8-K: Vivos Therapeutics Secures $1.1 Million Convertible Note to Advance Sleep Center of Nevada Acquisition

Vivos Therapeutics has entered into a $1.1 million convertible promissory note agreement with V-Co Investors 2 LLC to support the pending acquisition of The Sleep Center of Nevada.

Summary

• Vivos Therapeutics, Inc. has secured a $1.1 million convertible promissory note from V-Co Investors 2 LLC on May 21, 2025.
• The note includes a $100,000 bridge financing fee, resulting in $1,000,000 being funded to the company.
• The funds are intended to provide short-term advanced funding for the company's pending acquisition of The Sleep Center of Nevada (SCN Acquisition).
• The acquisition is expected to be completed by July 31, 2025 (the Outside Date).
• The note does not bear interest unless an Event of Default occurs, at which point the interest rate will be 15% per annum.
• Events of Default include failure to complete the SCN Acquisition by the Outside Date, failure to pay principal or interest on demand, breaches of covenants, or bankruptcy proceedings.
• Upon an Event of Default, the lender can demand immediate payment of all outstanding obligations.
• If the SCN Acquisition and a subsequent equity financing are completed before the Outside Date, the note will automatically convert into equity instruments issued in connection with the financing.
• Following the Outside Date, the company may prepay the principal and accrued interest without penalty.
• The note is secured by specific equipment of the company, as detailed in the Security Agreement, but only upon the occurrence of an Event of Default.
• The proceeds from the note will be used for general working capital purposes, including expenditures related to the SCN Acquisition.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The company is securing funding for an acquisition, which is generally a positive step. However, the high interest rate upon default and the security interest in company assets introduce some risk.

Positives

• The $1.1 million in funding provides Vivos Therapeutics with short-term capital to facilitate the acquisition of The Sleep Center of Nevada.
• The convertible nature of the note allows for potential conversion into equity, reducing the company's debt burden if the acquisition and subsequent financing are successful.
• The company can prepay the principal and accrued interest without penalty after the Outside Date, providing financial flexibility.
• The security interest in the company's equipment only applies upon an Event of Default, minimizing immediate operational impact.

Negatives

• The note accrues interest at a high rate of 15% per annum upon an Event of Default, increasing the financial burden if the company fails to meet its obligations.
• The company's assets are pledged as collateral in case of default, which could lead to asset seizure if the company is unable to meet its obligations.
• The company is subject to potential Events of Default, including failure to complete the SCN Acquisition by the Outside Date, which could trigger immediate repayment obligations.

Risks

• Failure to complete the SCN Acquisition by July 31, 2025, would constitute an Event of Default, triggering a 15% interest rate and potential demand for immediate repayment.
• The company's ability to secure a subsequent equity financing is uncertain, which could impact the automatic conversion of the note and increase the debt burden.
• The security interest in the company's equipment in the event of default could negatively impact operations if assets are seized.
• Breaches of covenants within the note could also trigger an Event of Default, leading to adverse financial consequences.

Future Outlook

The company anticipates effectuating a Subsequent Financing in connection with the closing of the SCN Acquisition, which Subsequent Financing may, but is not required to be, led by V-Co.

Industry Context

Bridge loans and convertible notes are common financing tools used to bridge funding gaps, particularly in situations involving acquisitions or other strategic transactions, this type of financing is often used by companies to secure funding quickly while they pursue longer-term financing options, such as equity offerings or traditional debt financing.

Comparison to Industry Standards

• The 15% interest rate upon default is relatively high, suggesting a higher risk assessment by the lender, this is higher than industry averages for secured convertible notes, which typically range from 8% to 12%.
• The inclusion of a $100,000 bridge financing fee is also notable, as such fees can vary widely depending on the size and risk profile of the transaction, typical bridge loan fees range from 1% to 3% of the principal amount.
• The automatic conversion feature upon completion of the SCN Acquisition and a subsequent financing is a standard feature in convertible notes, aligning the lender's interests with the company's success.

Related Party Transactions

• V-Co Investors 2 LLC is an affiliate of New Seneca Partners Inc., an existing private equity investor in, and advisor to, the Company.

Stakeholder Impact

• Shareholders: The acquisition and financing could potentially increase shareholder value if the acquisition is successful.
• Employees: The acquisition could lead to changes in the workforce or operational structure.
• Customers: The acquisition could result in improved services or expanded offerings.
• Creditors: The new debt could impact the company's creditworthiness and financial stability.

Next Steps

• Complete the acquisition of The Sleep Center of Nevada by July 31, 2025.
• Secure a subsequent equity financing to facilitate the conversion of the promissory note.
• Ensure compliance with all covenants and obligations outlined in the promissory note and security agreement.

Key Dates

Keywords

Convertible Promissory Note, Vivos Therapeutics, Acquisition, Sleep Center of Nevada, Financing, Equity, Debt, Security Agreement, Default, Interest Rate