 and related party notes of$100,000 . The Company has generated material operating losses since inception. The Company had a net loss of$2,527,766 for the year endedDecember 31, 2021 , and a net loss of$956,992 for the year endedDecember 31, 2020 . The Company expects to continue to experience net operating losses for the foreseeable future. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company's business. The Company anticipates raising additional capital within the next twelve months for working capital as well as business expansion, although the Company can provide no assurance that additional capital will be available on terms acceptable to the Company, if at all. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business or cease all operations. 27 The Company requires funding of at least$5 million per year to maintain current operating activities. Over the next 24 months, the Company believes it will cost approximately$9 million to fund: (1) fund the FDA approval process to conduct human clinical trials, (2) conduct Phase I, pilot, clinical trials, (3) activate several regional clinics to administer IsoPet® across the county, (4) create an independent production center within the current production site to create a template for future international manufacturing, and (5) initiate regulatory approval processes outside ofthe United States . The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be theFDA's classification of the Company's brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies, which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company's spending and its financing requirements would be the timing of any approvals and the nature of the Company's arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products' success in theU.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises. Although the Company is seeking to raise additional capital and has engaged in numerous discussions with investment bankers and investors, to date, the Company has not received firm commitments for the required funding. Based upon its discussions, the Company anticipates that if the Company is able to obtain the funding required to retire outstanding debt, pay past due payables and maintain its current operating activities, that the terms associated with such funding will result in material dilution to existing shareholders. Recent geopolitical events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact the Company's ability to obtain financing and its ability to execute its business plan.
Contractual Obligations (payments due by period as of
Total Less than 1-3 3-5 More than
Contractual Obligation Payments Due 1 Year Years Years 5 Years
License Agreement with
Battelle Memorial Institute $ 4,000 $ 4,000 $ - $ - $ -
Effective March 2012 , the Company entered into an exclusive license agreement
with Battelle Memorial Institute regarding the use of its patented RadioGel™
technology. This license agreement originally called for a $17,500 nonrefundable
license fee and a royalty based on a percent of gross sales for licensed
products sold; the license agreement also contains a minimum royalty amount to
be paid each year starting with 2013. The license agreement was most recently
amended on December 20, 2018 , and pursuant to the amendment the maintenance fee
schedule was updated for minimum royalties, as well as the increase in royalties
from one percent (1%) to two percent (2%), then on October 8, 2019 to reduce the
fee back to one percent (1%).
Our Chief Executive Officer currently works from his home office in virtual communication with key personnel.Cadwell Laboratories , which is controlled byCarl Cadwell , a director of the Company, provides office space to management on an as-needed basis until such time as the Company leases permanent office space.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on the Company's financial condition, revenues, results of operations, liquidity or capital expenditures. Accounting Policies Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates the Company considers include criteria for stock-based compensation expense, and valuation allowances on deferred tax assets. Actual results could differ from those estimates. 28 Fixed Assets Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of$2,500 or greater and other fixed assets with a cost of$1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
Production equipment: 3 to 7 years Office equipment: 2 to 5 years Furniture and fixtures: 2 to 5 years
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down. License Fees
License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the asset.
Patents and Intellectual Property
While patents are being developed or pending, they are not being amortized. Management has determined that the economic life of the patents to be ten years and amortization, over such ten-year period and on a straight-line basis will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues.
The Company evaluates the recoverability of intangible assets, including patents and intellectual property on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management's plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition InMay 2014 , theFinancial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effectiveJanuary 1, 2018 using the full retrospective method. 29 Under ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC 606 did not have an impact on the Company's operations or cash flows. The Company recognized revenue as they (i) identified the contracts with each customer; (ii) identified the performance obligation in each contract; (iii) determined the transaction price in each contract; (iv) were able to allocate the transaction price to the performance obligations in the contract; and (v) recognized revenue upon the satisfaction of the performance obligation. Upon the sales of the product to complete the procedures on the animals, the Company recognized revenue as that was considered the performance obligation. Net Loss Per Share
The Company accounts for its loss per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic loss per share is computed by dividing loss available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. When the Company incurs a loss, the denominator is not increased by the potentially dilutive common shares as the effect would be anti-dilutive.
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
Income Taxes
The Company accounts for income taxes under FASB ASC Topic 740-10-25 ("ASC
740-10-25"). Under ASC 740-10-25, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
30
The Company files income tax returns in the
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's financial statements. For the years endedDecember 31, 2021 and 2020, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
Fair Value of Financial Instruments
The Company adopted ASC Topic 820 ("Fair Value Measurements") as of January 1,
2008 for financial instruments measured as fair value on a recurring basis. ASC
Topic 820 defines fair value, established a framework for measuring fair value
in accordance with accounting principles generally accepted in the United States
and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. ASC Topic 820 established a three-tier
fair value hierarchy which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurements) and the
lowest priority to unobservable inputs (level 3 measurements). These tiers
include:
- Level 1, defined as observable inputs such as quoted prices for identical
instruments in active markets;
- Level 2, defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable such as quoted prices for
similar instruments in active markets or quoted prices for identical or
similar instruments in markets that are not active; and
- Level 3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions, such
as valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
Stock-Based Compensation
The Company recognizes compensation costs under FASB ASC Topic 718, Compensation
- Stock Compensation and ASU 2018-07. Companies are required to measure the
compensation costs of share-based compensation arrangements based on the
grant-date fair value and recognize the costs in the financial statements over
the period during which employees are required to provide services. Share based
compensation arrangements include stock options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase
plans. As such, compensation cost is measured on the date of grant at their fair
value. Such compensation amounts, if any, are amortized over the respective
vesting periods of the option grant.
Derivative Liabilities and Beneficial Conversion Feature
The Company evaluates its convertible debt, options, warrants or other
contracts, if any, to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted for in
accordance with Accounting Standards Codification Topic 815, Accounting for
Derivative Instruments and Hedging Activities ("ASC 815") as well as related
interpretations of this standard and Accounting Standards Update 2017-11, which
was adopted by the Company effective January 1, 2018 . In accordance with this
standard, derivative instruments are recognized as either assets or liabilities
in the balance sheet and are measured at fair values with gains or losses
recognized in earnings. Embedded derivatives that are not clearly and closely
related to the host contract are bifurcated and are recognized at fair value
with changes in fair value recognized as either a gain or loss in earnings.
31
The result of this accounting treatment is that the fair value of the derivative
instrument is marked-to-market each balance sheet date and with the change in
fair value recognized in the statement of operations as other income or expense.
Upon conversion, exercise or cancellation of a derivative instrument, the
instrument is marked to fair value at the date of conversion, exercise or
cancellation than that the related fair value is removed from the books. Gains
or losses on debt extinguishment are recognized in the statement of operations
upon conversion, exercise or cancellation of a derivative instrument after any
shares issued in such a transaction are recorded at market value. The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of
each reporting period. Equity instruments that are initially classified as
equity that become subject to reclassification are reclassified to liability at
the fair value of the instrument on the reclassification date. Instruments that
become a derivative after inception are recognized as a derivative on the date
they become a derivative with the offsetting entry recorded in earnings.
The Company determines the fair value of derivative instruments and hybrid
instruments, considering all of the rights and obligations of each instrument,
based on available market data using the Black-Scholes model, adjusted for the
effect of dilution, because it embodies all of the requisite assumptions
(including trading volatility, estimated terms, dilution and risk-free rates)
necessary to fair value these instruments. For instruments in default with no
remaining time to maturity the Company uses a one-year term for their years to
maturity estimate unless a sooner conversion date can be estimated or is known.
Estimating fair values of derivative financial instruments requires the
development of significant and subjective estimates that may, and are likely to,
change over the duration of the instrument with related changes in internal and
external market factors. In addition, option-based techniques (such as
Black-Scholes model) are highly volatile and sensitive to changes in the trading
market price of our common stock.
The Company accounts for the beneficial conversion feature on its convertible
instruments in accordance with ASC 470-20. The Beneficial Conversion Feature
("BCF") is normally characterized as the convertible portion or feature that
provides a rate of conversion that is below market value or in the money when
issued. The Company records a BCF when these criteria exist, when issued. BCFs
that are contingent upon the occurrence of a future event are recorded whenthe contingency is resolved. To determine the effective conversion price, the Company first allocates the proceeds received to the convertible instrument, and then use those allocated proceeds to determine the effective conversion price. The intrinsic value of the conversion option should be measured using the effective conversion price for the convertible instrument on the proceeds allocated to that instrument. The accounting for a BCF requires that the BCF be recognized by allocating the intrinsic value of the conversion option to additional paid in capital, resulting in a discount to the convertible instrument. This discount should be accreted from the date on which the BCF is first recognized through the earliest conversion date for instruments that do not have a stated redemption date.
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