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FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
 9 Months Ended 12 Months Ended
Sep. 30, 2023
Dec. 31, 2022
Investments, All Other Investments [Abstract]    
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

NOTE 14 - 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 September 30, 2023 and 2022, the fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities approximated their carrying values due to the short-term nature of these instruments.

 

As discussed in Note 8, on January 9, 2023, the Company closed on the Private Placement for the sale by the Company of shares of the Company’s common stock and the issuance of pre-funded warrant to purchase up to an aggregate of 186,667 shares of common stock at an exercise price of $0.0001 per share, and the issuance of warrant to purchase up to an aggregate of 266,667 shares of common stock at an exercise price of $30 per share. The warrants are initially exercisable commencing January 9, 2023 through their expiration date of July 9, 2028. The liability associated with those warrants was initially recorded at fair value in the Company’s consolidated balance sheet upon issuance, and subsequently re-measured as of March 31, 2023, June 30, 2023, and September 30, 2023. The changes in the fair value between issuance, the March 31, 2023 measurement date, the June 30, 2023 measurement date, and the September 30, 2023 measurement date are recorded as a component of other income (expense), in the consolidated statement of operations.

 

Recurring Fair Value Measurements

 

For the three months and nine months ended September 30, 2023 and 2022, the Company did not have any assets and liabilities classified as Level 1 or Level 3. The Company has concluded that the warrants issued in connection with the private placement, met the definition of a liability under ASC 480, Distinguishing Liabilities from Equity and has classified the liability as Level 3.

 

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023:

  

   Fair Value Measurement as of September 30, 2023 
   (In thousands) 
   Level 1   Level 2   Level 3   Balance 
Warrant Liability  $-   $-   $600   $600 
Total  $-   $-   $600   $600 

 

The following table represent a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and nine months ended September 30, 2023:

  

   Warrant Liability 
   (In thousands) 
     
Beginning balance, January 1  $- 
Issuance of warrants   14,453 
Exercise of warrants   (2,847)
Change in fair value upon re-measurement   (10,273)
Ending balance, March 31  $1,333 
Change in fair value upon re-measurement   867 
Ending balance, June 30  $2,200 
Change in fair value upon re-measurement   (1,600)
Ending balance, September 30  $600 

 

 

The Company has re-measured the liability to estimate fair value at September 30, 2023, using the Black-Scholes option pricing model with the following assumptions:

  

   January 9, 2023   March 31, 2023   June 30, 2023   September 30, 2023 
                 
Measurement date closing price of Common Stock (1)  $36.00   $8.50   $12.75   $4.75 
Contractual term (years) (2)   5.5    5.3    5.0    4.8 
Risk-free interest rate   3.6%   3.5%   4.1%   4.5%
Volatility   100%   100%   100%   100%
Dividend yield   0%   0%   0%   0%

 

  (1) Based on the trading value of common stock of Vivos Therapeutics, Inc. as of January 9, 2023 and each presented period ending date.
     
  (2) The valuation of warrants is based on the expected term.

 

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 three months and nine months ended September 30, 2023 and 2022, the Company had no transfers of its assets or liabilities between levels of the fair value hierarchy.

 

Significant Concentrations

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents on deposit with financial institutions, the balances of which frequently exceed federally insured limits. Management monitors the soundness of these financial institutions and believes the Company’s risk is negligible. The Company has not experienced any losses in such accounts. If any of the financial institutions with whom the Company does business was to be placed into receivership, the Company may be unable to access the cash they have on deposit with such institutions. If the Company were unable to access cash and cash equivalents as needed, the financial position and ability to operate the business could be adversely affected. As of September 30, 2023, the Company had cash and cash equivalents with three financial institutions in the United States with an aggregate balance of $1.0 million.

 

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 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, 2022 and 2021, 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.

 

Recurring Fair Value Measurements

 

For the years ended December 31, 2022 and 2021, 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, 2022 and 2021, 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, 2022, the Company had cash and cash equivalents with two financial institutions in the United States with an aggregate balance of $3.5 million. 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. The Company has never experienced any losses related to its investments in cash, cash equivalents and restricted cash.

 

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.