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Biolase, Inc – ‘10-Q’ for 9/30/19

On:  Friday, 11/8/19, at 7:14pm ET   ·   As of:  11/12/19   ·   For:  9/30/19   ·   Accession #:  1564590-19-42402   ·   File #:  1-36385

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/12/19  Biolase, Inc                      10-Q        9/30/19   86:10M                                    ActiveDisclosure/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    743K 
 7: EX-4.8      Instrument Defining the Rights of Security Holders  HTML     84K 
 2: EX-10.5     Material Contract                                   HTML     54K 
 3: EX-31.1     Certification -- §302 - SOA'02                      HTML     30K 
 4: EX-31.2     Certification -- §302 - SOA'02                      HTML     30K 
 5: EX-32.1     Certification -- §906 - SOA'02                      HTML     25K 
 6: EX-32.2     Certification -- §906 - SOA'02                      HTML     25K 
54: R1          Document and Entity Information                     HTML     76K 
32: R2          Consolidated Balance Sheets (Unaudited)             HTML     97K 
39: R3          Consolidated Balance Sheets (Unaudited)             HTML     43K 
                (Parenthetical)                                                  
83: R4          Consolidated Statements Of Operations And           HTML     87K 
                Comprehensive Loss (Unaudited)                                   
52: R5          Consolidated Statements of Stockholders' (Deficit)  HTML     53K 
                Equity (Unaudited)                                               
31: R6          Consolidated Statements Of Cash Flows (Unaudited)   HTML    122K 
38: R7          Description of Business and Basis of Presentation   HTML     36K 
81: R8          Summary of Significant Accounting Policies          HTML     36K 
55: R9          Revenue Recognition                                 HTML    208K 
48: R10         Stockholders' (Deficit) Equity                      HTML    292K 
21: R11         Inventory                                           HTML     45K 
64: R12         Property, Plant, and Equipment                      HTML     66K 
73: R13         Intangible Assets and Goodwill                      HTML     27K 
47: R14         Accrued Liabilities                                 HTML    115K 
20: R15         Debt                                                HTML     93K 
63: R16         Leases                                              HTML     71K 
72: R17         Commitments and Contingencies                       HTML     30K 
46: R18         Segment Information                                 HTML     74K 
22: R19         Concentrations                                      HTML    112K 
50: R20         Income Taxes                                        HTML     29K 
79: R21         Subsequent Events                                   HTML     33K 
34: R22         Summary of Significant Accounting Policies          HTML     65K 
                (Policies)                                                       
24: R23         Revenue Recognition (Tables)                        HTML    291K 
49: R24         Stockholders' (Deficit) Equity (Tables)             HTML    299K 
78: R25         Inventory (Tables)                                  HTML     45K 
33: R26         Property, Plant, and Equipment (Tables)             HTML     65K 
23: R27         Accrued Liabilities (Tables)                        HTML    116K 
51: R28         Debt (Tables)                                       HTML     76K 
77: R29         Leases (Tables)                                     HTML     73K 
74: R30         Segment Information (Tables)                        HTML     74K 
66: R31         Concentrations (Tables)                             HTML    163K 
18: R32         Description of Business and Basis of Presentation   HTML     64K 
                - Additional Information (Detail)                                
44: R33         Summary of Significant Accounting Policies -        HTML     34K 
                Additional Information (Detail)                                  
75: R34         Revenue Recognition - Additional Information        HTML     36K 
                (Detail)                                                         
67: R35         Summary of Opening and Closing Balances of          HTML     34K 
                Contract Liabilities (Detail)                                    
19: R36         Summary of Disaggregation of Revenues Related to    HTML     31K 
                Geographic Areas (Detail)                                        
45: R37         Summary of Revenues Disaggregated by Timing of      HTML     32K 
                Goods and Services Transferred (Detail)                          
76: R38         Summary of Sales by End Market (Detail)             HTML     31K 
65: R39         Summary of Percentages of Sales by Product line     HTML     38K 
                (Detail)                                                         
80: R40         Stockholders' (Deficit) Equity - Additional         HTML     78K 
                Information (Detail)                                             
56: R41         Classification of Compensation Expense Associated   HTML     37K 
                with Share-Based Payments (Detail)                               
29: R42         Assumptions Used in Estimating Fair Value of Stock  HTML     32K 
                Options Granted (Detail)                                         
40: R43         Summary of Option Activity (Detail)                 HTML     61K 
82: R44         Summary of Unvested Stock Option Activity (Detail)  HTML     46K 
57: R45         Cash Proceeds Along with Fair Value Disclosures     HTML     31K 
                Related to Grants, Exercises and Vested Options                  
                (Detail)                                                         
30: R46         Summary of Unvested Restricted Stock Units          HTML     48K 
                (Detail)                                                         
41: R47         Summary of Warrant Activity (Detail)                HTML     42K 
84: R48         Components of Inventory (Detail)                    HTML     33K 
53: R49         Inventory - Additional Information (Detail)         HTML     26K 
61: R50         Summary of Property, Plant, and Equipment (Detail)  HTML     46K 
70: R51         Property, Plant, and Equipment - Additional         HTML     26K 
                Information (Detail)                                             
43: R52         Intangible Assets and Goodwill - Additional         HTML     31K 
                Information (Detail)                                             
17: R53         Components of Accrued Liabilities (Detail)          HTML     47K 
60: R54         Changes in Initial Product Warranty Accrual and     HTML     38K 
                Expenses Under Initial and Extended Warranties                   
                (Detail)                                                         
69: R55         Accrued Liabilities - Additional Information        HTML     32K 
                (Detail)                                                         
42: R56         Debt - Summary of Principal Outstanding and         HTML     31K 
                Unamortized Discount (Detail)                                    
16: R57         Debt - Additional Information (Detail)              HTML    202K 
62: R58         Debt - Summary of Future Minimum Principal and      HTML     46K 
                Interest Payments (Detail)                                       
68: R59         Leases - Additional Information (Detail)            HTML     57K 
37: R60         Leases - Information related to Right-of-use        HTML     33K 
                Assets and Liabilities (Detail)                                  
27: R61         Leases - Schedule of Maturities of Lease            HTML     37K 
                Liabilities (Detail)                                             
59: R62         Leases - Future Minimum Rental Commitments Under    HTML     33K 
                Lease Agreements (Detail)                                        
86: R63         Commitments and Contingencies - Additional          HTML     52K 
                Information (Detail)                                             
36: R64         Segment Information - Additional Information        HTML     37K 
                (Detail)                                                         
26: R65         Summary of Net Revenue by Geographic Location       HTML     31K 
                (Detail)                                                         
58: R66         Summary of Property, Plant and Equipment by         HTML     31K 
                Geographic Location (Detail)                                     
85: R67         Concentrations - Summary of Net Revenue from        HTML     49K 
                Various Products (Detail)                                        
35: R68         Concentrations - Additional Information (Detail)    HTML     39K 
28: R69         Income Taxes - Additional Information (Detail)      HTML     34K 
15: R70         Subsequent Events - Additional Information          HTML     83K 
                (Detail)                                                         
14: XML         IDEA XML File -- Filing Summary                      XML    153K 
71: EXCEL       IDEA Workbook of Financial Reports                  XLSX     91K 
 8: EX-101.INS  XBRL Instance -- biol-20190930                       XML   2.79M 
10: EX-101.CAL  XBRL Calculations -- biol-20190930_cal               XML    170K 
11: EX-101.DEF  XBRL Definitions -- biol-20190930_def                XML    583K 
12: EX-101.LAB  XBRL Labels -- biol-20190930_lab                     XML   1.39M 
13: EX-101.PRE  XBRL Presentations -- biol-20190930_pre              XML   1.06M 
 9: EX-101.SCH  XBRL Schema -- biol-20190930                         XSD    215K 
25: ZIP         XBRL Zipped Folder -- 0001564590-19-042402-xbrl      Zip    178K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Financial Information
"Financial Statements (Unaudited)
"Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
"Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and September 30, 2018
"Consolidated Statements of Stockholders' (Deficit) Equity f or the three and nine months ended September 30, 2019 and September 30, 2018
"Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018
"Notes to Consolidated Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Other Information
"Legal Proceedings
"Risk Factors
"Exhibits
"Signatures

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-36385

 

BIOLASE, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

87-0442441

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

4 Cromwell

Irvine, California 92618

(Address of principal executive offices) (Zip code)

(949) 361-1200

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock at par value $0.001 per share

 

BIOL

 

The NASDAQ Stock Market LLC

(NASDAQ Capital Market)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes      No  

As of November 6, 2019, the registrant had 30,947,423 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

BIOLASE, INC.

INDEX

 

 

  

 

  

Page

PART I.

  

FINANCIAL INFORMATION

  

 

Item 1.

  

Financial Statements (Unaudited):

  

3

 

  

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

  

3

 

  

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and September 30, 2018

  

4

 

 

Consolidated Statements of Stockholders’ (Deficit) Equity for the three and nine months ended September   30, 2019 and September 30, 2018

 

5

 

  

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018

  

6

 

  

Notes to Consolidated Financial Statements

  

7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

29

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

43

Item 4.

  

Controls and Procedures

  

43

PART II

  

OTHER INFORMATION

  

 

Item 1.

  

Legal Proceedings

  

43

Item 1A.

  

Risk Factors

  

43

Item 5

 

Other Information

 

44

Item 6.

  

Exhibits

  

45

Signatures

 

48

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

ITEM  1.

FINANCIAL STATEMENTS

BIOLASE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,091

 

 

$

8,044

 

Restricted cash

 

 

312

 

 

 

312

 

Accounts receivable, less allowance of $2,084 and $850 in 2019 and

   2018, respectively

 

 

8,474

 

 

 

11,112

 

Inventory

 

 

11,537

 

 

 

12,248

 

Prepaid expenses and other current assets

 

 

875

 

 

 

1,591

 

Total current assets

 

 

23,289

 

 

 

33,307

 

Property, plant, and equipment, net

 

 

1,340

 

 

 

1,975

 

Goodwill

 

 

2,926

 

 

 

2,926

 

Other assets

 

 

718

 

 

 

308

 

Total assets

 

$

28,273

 

 

$

38,516

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

6,604

 

 

 

5,953

 

Accrued liabilities

 

 

4,950

 

 

 

7,538

 

Deferred revenue, current portion

 

 

2,512

 

 

 

2,476

 

Total current liabilities

 

 

14,066

 

 

 

15,967

 

Deferred income taxes, net

 

 

71

 

 

 

77

 

Warranty accrual

 

 

701

 

 

 

447

 

Other liabilities

 

 

1,145

 

 

 

100

 

Term loan

 

 

13,356

 

 

 

10,836

 

Total liabilities

 

 

29,339

 

 

 

27,427

 

Commitments and contingencies Note 11

 

 

 

 

 

 

 

 

Stockholders' (deficit) equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001 per share; 1,000 shares authorized; 0

   shares issued and outstanding as of September 30, 2019 and

   December 31, 2018, respectively

 

 

 

 

 

 

Common stock, par value $0.001 per share; 40,000 shares authorized,

   21,954 and 21,072 shares issued and outstanding as of September 30,

   2019 and December 31, 2018, respectively

 

 

22

 

 

 

21

 

Additional paid-in-capital

 

 

230,712

 

 

 

228,430

 

Accumulated other comprehensive loss

 

 

(840

)

 

 

(670

)

Accumulated deficit

 

 

(230,960

)

 

 

(216,692

)

Total stockholders' (deficit) equity

 

 

(1,066

)

 

 

11,089

 

Total liabilities and stockholders' (deficit) equity

 

$

28,273

 

 

$

38,516

 

 

See accompanying notes to unaudited consolidated financial statements.

3


 

BIOLASE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenue

 

$

8,646

 

 

$

10,936

 

 

$

27,617

 

 

$

33,110

 

Cost of revenue

 

 

5,677

 

 

 

6,995

 

 

 

17,746

 

 

 

21,828

 

Gross profit

 

 

2,969

 

 

 

3,941

 

 

 

9,871

 

 

 

11,282

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

3,515

 

 

 

4,489

 

 

 

10,665

 

 

 

13,037

 

General and administrative

 

 

3,210

 

 

 

2,685

 

 

 

8,114

 

 

 

8,691

 

Engineering and development

 

 

1,126

 

 

 

1,277

 

 

 

3,665

 

 

 

3,927

 

Total operating expenses

 

 

7,851

 

 

 

8,451

 

 

 

22,444

 

 

 

25,655

 

Loss from operations

 

 

(4,882

)

 

 

(4,510

)

 

 

(12,573

)

 

 

(14,373

)

Loss on foreign currency transactions

 

 

19

 

 

 

73

 

 

 

68

 

 

 

53

 

Interest expense

 

 

551

 

 

 

33

 

 

 

1,559

 

 

 

80

 

Non-operating loss, net

 

 

570

 

 

 

106

 

 

 

1,627

 

 

 

133

 

Loss before income tax provision

 

 

(5,452

)

 

 

(4,616

)

 

 

(14,200

)

 

 

(14,506

)

Income tax provision

 

 

26

 

 

 

49

 

 

 

68

 

 

 

91

 

Net loss

 

 

(5,478

)

 

 

(4,665

)

 

 

(14,268

)

 

 

(14,597

)

Other comprehensive income item:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(128

)

 

 

3

 

 

 

(170

)

 

 

(31

)

Comprehensive loss

 

$

(5,606

)

 

$

(4,662

)

 

$

(14,438

)

 

$

(14,628

)

Net loss attributable to common stockholders

 

$

(5,478

)

 

$

(4,665

)

 

$

(14,268

)

 

$

(14,597

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

(0.23

)

 

$

(0.66

)

 

$

(0.71

)

Diluted

 

$

(0.25

)

 

$

(0.23

)

 

$

(0.66

)

 

$

(0.71

)

Shares used in the calculation of net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

21,898

 

 

 

20,610

 

 

 

21,545

 

 

 

20,539

 

Diluted

 

 

21,898

 

 

 

20,610

 

 

 

21,545

 

 

 

20,539

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

4


 

BIOLASE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited, in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Total stockholders' (deficit) equity, beginning balances

 

$

3,784

 

 

$

20,391

 

 

$

11,089

 

 

$

16,337

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

229,994

 

 

 

226,109

 

 

 

228,451

 

 

 

225,619

 

Issuance of common stock upon exercise of options

 

 

 

 

 

 

 

 

3

 

 

 

2

 

Stock offering costs

 

 

 

 

 

 

 

 

 

 

 

(38

)

Liability award settlement

 

 

81

 

 

 

 

 

 

236

 

 

 

 

Stock-based compensation expense

 

 

659

 

 

 

607

 

 

 

1,835

 

 

 

1,133

 

Warrants issued in connection with debt instruments

 

 

 

 

 

 

 

 

209

 

 

 

 

Ending balance

 

 

230,734

 

 

 

226,716

 

 

 

230,734

 

 

 

226,716

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(712

)

 

 

(610

)

 

 

(670

)

 

 

(576

)

Other comprehensive (loss) income

 

 

(128

)

 

 

3

 

 

 

(170

)

 

 

(31

)

Ending balance

 

 

(840

)

 

 

(607

)

 

 

(840

)

 

 

(607

)

Accumulated deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(225,482

)

 

 

(205,108

)

 

 

(216,692

)

 

 

(195,176

)

Net loss

 

 

(5,478

)

 

 

(4,665

)

 

 

(14,268

)

 

 

(14,597

)

Ending balance

 

 

(230,960

)

 

 

(209,773

)

 

 

(230,960

)

 

 

(209,773

)

Total stockholders' (deficit) equity, ending balances

 

$

(1,066

)

 

$

16,336

 

 

$

(1,066

)

 

$

16,336

 

 

See accompanying notes to unaudited consolidated financial statements.

5


 

BIOLASE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)  

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,268

)

 

$

(14,597

)

Adjustments to reconcile net loss to net cash and cash equivalents used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

754

 

 

 

712

 

Gain on disposal of assets, net

 

 

 

 

 

(12

)

Provision for bad debts

 

 

1,243

 

 

 

316

 

Provision for inventory excess and obsolescence

 

 

 

 

 

59

 

Amortization of discounts on lines of credit

 

 

103

 

 

 

31

 

Amortization of debt issuance costs

 

 

130

 

 

 

43

 

Stock-based compensation

 

 

1,974

 

 

 

1,862

 

Deferred income taxes

 

 

(6

)

 

 

1

 

Earned interest income

 

 

2

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,393

 

 

 

(1,591

)

Inventory

 

 

711

 

 

 

(1,184

)

Prepaid expenses and other current assets

 

 

1,011

 

 

 

940

 

Accounts payable and accrued liabilities

 

 

(1,157

)

 

 

3,200

 

Deferred revenue

 

 

36

 

 

 

(370

)

Net cash and cash equivalents used in operating activities

 

 

(8,074

)

 

 

(10,590

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(138

)

 

 

(110

)

Proceeds from disposal of property, plant, and equipment

 

 

 

 

 

36

 

Net cash and cash equivalents used in investing activities

 

 

(138

)

 

 

(74

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Principal payments under capital lease obligation

 

 

 

 

 

(46

)

Borrowings under line of credit

 

 

 

 

 

3,323

 

Payments under line of credit

 

 

 

 

 

(1,823

)

Borrowings under term loan

 

 

2,500

 

 

 

 

Payments of debt issuance costs

 

 

(38

)

 

 

(87

)

Payments of equity offering costs

 

 

(50

)

 

 

(138

)

Proceeds from exercise of stock options

 

 

4

 

 

 

2

 

Net cash and cash equivalents provided by financing activities

 

 

2,416

 

 

 

1,231

 

Effect of exchange rate changes

 

 

(157

)

 

 

(23

)

Decrease in cash, cash equivalents and restricted cash

 

 

(5,953

)

 

 

(9,456

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

8,356

 

 

 

11,896

 

Cash, cash equivalents and restricted cash, end of period

 

$

2,403

 

 

$

2,440

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,315

 

 

$

 

Cash paid for income taxes

 

$

19

 

 

$

31

 

Cash paid for operating leases

 

$

606

 

 

$

 

Non-cash accrual for capital expenditures

 

$

4

 

 

$

3

 

Non-cash accrual for equity offering costs

 

$

191

 

 

$

 

Non-cash right-of-use assets obtained in exchange for lease obligation

 

$

824

 

 

$

 

Non-cash settlement of performance award liability

 

$

236

 

 

$

 

Warrants issued in connection with debt instruments

 

$

209

 

 

$

 

 

See accompanying notes to unaudited consolidated financial statements.

6


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

The Company

BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company”) is a medical device company that develops, manufactures, markets, and sells laser systems in dentistry and medicine. The Company’s products advance the practice of dentistry and medicine for patients and health care professionals. The Company’s proprietary dental laser systems allow dentists, periodontists, endodontists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. The Company’s laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. The Company has clearance from the Food and Drug Administration (“FDA”) to market and sell its laser systems in the United States and also have the necessary registration to market and sell its laser systems in Canada, the European Union, and many other countries outside the United States.

Basis of Presentation

The unaudited consolidated financial statements include the accounts of BIOLASE and its wholly-owned subsidiaries and have been prepared on a basis consistent with the December 31, 2018 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. These unaudited, interim, consolidated financial statements do not include all the footnotes, presentations, and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements.

The consolidated results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018, included in BIOLASE’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2019 (the “2018 Form 10-K”).

Liquidity and Management’s Plans

The Company incurred a loss from operations and a net loss, and used cash in operating activities for the three and nine months ended September 30, 2019. The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

As of March 31, 2019, the Company was not in compliance with certain of its loan covenants relating to the SWK Loan (as defined below). In May 2019, SWK Funding, LLC granted the Company a waiver of such covenants. On May 7, 2019, the Company entered into an amendment of its Credit Agreement with SWK Funding, LLC to increase the total loan commitment in the SWK Loan from $12.5 million to $15.0 million, to revise certain of the financial covenants and to issue additional warrants to purchase the Company’s common stock. On September 30, 2019, the Company entered into a second amendment of its Credit Agreement with SWK Funding, LLC, to provide for a revolving loan facility, secured by a first lien security interest in the Company’s inventory and accounts receivable. On November 6, 2019, the Company entered into a third amendment to its Credit Agreement to further modify its loan covenants. See Notes 9 and 15 for additional information.

7


 

On October 28, 2019, BIOLASE, Inc. (the “Company”) entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“Lender”), which provides for a revolving line of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in the Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated. See Note 15 for additional information.

On October 29, 2019, the Company successfully consummated an underwritten public offering of BIOLASE common stock and a concurrent private placement of BIOLASE Series E Participating Convertible Preferred Stock, resulting in net proceeds of approximately $7.8 million after deducting underwriter discounts and other fees and expenses. On November 5, 2019, the underwriters exercised their over-allotment option and the Company received approximately $0.6 million in additional proceeds from the sale of 1.1 million additional shares. See Note 15 for additional information.

As of September 30, 2019, the Company had working capital of approximately $9.2 million. The Company’s principal sources of liquidity as of September 30, 2019 consisted of approximately $2.4 million in cash, cash equivalents and restricted cash and $8.5 million of accounts receivable.  

In order for the Company to continue operations beyond the next 12 months and be able to discharge its liabilities and commitments in the normal course of business, it must sell its products directly to end users and through distributors, establish profitable operations through increased sales, decrease expenses, generate cash from operations, or obtain additional funds when needed. The Company intends to improve its financial condition and ultimately improve its financial results by increasing revenues through expansion of its product offerings, continuing to expand and develop its field sales force and distributor relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of its advanced medical technologies, and reducing expenses.

Additional capital requirements may depend on many factors, including, among other things, continued losses, the rate at which the Company’s business grows, demands for working capital, manufacturing capacity, and any acquisitions that the Company may pursue. From time to time, the Company could be required, or may otherwise attempt, to raise capital, through either equity or debt offerings, or enter into an additional line of credit facility.

Reverse Stock Split

Except as the context otherwise requires, all share numbers and share price amounts (including exercise prices and closing market prices) contained in the unaudited financial statements and notes thereto reflect the one-for-five reverse stock split (“Reverse Stock Split”) effectuated by the Company on May 10, 2018. See Note 4 below for additional information.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of these unaudited consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these unaudited consolidated financial statements include allowances on accounts receivable, inventory, and deferred taxes, as well as estimates for accrued warranty expenses, goodwill and the ability of goodwill to be realized, revenue deferrals, effects of stock-based compensation and warrants, contingent liabilities, and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.

8


 

Critical Accounting Policies

Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained in the 2018 Form 10-K. Management believes that there have been no significant changes during the nine months ended September 30, 2019 in the Company’s critical accounting policies from those disclosed in the 2018 Form 10-K.

Fair Value of Financial Instruments

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 in the principal market (or, if none exists, the most advantageous market) for the specific asset or liability at the measurement date (referred to as the “exit price”). The fair value is based on assumptions that market participants would use, including a consideration of non-performance risk. Under the accounting guidance for fair value hierarchy, there are three levels of measurement inputs. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable, either directly or indirectly. Level 3 inputs are unobservable due to little or no corroborating market data.

The Company’s financial instruments, consisting of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, liability for patent litigation settlement, and the SWK Loan as discussed in Note 9, approximate fair value because of the liquid or short-term nature of these items.

Concentration of Credit Risk, Interest Rate Risk and Foreign Currency Exchange Rate

Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents, restricted cash, and trade accounts receivable. The Company maintains its cash and cash equivalents and restricted cash with established commercial banks. At times, balances may exceed federally insured limits. To minimize the risk associated with trade accounts receivable, management performs ongoing credit evaluations of customers’ financial condition and maintains relationships with the Company’s customers that allow management to monitor current changes in business operations so the Company can respond as needed. The Company does not, generally, require customers to provide collateral before it sells them its products. However, the Company has required certain distributors to make prepayments for significant purchases of products.

Substantially all of the Company’s revenue is denominated in U.S. dollars, including sales to international distributors. Only a small portion of its revenue and expenses is denominated in foreign currencies, principally the Euro and Indian Rupee. The Company’s foreign currency expenditures primarily consist of the cost of maintaining offices, consulting services, and employee-related costs. During the nine-month periods ended September 30, 2019 and 2018, the Company did not enter into any hedging contracts. Future fluctuations in the value of the U.S. dollar may affect the price competitiveness of the Company’s products outside the U.S.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations.

9


 

Adopted Accounting Pronouncements

In February 2016, the FASB established ASU Topic 842 – Leases, by issuing ASU Topic No. 2016-02 (“Topic 842”), which requires lessees to recognize lease on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU Topic 2018-11 – Targeted Improvements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and a lease liability for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

The Company adopted Topic 842 in the first quarter of 2019 utilizing the modified retrospective transition method and a cumulative effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date, and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of the right-to-use assets. The adoption of Topic 842 resulted in the recognition of right-of use assets of approximately $0.8 million after a $0.2 million adjustment for deferred rent, and lease liabilities for operating leases of approximately $1.0 million, and no cumulative effect adjustment on retained earnings on its unaudited Consolidated Balance Sheets nor material impact to its unaudited Consolidated Statements of Operations and Comprehensive Loss in the period of adoption. Right-of-use assets are included in Other assets, and lease liabilities are included in Accrued liabilities and in Other liabilities in the unaudited consolidated balance sheet for the period ended September 30, 2019. See Note 10 for additional information.

Recently Issued Accounting Standards

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for the Company beginning January 1, 2020. The Company is evaluating the impact of this standard on the Company’s consolidated financial statements, including accounting policies, processes, and systems.

 

NOTE 3 – REVENUE RECOGNITION

Contracts with Customers

Revenue for sales of products and services is derived from contracts with customers. The products and services promised in customer contracts include delivery of laser systems, imaging systems, and consumables as well as certain ancillary services such as training and extended warranties. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract and vary according to the arrangement. Because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the Company’s contracts do not contain variable consideration. The Company also establishes a provision for estimated warranty expense.

10


 

Performance Obligations

At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, the Company considers all of the products or services promised in contracts regardless of whether they are explicitly stated or are implied by customary business practices.

Revenue from products and services transferred to customers at a single point in time accounted for 77% and 81% of net revenue for the three and nine months ended September 30, 2019, respectively, and 85% and 85% for the three and nine months ended September 30, 2018, respectively. The majority of the Company’s revenue recognized at a point in time is for the sale of laser systems, imaging systems, and consumables. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process.

Revenue from services transferred to customers over time accounted for 23% and 19% of net revenue for the three and nine months ended September 30, 2019, respectively, and 15% and 15% for the three and nine months ended September 30, 2018, respectively. The majority of the Company’s revenue that is recognized over time relates to product training and extended warranties. Deferred revenue attributable to undelivered elements, which primarily consists of product training, totaled approximately $0.6 million and $0.7 million as of September 30, 2019 and December 31, 2018, respectively.

Transaction Price Allocation

The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers.

Significant Judgments

Revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage. This revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. Revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation, which is generally after nine months.

The Company also has contracts that include both the product sales and product training as performance obligations. In those cases, the Company records revenue for product sales at the point in time when the product has been shipped. The customer obtains control of the product when it is shipped, as all shipments are made FOB shipping point, and after the customer selects its shipping method and pays all shipping costs and insurance. The Company has concluded that control is transferred to the customer upon shipment.

Accounts Receivable

Accounts receivable are stated at estimated net realizable value. The allowance for bad debts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs. In the third quarter of 2019, the Company increased its allowance for doubtful accounts reserve by approximately $1.1 million relating to our distributor in China.  

11


 

Contract Liabilities

The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services and the Company has not transferred control of the goods and/or services. The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Undelivered elements (training, installation, product and

   support services)

 

$

566

 

 

$

730

 

Extended warranty contracts

 

 

1,940

 

 

 

1,735

 

Deferred royalties

 

 

6

 

 

 

11

 

Total deferred revenue

 

 

2,512

 

 

 

2,476

 

Less long-term portion of deferred revenue

 

 

 

 

 

 

Deferred revenue — current

 

$

2,512

 

 

$

2,476

 

 

The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at September 30, 2019 and December 31, 2018.

The amount of revenue recognized during the three-month period ended September 30, 2019 and September 30, 2018 and included in the opening contract liability balance related to undelivered elements was $0.1 million and $0.2 million, respectively. The amount of revenue recognized during the nine-month period ended September 30, 2019 and September 30, 2018 and included in the opening contract liability balance was $0.5 million and $0.8 million, respectively. Revenue recognized during 2018 and 2019 relating to deferred royalties was not material in either period.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

12


 

The Company’s revenues related to the following geographic areas were as follows for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

United States

 

$

4,949

 

 

$

6,953

 

 

$

16,962

 

 

$

19,810

 

International

 

 

3,697

 

 

 

3,983

 

 

 

10,655

 

 

 

13,300

 

 

 

$

8,646

 

 

$

10,936

 

 

$

27,617

 

 

$

33,110

 

 

Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue recognized over time

 

$

1,997

 

 

$

1,594

 

 

$

5,267

 

 

$

4,848

 

Revenue recognized at a point in time

 

 

6,649

 

 

 

9,342

 

 

 

22,350

 

 

 

28,262

 

Total

 

$

8,646

 

 

$

10,936

 

 

$

27,617

 

 

$

33,110

 

 

The Company’s sales by end market were as follows for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

End-customer

 

$

3,727

 

 

$

7,387

 

 

$

11,068

 

 

$

21,093

 

Distributors

 

 

4,919

 

 

 

3,549

 

 

 

16,549

 

 

 

12,017

 

 

 

$

8,646

 

 

$

10,936

 

 

$

27,617

 

 

$

33,110

 

 

The Company provides the equipment and any related services directly to the customer. The Company has inventory risk before the equipment is transferred to a customer. The Company purchases and obtains the goods before obtaining a contract with a customer. The Company also has discretion in establishing the price sold to the customer for the equipment.

13


 

The percentages of the Company’s sales by product line were as follows for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Laser systems

 

 

59.8

 

%

 

64.5

 

%

 

58.1

 

%

 

62.5

 

%

Imaging systems

 

 

 

%

 

3.5

 

%

 

2.2

 

%

 

4.0

 

%

Consumables and other

 

 

17.1

 

%

 

17.4

 

%

 

20.6

 

%

 

18.9

 

%

Services

 

 

23.1

 

%

 

14.6

 

%

 

19.1

 

%

 

14.6

 

%

License fees and royalties

 

 

 

%

 

 

%

 

 

%

 

 

%

 

 

 

100.0

 

%

 

100.0

 

%

 

100.0

 

%

 

100.0

 

%

 

Shipping and Handling Costs and Revenues

Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs.

 

NOTE 4—STOCKHOLDERS’ (DEFICIT) EQUITY

On October 29, 2019, the Company successfully consummated an underwritten public offering of 7,820,000 shares of BIOLASE common stock and a concurrent private placement of 69,695 shares of BIOLASE Series E Participating Convertible Preferred Stock, and on November 5, 2019, the underwriters of the public offering exercised their over-allotment option to acquire additional shares of BIOLASE common stock. The underwritten public offering and concurrent private placement resulted in net proceeds of $8.4 million after deducting underwriter discounts and other fees and expenses. See Note 15 for additional information.

Reverse Stock Split

At BIOLASE’s annual meeting of stockholders on May 9, 2018 (the “2018 Annual Meeting”), BIOLASE stockholders approved an amendment to BIOLASE’s Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split and on May 10, 2018, the Company filed an amendment (the “Amendment”) to its Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect the Reverse Stock Split, effective as of 11:59 p.m. on May 10, 2018. The Amendment also reduced the authorized shares of common stock from 200,000,000 shares to 40,000,000 shares. Prior year share and per share amounts have been adjusted to reflect the impact of the Reverse Stock Split.

Stock-Based Compensation

2002 Stock Incentive Plan

The 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, October 30, 2014, April 27, 2015, and May 6, 2016, the “2002 Plan”) was replaced by the 2018 Plan (as defined below) with respect to future equity awards. Persons eligible to receive awards under the 2002 Plan included officers, employees, and directors of the Company, as well as consultants. As of September 30, 2019, a total of approximately 3.1 million shares of the Company’s common stock have been authorized for issuance under the 2002 Plan, of which approximately 1.0 million shares of the Company’s common stock have been issued pursuant to options that were exercised and restricted stock units (“RSUs”) that were settled in common stock and 1.3 million shares of common stock have been reserved for outstanding options and unvested RSUs, and no shares are available for future grants.

14


 

2018 Stock Incentive Plan

At the 2018 Annual Meeting, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended, the “2018 Plan”), which was amended by Amendment No. 1 to the 2018 Plan, approved by the Company’s stockholders at a special meeting on September 21, 2018 and Amendment No. 2 to the 2018 Plan, approved by the Company’s stockholder’s at its annual meeting of stockholders on May 15, 2019. The purposes of the 2018 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2018 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.

Subject to the terms and conditions of the 2018 Plan, the number of shares authorized for grants under the 2018 Plan is 5.0 million. As of September 30, 2019, a total 3.9 million shares of the Company’s common stock have been reserved for outstanding options and unvested RSUs, and 1.1 million shares of common stock remain available for future grants.

The Company recognized stock-based compensation expense of $0.8 million and $0.5 million, for the three months ended September 30, 2019 and2018, respectively, and $1.9 million and $1.9 million for the nine months ended September 30, 2019 and September 30, 2018, respectively, based on the grant-date fair value. As of nine months ended September 30, 2019 the Company had approximately $2.3 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements. The Company expects that expense to be recognized over a weighted-average period of 1.69 years.

The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Cost of revenue

 

$

94

 

 

$

127

 

 

$

229

 

 

$

289

 

Sales and marketing

 

 

173

 

 

 

134

 

 

 

411

 

 

 

368

 

General and administrative

 

 

442

 

 

 

258

 

 

 

1,167

 

 

 

932

 

Engineering and development

 

 

61

 

 

 

85

 

 

 

167

 

 

 

273

 

 

 

$

770

 

 

$

604

 

 

$

1,974

 

 

$

1,862

 

 

The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Expected term

 

6.1 years

 

 

5.9 years

 

 

6.1 years

 

 

5.9 years

 

Volatility

 

 

85.4

%

 

 

81.9

%

 

 

85.4

%

 

 

81.4

%

Annual dividend per share

 

$

 

 

$

 

 

$

 

 

$

 

Risk-free interest rate

 

 

2.60

%

 

 

2.90

%

 

 

2.60

%

 

 

2.50

%

 

15


 

A summary of option activity for the nine months ended September 30, 2019 is as follows (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

Weighted

Average

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

Shares

 

 

Exercise

Price

 

 

Term

(Years)

 

 

Intrinsic

Value(1)

 

Options outstanding, December 31, 2018

 

1,623

 

 

$

6.54

 

 

 

 

 

 

$

 

Granted at fair market value

 

70

 

 

$

2.08

 

 

 

 

 

 

 

 

 

Exercised

 

(2

)

 

$

2.10

 

 

 

 

 

 

 

 

 

Forfeited, cancelled, or expired

 

(332

)

 

$

7.27

 

 

 

 

 

 

 

 

 

Options outstanding at September 30, 2019

 

1,359

 

 

$

6.14

 

 

 

5.63

 

 

$

 

Options exercisable at September 30, 2019

 

1,080

 

 

$

7.00

 

 

 

5.01

 

 

$

 

Vested options expired during the period

   ended September 30, 2019

 

124

 

 

$

9.08

 

 

 

 

 

 

 

 

 

 

(1) The intrinsic value calculation does not include negative values. This can occur when the fair market value on the reporting date is less than the exercise price of the grant.

 

A summary of unvested stock option activity for the nine months ended September 30, 2019 is as follows (in thousands, except per share data):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average Grant

 

 

Shares

 

 

Date Fair Value

 

Unvested options at December 31, 2018

 

522

 

 

$

2.11

 

Granted

 

70

 

 

$

1.51

 

Vested

 

(229

)

 

$

2.55

 

Forfeited or cancelled

 

(84

)

 

$

2.39

 

Unvested options at September 30, 2019

 

279

 

 

$

1.59

 

 

Cash proceeds, along with fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Proceeds from stock options exercised

 

$

 

 

$

 

 

$

3

 

 

$

2

 

Tax benefit related to stock options

   exercised (1)

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Intrinsic value of stock options exercised (2)

 

$

 

 

$

 

 

$

 

 

$

 

Weighted-average fair value of options

   granted during period

 

$

 

 

$

1.02

 

 

$

1.53

 

 

$

1.38

 

Total fair value of shares vested during the

   period

 

$

 

 

$

164

 

 

$

683

 

 

$

1,008

 

 

(1) Excess tax benefits received related to stock option exercises are presented as operating cash inflows. The Company currently does not receive a tax benefit related to the exercise of stock options due to the Company’s net operating losses.

(2) The intrinsic value of stock options exercised is the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant.

16


 

Restricted Stock Units

The Company granted approximately 1.9 million and 2.2 million RSUs during the three and nine months ended September 30, 2019, respectively.

A summary of unvested RSU activity for the nine months ended September 30, 2019 is as follows (in thousands, except per share amounts):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average Grant

 

 

Shares

 

 

Date Fair Value

 

Unvested RSUs at December 31, 2018

 

2,163

 

 

$

1.84

 

Granted

 

1,851

 

 

$

2.08

 

Vested

 

(841

)

 

$

1.74

 

Forfeited or cancelled

 

(113

)

 

$

2.37

 

Unvested RSUs at September 30, 2019

 

3,060

 

 

$

1.87

 

 

Warrants

The Company issues warrants to acquire shares of its common stock as approved by the Board. A summary of warrant activity for the nine months ended September 30, 2019 is as follows (in thousands, except exercise price amounts):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

Shares

 

 

Exercise Price

 

Warrants outstanding, December 31, 2018

 

1,934

 

 

$

6.62

 

Granted or Issued

 

149

 

 

$

2.22

 

Exercised

 

 

 

$

 

Forfeited, cancelled, or expired

 

 

 

$

 

Warrants outstanding at September 30, 2019

 

2,083

 

 

$

6.30

 

Warrants exercisable at September 30, 2019

 

2,083

 

 

$

6.30

 

Vested warrants expired during the quarter ended

   September 30, 2019

 

 

 

$

 

 

See Note 9 for additional information on the Western Alliance Warrants, the SWK Warrants, and the DPG Warrants (each as defined below).

Net Loss Per Share – Basic and Diluted

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding for the period. In computing diluted net loss per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.

Outstanding stock options, RSUs and warrants to purchase approximately 5.6 million shares were not included in the calculation of diluted loss per share for the three and nine months ended September 30, 2019, as their effect would have been anti-dilutive. For the same 2018 periods, anti-dilutive outstanding stock options and warrants to purchase 3.2 million shares were not included in the computation of diluted loss per share.

 

17


 

NOTE 5—INVENTORY

Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Raw materials

 

$

3,714

 

 

$

3,590

 

Work-in-process

 

 

1,164

 

 

 

1,435

 

Finished goods

 

 

6,659

 

 

 

7,223

 

Inventory

 

$

11,537

 

 

$

12,248

 

 

Inventory includes write-downs for excess and obsolete inventory totaling approximately $0.8 million and $1.1 million as of September 30, 2019 and December 31, 2018, respectively.

 

NOTE 6—PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment, net is comprised of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Building

 

$

203

 

 

$

213

 

Leasehold improvements

 

 

2,003

 

 

 

2,004

 

Equipment and computers

 

 

7,421

 

 

 

7,277

 

Furniture and fixtures

 

 

634

 

 

 

634

 

Construction in progress

 

 

21

 

 

 

25

 

 

 

 

10,282

 

 

 

10,153

 

Accumulated depreciation and amortization

 

 

(9,100

)

 

 

(8,344

)

 

 

 

1,182

 

 

 

1,809

 

Land

 

 

158

 

 

 

166

 

Property, plant, and equipment, net

 

$

1,340

 

 

$

1,975

 

 

Depreciation and amortization expense related to property, plant, and equipment totaled $0.2 million and $0.8 million for the three and nine months ended September 30, 2019, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2018, respectively.

 

 

NOTE 7—INTANGIBLE ASSETS AND GOODWILL

The Company conducted its annual impairment test of goodwill as of June 30, 2019 and determined that there was no impairment. The Company also tests its intangible assets and goodwill between the annual impairment tests if events occur or circumstances change that would more likely than not reduce the fair value of the Company or its assets below their carrying amounts. For intangible assets subject to amortization, the Company performs its impairment test when indicators, such as reductions in demand or significant economic slowdowns, are present. No events have occurred since June 30, 2019 through the date of these unaudited consolidated financial statements that would trigger further impairment testing of the Company’s intangible assets and goodwill.

As of September 30, 2019 and December 31, 2018, the Company had goodwill of $2.9 million. As of September 30, 2019 and December 31, 2018, all intangible assets have been fully amortized and no amortization expense was recognized during the three and nine months ended September 30, 2019 and 2018.

 

 

18


 

NOTE 8—ACCRUED LIABILITIES

Accrued liabilities are comprised of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Payroll and benefits

 

$

1,726

 

 

$

2,400

 

Patent litigation settlement

 

 

 

 

 

1,500

 

Warranty accrual, current portion

 

 

954

 

 

 

861

 

Lease liability

 

 

476

 

 

 

 

Accrued professional services

 

 

992

 

 

 

1,044

 

Taxes

 

 

255

 

 

 

714

 

Accrued insurance premium

 

 

 

 

 

328

 

Customer deposits

 

 

82

 

 

 

21

 

Other

 

 

465

 

 

 

670

 

Total accrued liabilities

 

$

4,950

 

 

$

7,538

 

 

Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties for the three and nine months ended September 30, 2019 and 2018 are included within accrued liabilities on the Consolidated Balance Sheets and were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Balance, beginning of period

 

$

1,498

 

 

$

1,359

 

 

$

1,308

 

 

$

1,190

 

Provision for estimated warranty cost

 

 

523

 

 

 

203

 

 

 

1,145

 

 

 

827

 

Warranty expenditures

 

 

(366

)

 

 

(182

)

 

 

(798

)

 

 

(637

)

Balance, September 30

 

 

1,655

 

 

 

1,380

 

 

 

1,655

 

 

 

1,380

 

Less warranty accrual, long-term

 

 

701

 

 

 

375

 

 

 

701

 

 

 

375

 

Total warranty accrual, current portion

 

$

954

 

 

$

1,005

 

 

$

954

 

 

$

1,005

 

 

The Company’s Waterlase laser systems sold worldwide are covered by a warranty against defects in material and workmanship for a period of up to 16 months domestically and up to 28 months internationally, from the date of sale by the Company or a distributor to the end-user. The Company’s Diode systems sold worldwide are covered by a warranty against defects in material and workmanship for a period of up to 28 months from the date of sale by the Company or a distributor to the end-user.

 

NOTE 9—DEBT

 

The following table presents the details of the principal outstanding and unamortized discount (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Term loan

 

$

15,000

 

 

$

12,500

 

Discount and debt issuance costs on term loan

 

 

(1,644

)

 

 

(1,664

)

Total long-term debt, net

 

$

13,356

 

 

$

10,836

 

 

19


 

Line of Credit

On March 6, 2018, BIOLASE and two of its wholly-owned subsidiaries (such subsidiaries, together with BIOLASE, the “Borrower”) entered into the Business Financing Agreement (the “Business Financing Agreement”) with Western Alliance Bank (“Western Alliance”). Pursuant to the terms and conditions of the Business Financing Agreement, Western Alliance agreed to provide the Borrower a secured revolving line of credit permitting the Borrower to borrow or receive letters of credit up to the lesser of $6.0 million (the “Domestic Revolver”) (subject to a $6.0 million credit limit relating to domestic eligible accounts receivable (the “Domestic Credit Limit”) and a $3.0 million credit limit relating to export-related (the “EXIM Revolver”) eligible accounts receivable (the “EXIM Credit Limit”)) and the borrowing base, which is defined as the sum of the domestic borrowing base (up to 75% of the Borrower’s eligible domestic accounts receivable less such reserves as Western Alliance may deem proper and necessary) and the export-related borrowing base (up to 85% of the Borrower’s eligible export-related accounts receivable less such reserves as Western Alliance may deem proper and necessary). The Business Financing Agreement was set to expire on March 6, 2020, and the Borrower’s obligations thereunder were secured by a security interest in all of the Borrower’s assets.

The Business Financing Agreement required the Company to maintain compliance with certain financial and non-financial covenants, as defined therein. Western Alliance had the right to declare the amounts outstanding under the Business Financing Agreement immediately due and payable upon a default.

Amounts outstanding under the Business Financing Agreement bore interest at a per annum floating rate equal to the greater of 4.5% or the “Prime Rate” published in the Money Rates section of the Western Edition of The Wall Street Journal (or such other rate of interest publicly announced from time to time by Western Alliance as its “Prime Rate”), plus 1.5% with respect to advances made under the line of credit, plus an additional 5.0% during any period that an event of default occurred and was continuing. The commitment fee under the Business Financing Agreement was 0.25% of the Domestic Credit Limit and 1.75% of the EXIM Credit Limit, payable on March 6, 2018 and each anniversary thereof. 

Pursuant to the Business Financing Agreement, the Company paid the first of two annual commitment fees totaling $67,500, being 0.25% of the aggregate $6.0 million commitment for the Domestic Revolver and 1.75% of the aggregate $3.0 million commitment for the EXIM Revolver. The commitment fees and the legal costs associated with acquiring the credit facilities were capitalized and were amortized on a straight-line basis as interest expense over the term of the Business Financing Agreement.

As additional consideration for the lines of credit, the Company also issued to Western Alliance warrants to purchase shares of its common stock (the “Original Western Alliance Warrants”). The fair value of the Original Western Alliance Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 10 years; volatility of 91.49%; annual dividend per share of $0.00; and risk-free interest rate of 2.88%; and resulted in an estimated fair value of $0.1 million, which was recorded as a liability and resulted in a discount to the credit facilities at issuance. The discount was expensed to interest expense at the time the Business Financing Agreement was terminated, as discussed below.

On August 13, 2018, the Borrower and Western Alliance entered into a Waiver and Business Financing Modification Agreement, pursuant to which Western Alliance waived certain of the Borrower’s covenants under the Business Financing Agreement and provided an advance of $1.5 million, which advance was due by September 27, 2018.

On September 27, 2018, the Borrower and Western Alliance entered into a second Business Financing Modification Agreement which reduced the credit limit under the Business Financing Agreement to $2.5 million and extended the due date of the $1.5 million advance to March 6, 2019. In connection with the agreement, the Original Western Alliance Warrants were terminated, and the Company issued to Western Alliance new warrants (the “Western Alliance Warrants”) to purchase up to 56,338 shares of the Company’s common stock. The Western Alliance Warrants are immediately exercisable and expire on September 27, 2028. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price less than the $2.13 per share exercise price.

20


 

On October 22, 2018, the Borrower and Western Alliance entered into a third Business Financing Modification Agreement, pursuant to which Western Alliance waived BIOLASE’s non-compliance with certain financial operating covenants as set forth in the Business Financing Agreement, and the Borrower agreed to certain amended covenants contained in the Business Financing Agreement, including a $300,000 minimum unrestricted cash balance covenant and a waiver of reporting items required to be delivered by BIOLASE to Western Alliance under the Business Financing Agreement.

On November 9, 2018, all outstanding borrowings, accrued interest and fees under the Business Financing Agreement were repaid with a portion of the proceeds under the Credit Agreement (as defined and described below), and the Business Financing Agreement was terminated. The Company recorded approximately $0.1 million of interest expense including unamortized debt issuance costs that were written-off upon extinguishment of the debt. As of September 30, 2019 and December 31, 2018, the Western Alliance Warrants remain outstanding and are classified in equity in the consolidated balance sheets.

Term Loan

On November 9, 2018, the Company entered into a five-year secured Credit Agreement (the “Credit Agreement”) with SWK Funding LLC (“SWK”), pursuant to which the Company has borrowed $12.5 million (the “SWK Loan”). The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s assets. Under the terms of the Credit Agreement, repayment of the loan is interest-only for the first two years, paid quarterly with the option to extend the interest-only period. Principal repayments will begin in the first quarter of 2021 and will be approximately $0.7 million quarterly until the loan matures in the fourth quarter of 2023. The loan bears interest at London Interbank Bank Offered Rate (“LIBOR”) plus 10% or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. Approximately $0.9 million of the proceeds from the SWK Loan were used to pay off all amounts owed to Western Alliance under the Business Financing Agreement. The Company plans to use the remaining proceeds to provide additional working capital to fund its growth initiatives, such as broadening its customer base and increasing the utilization of its products to drive recurring higher margin consumables revenue.

The Credit Agreement contains financial and non-financial covenants requiring the Company to, among other things, (i) maintain unencumbered liquid assets of no less than $1.5 million or the sum of aggregate cash flow from operations less capital expenditures, (ii) achieve certain revenue and EBITDA levels during the first two years of the loan, (iii) limit future borrowing, investments and dividends, and (iv) submit monthly and quarterly financial reporting.

In connection with the SWK Loan, the Company paid approximately $1.0 million in debt issuance costs, including a $0.2 million loan origination fee, a $0.4 million finder’s fee, and $0.4 million in legal and other fees. These costs were recognized as a discount on the SWK Loan and are being amortized on a straight-line basis over the loan term which approximates the effective-interest method.

The Company recognized approximately $0.6 and $1.6 million in interest expense relating to the SWK Loan for the three and nine-month periods ended September 30, 2019, respectively. The weighted-average interest rate for the three months ended September 30, 2019 was 12.7%.

21


 

As of March 31, 2019, the Company was not in compliance with certain covenants in the Credit Agreement. In May 2019, SWK granted the Company a waiver of such covenants through September 30, 2019. On May 7, 2019, the Company and SWK agreed to amend the Credit Agreement (the “First Amendment) to increase the total commitment from $12.5 million to $15.0 million, and to revise the financial covenants to (a) adjust minimum revenue and EBITDA levels, (b) require the Company to have a shelf registration statement declared effective by the SEC before September 30, 2019, with a proposed maximum aggregate offering price of at least $10.0 million if the Company does not reach set minimum revenue levels for the three-month period ended June 30, 2019, and (c) require minimum liquidity of $1.5 million at all times. The First Amendment provides that if aggregate minimum revenue and EBITDA levels are not achieved by September 30, 2019, the minimum liquidity requirement will be increased to $3.0 million, until the Company has obtained additional equity or debt funding of no less than $5.0 million.

In connection with the amendment, the Company paid to SWK loan origination and other fees of approximately $0.1 million payable in cash and approximately $0.2 million in additional SWK Warrants (as defined below) to purchase the Company’s common stock. The Company paid an additional finder’s fee to Deal Partners Group (“DPG”) of approximately $0.1 million in cash and $0.1 million in additional DPG Warrants (as defined below) to purchase the Company’s common stock. The Company accounted for the First Amendment as a modification to existing debt and as a result, recognized the amounts paid to SWK in cash and SWK warrants as additional debt issuance costs. Amounts paid to DPG in cash and warrants relating to the First Amendment were expensed as incurred in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2019.

On August 20, 2019, BIOLASE, entered into a Letter Agreement (the “Letter Agreement”) with SWK, in connection with the Credit Agreement. Pursuant to the Letter Agreement, SWK agreed to waive the effect of the Company’s potential non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through September 30, 2019, or earlier in the event of the consummation of an additional secured financing or an event of default under the Credit Agreement.

On September 30, 2019, the Company agreed to further amend the Credit Agreement (the “Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among the Company, SWK, and the lender parties thereto.  The Second Amendment provides for a revolving loan facility, secured by first lien security permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in the Company’s inventory and accounts receivable, with a maximum principal amount of $5 million. In addition, SWK agreed to waive the effect of the Company’s non-compliance through October 31, 2019, with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of the consummation of an additional equity or subordinated debt financing with gross proceeds of not less than $5 million or an event of a default under the Credit Agreement.

On November 6, 2019, the Company agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment).

22


 

SWK Warrants

In connection with the Credit Agreement, as amended, the Company issued warrants to SWK (the “SWK Warrants”) on November 9, 2018 to purchase up to 372,023 and on May 7, 2019, to purchase up to 115,175 shares of the Company’s common stock. The SWK Warrants are immediately exercisable and expire 7 years after the issuance date. The exercise price of the SWK Warrants issued on November 9, 2018 is $1.34 and the exercise price of the SWK Warrants issued on May 7, 2019 is $2.17, both of which were based on the average closing price of the Company’s common stock for the ten trading days immediately preceding the issuance date. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the 372,023 SWK Warrants issued on November 9, 2018 was $0.4 million and estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. The fair value of the 115,175 SWK Warrants issued on May 7, 2019 was $0.2 million and estimated using a binomial option pricing model with the following assumptions: expected term of 8 years; volatility of 80.73%; annual dividend per share of $0.00; and a risk-free rate of 2.37%.

In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.

 

DPG Warrants

In connection with the SWK Loan, the Company paid a finder’s fee to DPG of $0.5 million cash and issued warrants (“the DPG warrants) on November 9, 2018 to purchase up to 279,851 shares of common stock and on May 7, 2019 to purchase up to 34,552 shares of the Company’s common stock. The DPG Warrants are exercisable immediately and expire 7 years after the issuance date. The exercise price of the DPG Warrants issued on November 9, 2018 is $1.34 and the exercise price of the DPG warrants issued on May 7, 2019 is $2.17, both of which were based on the average closing price of the Company’s common stock for the ten trading days immediately preceding the issuance date. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the 279,851 DPG Warrants issued on November 9, 2018 was $0.3 million was estimated using the Black Scholes option pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. The fair value of the 34,552 DPG Warrants issued on May 7, 2019 was $0.1 million and estimated using a binomial option pricing model with the following assumptions: expected term of 8 years; volatility of 80.73%; annual dividend per share of $0.00; and a risk-free rate of 2.37%.

The value of both of the SWK Warrants issued in 2018 and 2019 and the DPG Warrants issued in 2018, was recognized as a discount on the SWK Loan and is being amortized on a straight-line basis which approximates the effective-interest method, over the loan term of five years. The value of the DPG Warrants issued in 2019 in connection with the First Amendment were expensed in the three-month period ended September 30, 2019.

Additionally, based on the adoption of ASU 2017-11 in the fourth quarter of 2018, these warrants are classified as equity in the consolidated Balance Sheets as of September 30, 2019 and December 31, 2018.

The future minimum principal and interest payments as of September 30, 2019 are as follows (in thousands):

 

 

 

Principal

 

 

Interest (1)

 

2019 (three months)

 

$

 

 

$

484

 

2020

 

 

 

 

 

1,931

 

2021

 

 

2,100

 

 

 

1,848

 

2022

 

 

2,800

 

 

 

1,517

 

2023

 

 

10,100

 

 

 

1,063

 

Total future payments

 

$

15,000

 

 

$

6,843

 

 

 

 

 

 

 

 

 

 

(1) estimated using LIBOR rates as at September 30, 2019

 

 

 

 

 

 

 

 

 

23


 

NOTE 10 LEASES

The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from one to five years, and often include options to renew for one year. On January 1, 2019, the Company adopted Topic 842, using the modified-retrospective approach as discussed in Note 2, and as a result recognized a right-of-use asset of approximately $0.8 million as adjusted for deferred rent at the date of adoption of $0.2 million, and a lease liability of approximately $1.0 million. No cumulative-effect adjustment to retained earnings was required upon adoption of Topic 842. Right-of-use assets are recorded in Other assets and lease liabilities are included in Accrued liabilities or Other liabilities depending on whether they are current or noncurrent. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate (“IBR”) to determine the present value of the lease payments and on the date of adoption, the Company determined its IBR to be 12.78%. This rate was based on the Company’s financing of the SWK Loan which is a collateralized loan, and was based on prevailing market rates during the fourth quarter of 2018.

Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

Cash paid for operating lease liabilities

 

$

606

 

Right-of-use assets obtained in exchange for new operating lease

   obligations

 

 

803

 

Weighted-average remaining lease term

 

1.4 years

 

Weighted-average discount rate

 

 

12.8

%

 

 

The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets.

Maturities of lease liabilities as of September 30, 2019 were as follows (in thousands):

 

Due in 12 month period ended September 30,

 

 

 

 

2020

 

$

484

 

2021

 

 

45

 

Thereafter

 

 

 

 

 

$

529

 

Less imputed interest

 

 

(38

)

Total lease liabilities

 

$

491

 

 

 

 

 

 

Current operating lease liabilities

 

 

476

 

Non-current lease liabilities

 

 

15

 

Total lease liabilities

 

$

491

 

 

As of September 30, 2019, right-of-use assets were $0.4 million and lease liabilities were $0.6 million. During the three and nine months ended September 30, 2019, the Company did not enter into any new lease arrangements, nor did it have any arrangements that had not commenced.

 

 

24


 

Future minimum rental commitments under lease agreements, as of September 30, 2019, with non-cancelable terms greater than one year for each of the periods ending September 30, are as follows (in thousands):

 

 

 

Period Ended

September 30, 2019

 

2019 (three months)

 

$

192

 

2020

 

 

314

 

2021

 

 

23

 

2022 and thereafter

 

 

 

Total future minimum lease obligations

 

$

529

 

 

 

NOTE 11— COMMITMENTS AND CONTINGENCIES

On April 24, 2012, CAO Group, Inc. (“CAO”) filed a lawsuit against BIOLASE in the District of Utah alleging that BIOLASE’s ezlase dental laser infringes on U.S. Patent No. 7,485,116 (the “116 Patent”). On September 9, 2012, CAO amended its complaint, adding claims for (1) business disparagement/injurious falsehood under common law and (2) unfair competition under 15 U.S.C. Section 1125(a). The additional claims stem from a press release that BIOLASE issued on April 30, 2012, which CAO claims contained false statements that are disparaging to CAO and its diode product. The amended complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. Until January 24, 2018, this lawsuit was stayed in connection with United States Patent and Trademark Office proceedings relating to the 116 Patent, which proceedings ultimately culminated in a January 27, 2017 decision by the United States Court of Appeals for the Federal Circuit, affirming the findings of the Patent Trial and Appeal Board, which were generally favorable to the Company. On January 25, 2018, CAO moved for leave to file a second amended complaint to add certain claims, which filing the Company is not opposing.

On January 23, 2018, CAO filed a lawsuit against BIOLASE in the Central District of California alleging that BIOLASE’s diode lasers infringe on U.S. Patent Nos. 8,337,097, 8,834,497, 8,961,040 and 8,967,883. The complaint seeks injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest.

On January 25, 2019 (the “Effective Date”), BIOLASE entered into a settlement agreement (the “Settlement Agreement”) with CAO. Pursuant to the Settlement Agreement, CAO agreed to dismiss with prejudice the lawsuits filed by CAO against the Company in April 2012 and January 2018. In addition, CAO granted to the Company and its affiliates a non-exclusive, non-transferable (except as provided in the Settlement Agreement), royalty-free, fully-paid, worldwide license to the licensed patents for use in the licensed products and agreed not to sue the Company, its affiliates or any of its manufacturers, distributors, suppliers or customers for use of the licensed patents in the licensed products, and the parties agreed to a mutual release of claims. The Company has agreed (i) to pay to CAO, within five days of the Effective Date, $500,000 in cash, (ii) to issue to CAO, within 30 days of the Effective Date, 500,000 restricted shares of common stock of the Company (the “Stock Consideration”), and (iii) to pay to CAO, within 30 days of December 31, 2021, an amount in cash equal to the difference (if positive) between $1,000,000 and the value of the Stock Consideration on December 31, 2021. The Stock Consideration vests and becomes transferrable on December 31, 2021, subject to the terms of a restricted stock agreement to be entered into between the parties. The Company considered this a Type I subsequent event and recognized a $1.5 million contingent loss on patent litigation settlement in its statement of operations for the year ended December 31, 2018. In January 2019, the Company paid CAO $500,000 in cash. On January 31, 2019, the case was dismissed with prejudice. During the three and nine month periods ended September 30, 2019, the Company did not record any gain or loss on patent litigation which represents the change in fair value of the restricted stock to be issued to CAO. As of September 30, 2019, the total accrued liability is $1.0 million and is included in other long-term liabilities in the consolidated balance sheet.

 

25


 

NOTE 12—SEGMENT INFORMATION

The Company currently operates in a single business segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. For the three and nine months ended September 30, 2019, sales to customers in the United States accounted for approximately 57% and 61% of net revenue, respectively, and international sales accounted for approximately 43% and 39% of net revenue, respectively. No individual country, other than the United States, represented more than 10% of total net revenue during the three and nine months ended September 30, 2019 or 2018.

 

Net revenue by geographic location based on the location of customers was as follows (in thousands):  

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

United States

 

$

4,949

 

 

$

6,953

 

 

$

16,962

 

 

$

19,810

 

International

 

 

3,697

 

 

 

3,983

 

 

 

10,655

 

 

 

13,300

 

 

 

$

8,646

 

 

$

10,936

 

 

$

27,617

 

 

$

33,110

 

 

Property, plant, and equipment by geographic location was as follows (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

United States

 

$

1,060

 

 

$

1,673

 

International

 

 

280

 

 

 

302

 

 

 

$

1,340

 

 

$

1,975

 

 

 

NOTE 13—CONCENTRATIONS

Revenue from the Company’s products for the three and nine months ended September 30, 2019 and 2018 are as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Laser systems

 

$

5,167

 

 

 

59.8

%

 

$

7,055

 

 

 

64.5

%

 

$

16,047

 

 

 

58.1

%

 

$

20,678

 

 

 

62.5

%

Imaging systems

 

 

4

 

 

 

%

 

 

382

 

 

 

3.5

%

 

 

619

 

 

 

2.2

%

 

 

1,336

 

 

 

4.0

%

Consumables and other

 

 

1,478

 

 

 

17.1

%

 

 

1,902

 

 

 

17.4

%

 

 

5,678

 

 

 

20.6

%

 

 

6,239

 

 

 

18.9

%

Services

 

 

1,994

 

 

 

23.1

%

 

 

1,594

 

 

 

14.6

%

 

 

5,264

 

 

 

19.1

%

 

 

4,848

 

 

 

14.6

%

License fees and royalties

 

 

3

 

 

 

%

 

 

3

 

 

 

%

 

 

9

 

 

 

%

 

 

9

 

 

 

%

Net revenue

 

$

8,646

 

 

 

100.0

%

 

$

10,936

 

 

 

100.0

%

 

$

27,617

 

 

 

100.0

%

 

$

33,110

 

 

 

100.0

%

 

No individual customer represented more than 10% of the Company’s net revenue for the three and nine months ended September 30, 2019 or 2018.

The Company maintains its cash and cash equivalent accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.

There were no individual customers that represented more than 10% of the Company’s accounts receivable at September 30, 2019, and one individual customer that represented more than 10% of the Company’s accounts receivable at December 31, 2018.

The Company currently purchases certain key components of its products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause delays in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, results of operations and financial condition.

 

26


 

 

NOTE 14—INCOME TAXES

The Company accounts for income taxes under the asset and liability method, whereby 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 in the years in which those temporary differences are expected to be recovered or settled. 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. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.

Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest and penalties as a component of its income tax provision. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did not record a liability for unrecognized tax benefits for the three and nine months ended September 30, 2019 and 2018. The Company does not expect any changes to its unrecognized tax benefit for the next 12 months that would materially impact its consolidated financial statements.

During the three and nine months ended September 30, 2019, the Company recorded an income tax provision of $26,000 and $68,000, respectively, resulting in an effective tax rate of 0.02% and 0.3%, respectively. During the three and nine months ended September 30, 2018, the Company recorded an income tax provision of $49,000 and $91,000, respectively, resulting in an effective tax rate of 0.5% and 0.6%, respectively. The income tax provisions for the three and nine months ended September 30, 2019 were calculated using the discrete year-to-date method. The effective tax rate differs from the statutory tax rate of 21% primarily due to the existence of valuation allowances against net deferred tax assets and current liabilities resulting from the estimated state income tax liabilities and foreign tax liability.

 

 

 

NOTE 15—SUBSEQUENT EVENTS

 

Public Offering and Concurrent Private Placement

 

On October 29, 2019, BIOLASE sold 7,820,000 shares of its common stock in an underwritten public offering (the “Public Offering”) at a public offering price of $0.5750 per share and received net proceeds of approximately $4.2 million, after deducting underwriting discounts, but before deducting other fees and expenses. The Company granted the underwriters of the Public Offering an over-allotment option to purchase up to an additional 1,173,000 shares of common stock at the public offering price, less the underwriting discount, which the underwriters exercised on November 5, 2019, for which it received approximately $0.6 million, after deducting underwriting discounts. Concurrently with the Public Offering, the company sold to certain existing shareholders an aggregate of 69,565 shares of Series E Participating Convertible Preferred Stock, par value $0.001 per share, at a per share price of $57.50 in a private placement, and received gross proceeds of approximately $4.0 million, before deducting fees and expenses. Each share of Series E Preferred Stock will be convertible into 100 shares of common stock reflecting a conversion price equal to $0.5750 per share, subject to customary anti-dilution adjustments. The shares of Series E Participating Convertible Preferred Stock automatically convert into shares of common stock upon a stockholder vote to approve an amendment of BIOLASE’s charter to increase the number of authorized shares of BIOLASE common stock and satisfy Nasdaq requirements with respect to the issuance of common stock upon conversion of the Series E Participating Convertible Preferred Stock.

 

On November 5, 2019, the underwriters exercised their over-allotment option and the Company issued an additional 1.1 million shares for gross proceeds of approximately $0.6 million.

27


 

Loan Agreement

On October 28, 2019, BIOLASE entered into the Loan Agreement with Pacific Mercantile Bank, as Lender, which provides for the PMB Loan, a revolving line of credit in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated.

BIOLASE’s obligations under the Loan Agreement are secured by a security interest in substantially all of BIOLASE’s property. No borrowings may be made under the Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and BIOLASE has entered into a borrower agreement with Exim Bank. Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in The Wall Street Journal, plus 1.5% per annum; provided, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, BIOLASE is required to pay an initial and annual fee of $52,500 to Exim Bank, as well as a termination fee equal to $30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.

The Loan Agreement requires BIOLASE to maintain unrestricted cash at Lender plus unused availability under the PMB Loan in an amount equal to at least the Burn Rate (as defined in the Loan Agreement). In addition, the Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions). Upon the occurrence and during the continuation of an event of default (as described in the Loan Agreement), Lender may exercise any remedies available to it, including accelerating the repayment of the PMB Loan.

SWK Loan Amendment

On November 6, 2019, the Company agreed to further amend the Credit Agreement. Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.

 

28


 

ITEM  2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the unaudited consolidated financial statements and related notes of BIOLASE, Inc. (“BIOLASE”) and its consolidated subsidiaries (together with BIOLASE, the “Company,” “we,” “our,” or “us”) included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and our audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2019 (the “2018 Form 10-K”). In addition to historical information, this discussion and analysis contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements, predictions, or expectations regarding market opportunities, our plans to expand our product line and clinical applications, plans to explore potential collaborations, statements regarding the effects of seasonality on revenue, operating expenses, anticipated use of proceeds from debt financing, anticipated cash needs, needs for additional financing, and any other statement that is not historical fact. Forward-looking statements are identified by the use of words such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “continue,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “outlook,” “potential,” “plan,” “seek,” and similar expressions and variations or the negatives of these terms or other comparable terminology.

The forward-looking statements contained in this Form 10-Q are based on the expectations, estimates, projections, beliefs, and assumptions of our management based on information available to management as of the date on which this Form 10-Q was filed with the SEC, all of which are subject to change. Forward-looking statements are subject to risks, uncertainties, and other factors that are difficult to predict and could cause actual results to differ materially from those stated or implied by our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to:

 

global economic uncertainty and volatility in financial markets;

 

inability to raise additional capital on terms acceptable to us;

 

our relationships with, and the efforts of, third-party distributors;

 

failure in our efforts to train dental practitioners or to overcome the hesitation of dentists and patients to adopt laser technologies;

 

inconsistencies between future data and our clinical results;

 

competition from other companies, including those with greater resources;

 

our inability to successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others;

 

the inability of our customers to obtain third-party reimbursement for their use of our products;

 

limitations on our ability to use net operating loss carryforwards;

 

problems in manufacturing our products;

 

warranty obligations if our products are defective;

 

adverse publicity regarding our technology or products;

 

adverse events to our patients during the use of our products, regardless of whether caused by our products;

29


 

 

issues with our suppliers, including the failure of our suppliers to supply us with a sufficient amount or adequate quality of materials;

 

rapidly changing standards and competing technologies;

 

our inability to effectively manage and implement our growth strategies;

 

risks associated with operating in international markets, including potential liabilities under the Foreign Corrupt Practices Act;

 

breaches of our information technology systems;

 

seasonality;

 

litigation, including the failure of our insurance policies to cover certain expenses relating to litigation and our inability to reach a final settlement related to certain litigation;

 

disruptions to our operations at our primary facility;

 

loss of our key management personnel or our inability to attract or retain qualified personnel;

 

risks and uncertainties relating to acquisitions, including difficulties integrating acquired businesses successfully into our existing operations and risks of discovering previously undisclosed liabilities;

 

failure to comply with the reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 404 of the Sarbanes-Oxley Act of 2002, as amended or maintain adequate internal control over financial reporting;

 

climate change initiatives;

 

failure of our intellectual property rights to adequately protect our technologies and potential third-party claims that our products infringe their intellectual property rights;

 

changes in government regulation or the inability to obtain or maintain necessary governmental approvals;

 

our failure to comply with existing or new laws and regulations, including fraud and abuse and health information privacy and securities laws;

 

changes in the regulatory requirements of the Food and Drug Administration (“FDA”) applicable to laser products, dental devices, or both;

 

recall or other regulatory action concerning our products after receiving FDA clearance or approval; and

 

risks relating to ownership of our common stock, including low liquidity, low trading volume, high volatility and dilution.

Further information about factors that could materially affect the Company, including our results of operations and financial condition, is contained under “Risk Factors” in Item 1A in the 2018 Form 10-K and in Item 1A to this Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise.

30


 

Overview

We are a medical device company that develops, manufactures, markets, and sells laser systems in dentistry and medicine. Our products advance the practice of dentistry and medicine for patients and health care professionals. Our proprietary dental laser systems allow dentists, periodontists, endodontists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. Our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. We have clearance from the FDA to market and sell our laser systems in the United States and also have the necessary registration to market and sell our laser systems in Canada, the European Union, and many other countries outside the United States. Additionally, our in-licensed imaging equipment and related products improve diagnoses, applications, and procedures in dentistry and medicine.

We offer two categories of laser system products: Waterlase (all-tissue) systems and Diode (soft-tissue) systems. Our flagship brand, the Waterlase, uses a patented combination of water and laser energy to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. We also offer our Diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. We have approximately 144 issued and 79 pending U.S. and international patents, the majority of which are related to Waterlase technology. From 1998 through September 30, 2019, we sold over 40,000 laser systems in over 80 countries around the world. Contained in this total are approximately 13,200 Waterlase systems, including over 9,000 Waterlase MD, MDX, Express and iPlus systems.

Business and Outlook

Our Waterlase systems precisely cut hard tissue, bone, and soft tissue with minimal or no damage to surrounding tissue and dental structures. Our Diode systems, which include the Epic system, are designed to complement our Waterlase systems, and are used only in soft tissue procedures, pain therapy, hygiene, and cosmetic applications, including teeth whitening. The Diode systems, together with our Waterlase systems, offer practitioners a broad product line with a range of features and price points.

We also manufacture and sell consumable products and accessories for our laser systems. Our Waterlase and Diode systems use disposable laser tips of differing sizes and shapes depending on the procedure being performed. We also market flexible fibers and hand pieces that dental practitioners replace at some point after initially purchasing laser systems. For our Epic systems, we sell teeth whitening gel kits.

Due to the limitations associated with traditional and alternative dental instruments, we believe there is a large market opportunity for all-tissue dental laser systems that provide superior clinical outcomes, reduce the need to use anesthesia, help reduce trauma, pain, and discomfort associated with dental procedures, and increase patient acceptance for treatment protocols.

Our strategy is to increase awareness and demand for (i) our products among dental practitioners by educating dental practitioners and patients about the clinical benefits of our product suite and (ii) our laser systems among patients by educating patients about the clinical benefits of the Waterlase and Diode systems. An important goal of ours is to increase consumables revenue by selling more single-use accessories used by dental practitioners when performing procedures using our dental laser systems. In the short term, we are striving for operating excellence through lean enterprise initiatives, with a specific focus on our sales strategy and cash flow management, coupled with optimizing our engineering capabilities to develop innovative new products.

We also seek to create value through innovation and leveraging existing technologies into adjacent medical applications. We plan to expand our product line and clinical applications by developing enhancements and transformational innovations, including new clinical solutions for dental applications and for other adjacent medical applications. In particular, we believe that our existing technologies can provide significant improvements over existing standards of care in fields including ophthalmology, otolaryngology, orthopedics, podiatry, pain management, aesthetics/dermatology, veterinary, and consumer products. We plan to continue to explore potential collaborations to apply our proprietary laser technologies with expanded FDA-cleared indications to other medical applications in the future.

31


 

Recent Developments

On November 9, 2018, we entered into a five-year secured Credit Agreement (the “Credit Agreement”) with SWK Funding, LLC (“SWK”), pursuant to which the Company has borrowed $12.5 million (the “SWK Loan”). On May 7, 2019, we entered into an amendment to our Credit Agreement (“First Amendment” with SWK Funding LLC to increase the total commitment in the SWK Loan, as defined and described in Part I, Item I, Note 9 – Debt, from $12.5 million to $15.0 million and to revise certain of the financial covenants. Also on May 7, 2019 in connection with such amendment, we issued warrants to purchase up to 115,175 shares of BIOLASE common stock to SWK Funding LLC and warrants to purchase up to 34,552 shares of BIOLASE common stock to Deal Partners Group. See Part I, Item I, Note 9 - Debt for additional information.

On August 20, 2019, we entered into a Letter Agreement (the “Letter Agreement”) with SWK, in connection with the Credit Agreement. Pursuant to the Letter Agreement, SWK agreed to waive the effect of our potential non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through September 30, 2019, or earlier in the event of the consummation of an additional secured financing or an event of default under the Credit Agreement.

On September 30, 2019, we agreed to further amend the Credit Agreement (the “Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among us, SWK, and the lender parties thereto.  The Second Amendment provides for a revolving loan facility, secured by first lien security permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in our inventory and accounts receivable, with a maximum principal amount of $5 million. In addition, SWK agreed to waive the effect of our non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of the consummation of an additional equity or subordinated debt financing with gross proceeds of not less than $5 million or an event of a default under the Credit Agreement.

On October 28, 2019, BIOLASE entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“Lender”), which provides for a revolving line of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated. See “Liquidity and Capital Resources” for additional detail.

On October 29, 2019 the Company successfully consummated an underwritten public offering of BIOLASE common stock and a concurrent private placement of BIOLASE Series E Participating Convertible Preferred Stock, resulting in net proceeds of approximately $7.8 million after deducting underwriter discounts and other fees and expenses. On November 5, 2019, the underwriters exercised their over-allotment option and the Company issued an additional 1.1 million shares for gross proceeds of approximately $0.6 million. See Part I, Item I, Note 15 for additional information.

On November 6, 2019, the Company agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). Also on November 6, 2019 in connection with such amendment, we consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.

32


 

Critical Accounting Policies

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the 2018 Form 10-K. There have been no significant changes during the nine months ended September 30, 2019 in our critical accounting policies from those disclosed in Item 7 of the 2018 Form 10-K.

Effective May 10, 2018, the Company effectuated a one-for-five reverse stock split (the “Reverse Stock Split”). In connection with the Reverse Stock Split, the number of authorized shares of BIOLASE common stock was reduced from 200,000,000 shares to 40,000,000 shares. All prior period share and per share amounts (including exercises and closing market prices) contained in this discussion have been adjusted to reflect the impact of the Reverse Stock Split.

Results of Operations

The following table sets forth certain data from our unaudited consolidated statements of operations expressed as percentages of net revenue (in thousands):

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

 

Net revenue

 

 

8,646

 

 

 

100.0

 

%

 

 

10,936

 

 

 

100.0

 

%

 

 

27,617

 

 

 

100.0

 

%

 

 

33,110

 

 

 

100.0

 

%

Cost of revenue

 

 

5,677

 

 

 

65.7

 

%

 

 

6,995

 

 

 

64.0

 

%

 

 

17,746

 

 

 

64.3

 

%

 

 

21,828

 

 

 

65.9

 

%

Gross profit

 

 

2,969

 

 

 

34.3

 

%

 

 

3,941

 

 

 

36.0

 

%

 

 

9,871

 

 

 

35.7

 

%

 

 

11,282

 

 

 

34.1

 

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

3,515

 

 

 

40.7

 

%

 

 

4,489

 

 

 

41.0

 

%

 

 

10,665

 

 

 

38.6

 

%

 

 

13,037

 

 

 

39.4

 

%

General and administrative

 

 

3,210

 

 

 

37.1

 

%

 

 

2,685

 

 

 

24.6

 

%

 

 

8,114

 

 

 

29.4

 

%

 

 

8,691

 

 

 

26.2

 

%

Engineering and development

 

 

1,126

 

 

 

13.0

 

%

 

 

1,277

 

 

 

11.7

 

%

 

 

3,665

 

 

 

13.3

 

%

 

 

3,927

 

 

 

11.9

 

%

Total operating expenses

 

 

7,851

 

 

 

90.8

 

%

 

 

8,451

 

 

 

77.3

 

%

 

 

22,444

 

 

 

81.3

 

%

 

 

25,655

 

 

 

77.5

 

%

Loss from operations

 

 

(4,882

)

 

 

(56.5

)

%

 

 

(4,510

)

 

 

(41.3

)

%

 

 

(12,573

)

 

 

(45.5

)

%

 

 

(14,373

)

 

 

(43.4

)

%

Non-operating loss

 

 

570

 

 

 

6.6

 

%

 

 

106

 

 

 

1.0

 

%

 

 

1,627

 

 

 

5.9

 

%

 

 

133

 

 

 

0.4

 

%

Loss before income taxes

 

 

(5,452

)

 

 

(63.1

)

%

 

 

(4,616

)

 

 

(42.3

)

%

 

 

(14,200

)

 

 

(51.4

)

%

 

 

(14,506

)

 

 

(43.8

)

%

Income tax provision

 

 

26

 

 

 

0.3

 

%

 

 

49

 

 

 

0.4

 

%

 

 

68

 

 

 

0.2

 

%

 

 

91

 

 

 

0.3

 

%

Net loss

 

$

(5,478

)

 

 

(63.3

)

%

 

$

(4,665

)

 

 

(42.7

)

%

 

$

(14,268

)

 

 

(51.7

)

%

 

$

(14,597

)

 

 

(44.1

)

%

 

Non-GAAP Disclosure

In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results and that, in some respects, these non-GAAP financial measures are more indicative of the Company’s ongoing core operating performance than their GAAP equivalents. In 2019, the Company revised its non-GAAP financial measures to include the change in allowance for doubtful accounts in an effort to better align its Adjusted EBITDA with our loan covenants and how management evaluates business performance. Prior year non-GAAP disclosures have been revised to conform to the current definition of Adjusted EBITDA.

33


 

Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in this Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Company may be different from similarly named non-GAAP financial measures used by other companies.

Adjusted EBITDA

Management uses Adjusted EBITDA in its evaluation of the Company’s core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation and amortization, stock-based compensation and allowance for doubtful accounts. Management uses adjusted EBITDA in its evaluation of the Company’s core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Company may be different from similarly named non-GAAP financial measures used by other companies.

The following table contains a reconciliation of non-GAAP net loss to GAAP net loss attributable to common stockholders (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

GAAP net loss attributable to common stockholders

 

$

(5,478

)

 

$

(4,665

)

 

$

(14,268

)

 

$

(14,597

)

Deemed dividend on convertible preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss

 

$

(5,478

)

 

$

(4,665

)

 

$

(14,268

)

 

$

(14,597

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

551

 

 

 

33

 

 

 

1,559

 

 

 

80

 

Income tax provision

 

 

26

 

 

 

49

 

 

 

68

 

 

 

91

 

Depreciation and amortization

 

 

268

 

 

 

202

 

 

 

754

 

 

 

712

 

Change in allowance for doubtful accounts

 

 

1,131

 

 

 

87

 

 

 

1,243

 

 

 

316

 

Stock-based compensation

 

 

770

 

 

 

604

 

 

 

1,974

 

 

 

1,862

 

Adjusted EBITDA

 

$

(2,732

)

 

$

(3,690

)

 

$

(8,670

)

 

$

(11,536

)

 

34


 

Comparison of Results of Operations

Three months ended September 30, 2019 and 2018

Net Revenue: The following table summarizes our unaudited net revenues by category, including each category’s percentage of our total revenue, for the three months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

Laser systems

$

5,167

 

 

 

59.8

 

%

 

$

7,055

 

 

 

64.5

 

%

 

$

(1,888

)

 

 

(26.8

)

Imaging systems

 

4

 

 

 

 

%

 

 

382

 

 

 

3.5

 

%

 

 

(378

)

 

 

(99.0

)

Consumables and other

 

1,478

 

 

 

17.1

 

%

 

 

1,902

 

 

 

17.4

 

%

 

 

(424

)

 

 

(22.3

)

Services

 

1,994

 

 

 

23.1

 

%

 

 

1,594

 

 

 

14.6

 

%

 

 

400

 

 

 

25.1

 

Total products and services

 

8,643

 

 

 

100.0

 

%

 

 

10,933

 

 

 

100.0

 

%

 

 

(2,290

)

 

 

(20.9

)

License fees and royalty

 

3

 

 

 

 

%

 

 

3

 

 

 

 

%

 

 

 

 

 

 

Net revenue

$

8,646

 

 

 

100.0

 

%

 

$

10,936

 

 

 

100.0

 

%

 

$

(2,290

)

 

 

(20.9

)

 

Typically, we experience fluctuations in revenue from quarter to quarter due to seasonality. Revenue in the first quarter typically is lower than average, and revenue in the fourth quarter typically is stronger than average, due to the buying patterns of dental practitioners. We believe that this trend exists because a significant number of dentists purchase their capital equipment towards the end of the calendar year in order to maximize their practice earnings while seeking to minimize their taxes. They often use certain tax incentives, such as accelerated depreciation methods for purchasing capital equipment, as part of their year-end tax planning. In addition, revenue in the third quarter may be affected by vacation patterns which can cause revenue to be flat or lower than in the second quarter of the year. Our historical seasonal fluctuations may also be impacted by sales promotions used by large dental distributors that encourage end-of-quarter and end-of-year buying in our industry.

The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

United States

$

4,949

 

 

 

57.2

 

%

 

$

6,953

 

 

 

63.6

 

%

 

$

(2,004

)

 

 

(28.8

)

International

 

3,697

 

 

 

42.8

 

%

 

 

3,983

 

 

 

36.4

 

%

 

 

(286

)

 

 

(7.2

)

Net revenue

$

8,646

 

 

 

100.0

 

%

 

$

10,936

 

 

 

100.0

 

%

 

$

(2,290

)

 

 

(20.9

)

 

Total net revenue decreased by $2.3 million or 21% during the three months ended September 30, 2019 as compared to the same period in 2018. In the U.S., net revenue decreased by $2.0 million, or 28.8%, primarily from laser systems sales, which decreased by $1.4 million, or 38.0%, during the three months ended September 30, 2019 compared to the same period in 2018. These decreases were largely due to open sales territories in the third quarter of 2019. Outside the U.S., net revenue declined by $0.3 million, or 7.2%, during the three months ended September 30, 2019 as compared to the same period in 2018, primarily due to the decline in sales of our laser products outside the U.S. of $0.5 million, or 14.0%, during the three months ended September 30, 2019 compared to the same period in 2018. Sales of consumables and other revenue, which consists of consumable products such as disposable tips during the three months ended September 30, 2019 was $3.5 million was consistent with the same period in 2018.

35


 

Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the three months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change (dollars in thousands):

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

Net revenue

$

8,646

 

 

 

100.0

 

%

 

$

10,936

 

 

 

100.0

 

%

 

$

(2,290

)

 

 

(20.9

)

Cost of revenue

 

5,677

 

 

 

65.7

 

%

 

 

6,995

 

 

 

64.0

 

%

 

 

(1,318

)

 

 

(18.8

)

Gross profit

$

2,969

 

 

 

34.3

 

%

 

$

3,941

 

 

 

36.0

 

%

 

$

(972

)

 

 

(24.7

)

 

Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. The 24.7% decrease in gross profit for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, reflects the decline in our laser sales and the impact from a change in product mix .

 

Operating Expenses: The following table summarizes our unaudited operating expenses for the three months ended September 30, 2019 and September 30, 2018, as well as the amount of change and percentage of change (dollars in thousands):

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

Sales and marketing

$

3,515

 

 

 

40.7

 

%

 

$

4,489

 

 

 

41.0

 

%

 

$

(974

)

 

 

(21.7

)

General and administrative

 

3,210

 

 

 

37.1

 

%

 

 

2,685

 

 

 

24.6

 

%

 

 

525

 

 

 

19.6

 

Engineering and development

 

1,126

 

 

 

13.0

 

%

 

 

1,277

 

 

 

11.7

 

%

 

 

(151

)

 

 

(11.8

)

Total operating expenses

$

7,851

 

 

 

90.8

 

%

 

$

8,451

 

 

 

77.3

 

%

 

$

(600

)

 

 

(7.1

)

 

The quarter-over-quarter total operating expenses are explained in the following expense categories:

Sales and Marketing Expense. Sales and marketing expenses during the three months ended September 30, 2019 decreased by $1.0 million or 21.7% as compared to the same period in 2018, primarily due to decreases in payroll and consulting related expenses of $0.6 million, stock-based compensation expense of $0.1 million, and marketing materials and advertising of $0.2 million. We expect sales and marketing expenses to decrease as a percentage of revenue through the remainder of 2019.

General and Administrative Expense. General and administrative expenses during the three months ended September 30, 2019 increased by $0.5 million or 19.6% compared to the same period in 2018, primarily due to an increase of $1.0 million in bad debt expense, partially offset by decreases in patent and legal fees of $0.5 million. We expect general and administrative expenses to decrease as a percentage of revenue through the remainder of 2019.

Engineering and Development Expense. Engineering and development expenses during the three months ended September 30, 2019 decreased by $0.2 million or 11.8% compared to the same period in 2018, primarily due to decreases in payroll and consulting-related expenses of $0.2. We expect engineering and development expenses to remain the same as a percentage of revenue through the remainder of 2019.

(Loss) Gain on Foreign Currency Transactions. We realized a $0.1million loss on foreign currency transactions during the three months ended September 30, 2019 compared to a $0.1 million loss on foreign currency transactions during the three months ended September 30, 2018, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.

36


 

Interest Expense. Interest expense during the three months ended September 30, 2019 increased by $0.5 million primarily due to the interest and amortization of debt issuance costs relating to the SWK Loan we entered into in the fourth quarter of 2018. We expect interest expense to fluctuate depending on the movement in LIBOR through the remainder of 2019.

Income Tax Provision. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes was $26,000 for the three months ended September 30, 2019 as compared to a provision of $49,000 for the same period in the prior year. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.

Net Loss. Our net loss totaled approximately $5.5 million for the three months ended September 30, 2019 compared to a net loss of $4.7 million for the three months ended September 30, 2018.

Nine months ended September 30, 2019 and 2018

Net Revenue: The following table summarizes our unaudited net revenues by category, including each category’s percentage of our total revenue, for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):

 

 

Nine Months Ended

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

 

Laser systems

$

16,047

 

 

 

57.4

 

%

 

$

20,678

 

 

 

62.5

 

%

 

$

(4,631

)

 

 

(22.4

)

%

Imaging systems

 

619

 

 

 

3.2

 

%

 

 

1,336

 

 

 

4.0

 

%

 

 

(717

)

 

 

(53.7

)

%

Consumables and other

 

5,678

 

 

 

22.2

 

%

 

 

6,239

 

 

 

18.9

 

%

 

 

(561

)

 

 

(9.0

)

%

Services

 

5,264

 

 

 

17.2

 

%

 

 

4,848

 

 

 

14.6

 

%

 

 

416

 

 

 

8.6

 

%

Total products and services

 

27,608

 

 

 

100.0

 

%

 

 

33,101

 

 

 

100.0

 

%

 

 

(5,493

)

 

 

(16.6

)

%

License fees and royalty

 

9

 

 

 

%

 

 

9

 

 

 

%

 

 

 

 

%

Net revenue

$

27,617

 

 

 

100.0

 

%

 

$

33,110

 

 

 

100.0

 

%

 

$

(5,493

)

 

 

(16.6

)

%

 

The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):

 

 

Nine Months Ended

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

 

United States

$

16,962

 

 

 

61.4

 

%

 

$

19,810

 

 

 

59.8

 

%

 

$

(2,848

)

 

 

(14.4

)

%

International

 

10,655

 

 

 

38.6

 

%

 

 

13,300

 

 

 

40.2

 

%

 

 

(2,645

)

 

 

(19.9

)

%

Net revenue

$

27,617

 

 

 

100.0

 

%

 

$

33,110

 

 

 

100.0

 

%

 

$

(5,493

)

 

 

(16.6

)

%

 

Total net revenue decreased by $5.5 million or 16.6% during the nine months ended September 30, 2019 as compared to the same period in 2018. In the U.S., net revenue decreased by $2.8 million, or 14.4%, primarily from laser systems sales, which decreased by $2.0 million, or 20.8%, during the nine months ended September 30, 2019 compared to the same period in 2018. These decreases were largely due to open sales territories in the second and third quarters of 2019. Outside the U.S., net revenue declined by $2.6 million, or 19.9%, during the nine months ended September 30, 2019 as compared to the same period in 2018, primarily due to the decline in sales of our laser products outside the U.S. of $2.6 million, or 23.9%, during the nine months ended September 30, 2019 compared to the same period in 2018. Sales of consumables and other revenue, which consists of consumable products such as disposable tips decreased by $0.1 million, or 9.0%, during the nine months ended September 30, 2019 as compared to the same period in 2018.

37


 

Imaging systems revenue decreased by $0.7 million or 54.0% during the nine months ended September 30, 2019 as compared to the same period in 2018, primarily driven by our focus on laser sales.

Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change (dollars in thousands):

 

 

Nine Months Ended

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

 

Net revenue

$

27,617

 

 

 

100.0

 

%

 

$

33,110

 

 

 

100.0

 

%

 

$

(5,493

)

 

 

(16.6

)

%

Cost of revenue

 

17,746

 

 

 

64.3

 

%

 

 

21,828

 

 

 

65.9

 

%

 

 

(4,082

)

 

 

(18.7

)

%

Gross profit

$

9,871

 

 

 

35.7

 

%

 

$

11,282

 

 

 

34.1

 

%

 

$

(1,411

)

 

 

(12.5

)

%

 

Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. The 1.6% decrease in gross profit as a percentage of revenue for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, reflects the decline in our laser sales which have a higher margin than our other product offerings.

Operating Expenses: The following table summarizes our unaudited operating expenses for the for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change (dollars in thousands):

 

 

Nine Months Ended

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

September 30,

 

 

 

Amount

 

 

Percent

 

 

 

2019

 

 

 

2018

 

 

 

Change

 

 

Change

 

 

Sales and marketing

$

10,665

 

 

 

38.6

 

%

 

$

13,037

 

 

 

38.6

 

%

 

$

(2,372

)

 

 

(18.2

)

%

General and administrative

 

8,114

 

 

 

29.4

 

%

 

 

8,691

 

 

 

29.4

 

%

 

 

(577

)

 

 

(6.6

)

%

Engineering and development

 

3,665

 

 

 

13.3

 

%

 

 

3,927

 

 

 

13.3

 

%

 

 

(262

)

 

 

(6.7

)

%

Total operating expenses

$

22,444

 

 

 

81.3

 

%

 

$

25,655

 

 

 

77.5

 

%

 

$

(3,211

)

 

 

(12.5

)

%

 

The period-over-period total operating expenses are explained in the following expense categories:

Sales and Marketing Expense. Sales and marketing expenses during the nine months ended September 30, 2019 decreased by $2.4 million or 18.2% as compared to the same period in 2018, primarily due to a decrease in payroll and consulting related expenses of $1.6 million, convention related expenses of $0.2 million, media materials and advertising of $0.2 million, and sales commissions of $0.2 million. We expect sales and marketing expenses to decrease as a percentage of revenue through the remainder of 2019.

General and Administrative Expense. General and administrative expenses during the nine months ended September 30, 2019 decreased by $0.6 million or 6.6% compared to the same period in 2018, primarily due to a decrease in patent and legal fees of $1.2 million, and payroll and consulting related expenses of $0.4 million, partially offset by an increase in provision for bad debts of $1.0 million. We expect general and administrative expenses to decrease as a percentage of revenue through the remainder of 2019.

Engineering and Development Expense. Engineering and development expenses during the nine months ended September 30, 2019 decreased by $0.3 million or 6.7% compared to the same period in 2018, primarily due to a $0.5 million decrease in payroll and consulting-related expenses, offset by increases in operating supplies and other miscellaneous costs of $0.1 million. We expect engineering and development expenses to decrease as a percentage of revenue through the remainder of 2019.

(Loss) Gain on Foreign Currency Transactions. We realized a $0.2 million loss on foreign currency transactions during the nine months ended September 30, 2019 compared to a $31,000 loss on foreign currency transactions during the nine months ended September 30, 2018, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.

38


 

Interest Expense. Interest expense during the nine months ended September 30, 2019 increased by $1.5 million primarily due to the interest and amortization of debt issuance costs relating to the SWK Loan we entered into in the fourth quarter of 2018. We expect interest expense to fluctuate depending on the movement in LIBOR through the remainder of 2019.

Income Tax Provision. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes was $68,000 for the nine months ended September 30, 2019 and $91.000, for the nine months ended September 30, 2018. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.

Net Loss. Our net loss totaled approximately $14.3 million for the nine months ended September 30, 2019 compared to a net loss of $14.6 million for the nine months ended September 30, 2018.

Liquidity and Capital Resources

At September 30, 2019, we had approximately $2.4 million in cash, cash equivalents and restricted cash. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in our cash, cash equivalents and restricted cash of $5.9 million at September 30, 2019 as compared to December 31, 2018, was primarily due to net cash used in operating activities of $8.1 million. The $8.1 million of net cash used in operating activities was primarily driven by our net loss of $14.3 million for the nine months ended September 30, 2019.

The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Net cash flows used in operating activities

 

$

(8,074

)

 

$

(10,590

)

Net cash flows used in investing activities

 

 

(138

)

 

 

(74

)

Net cash flows provided by (used in) financing activities

 

 

2,416

 

 

 

1,231

 

Effect of exchange rate changes

 

 

(157

)

 

 

(23

)

Net change in cash, cash equivalents and restricted cash

 

$

(5,953

)

 

$

(9,456

)

 

Operating Activities

Net cash used in operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Cash used in operating activities for the nine months ended September 30, 2019 totaled $8.1 million and was primarily comprised of our net loss of $14.3 million, partially offset by non-cash adjustments for depreciation and amortization expenses of $0.8 million and stock-based compensation expenses of $2.0 million, amortization of debt discount and issuance costs of $0.2 million, and provision for bad debts of $1.2 million. Changes in operating assets and liabilities were $2.0 million primarily due to a decrease in accounts payable and accrued liabilities of $1.0 million related to the timing of our payments and $0.5 million paid as part of the patent litigation settlement with CAO Group, Inc., as described in Part I, Item I, Note 11 – Commitments and Contingencies above, and a decrease in accounts receivable of $1.5 million, partially offset by a decrease in inventory of $0.7 million and a decrease in prepaid expenses and other current assets of $0.8 million.

39


 

Investing Activities

Cash used in investing activities for the nine months ended September 30, 2019 was minimal. We expect cash flows from investing activities to remain consistent through the remainder of 2019.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2019 increased by $1.2 million as compared to the same period in 2018, primarily due to the additional commitment on the SWK Loan of $2.5 million that occurred on May 7, 2019, partially offset by payments of debt issuance costs of approximately $38,000 as compared to the same period in 2018 in which the Company had approximately $1.5 million in net borrowings under its credit facility.

Effect of Exchange Rate

The effect of exchange rate on cash for the nine months ended September 30, 2019 was $157,000 and primarily due to fluctuations between the U.S. Dollar and the Euro.

Future Liquidity Needs

As of September 30, 2019, we had working capital of approximately $9.2 million. Our principal sources of liquidity as of September 30, 2019 consisted of approximately $2.4 million in cash, cash equivalents and restricted cash and $8.5 million of net accounts receivable.

On November 9, 2018, BIOLASE entered into a five-year secured Credit Agreement (the “Credit Agreement”) with SWK, pursuant to which BIOLASE has borrowed $12.5 million (the “SWK Loan”). $0.9 million of the proceeds from the SWK Loan were used to pay off all amounts owed to Western Alliance Bank under the Business Financing Agreement as described in Part I, Item I, Note 9 – Debt above, and we used the remaining proceeds to provide additional working capital to fund our growth initiatives, such as broadening our customer base and increasing the utilization of our products to drive recurring higher margin consumables revenue.

As of March 31, 2019, we were not in compliance with certain covenants in the Credit Agreement. In May 2019, SWK granted the Company a waiver of such covenants. On May 7, 2019, we and SWK amended the Credit Agreement (the “First Amendment”) to increase our total commitment under the SWK Loan from $12.5 million to $15.0 million and to revise certain of the financial covenants to (a) adjust minimum revenue and EBITDA levels, (b) require us to have a shelf registration statement declared effective by the SEC before September 30, 2019, with a proposed maximum aggregate offering price of at least $10.0 million, if we do not reach set minimum revenue levels for the three-month period ended September 30, 2019, and (c) require us to maintain minimum liquidity of $1.5 million at all times. The First Amendment provided that if aggregate minimum revenue and EBITDA levels are not achieved by September 30, 2019, the minimum liquidity requirement would be increased to $3.0 million, until we have obtained additional equity or debt funding of no less than $5.0 million.

In connection with the First Amendment, we paid to SWK loan origination and other fees of approximately $0.2 million payable in cash and approximately $0.3 million in warrants to purchase shares of BIOLASE common stock. We also paid an additional finder’s fee to Deal Partners Group, as described in Part I, Item I, Note 9 Debt above of approximately $0.1 million in cash and $0.1 million in warrants to purchase shares of BIOLASE common stock.

On August 20, 2019, BIOLASE entered into a Letter Agreement (the “Letter Agreement”) with SWK, in connection with the Credit Agreement. Pursuant to the Letter Agreement, SWK agreed to waive the effect of the Company’s potential non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through September 30, 2019, or earlier in the event of the consummation of an additional secured financing or an event of default under the Credit Agreement.

40


 

On September 30, 2019, the Company agreed to further amend the Credit Agreement (the “Second Amendment”). The Second Amendment provides for a revolving loan facility, secured by a first lien security interest in the Company’s inventory and accounts receivable, with a maximum principal amount of $5 million. In addition, SWK agreed to waive the effect of the Company’s non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through October 31, 2019, or earlier in the event of the consummation of an additional equity or subordinated debt financing with gross proceeds of not less than $5 million, or an event of a default under the Credit Agreement.

On October 28, 2019, BIOLASE entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“Lender”), which provides for a revolving line of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated.

BIOLASE’s obligations under the Loan Agreement are secured by a security interest in substantially all of BIOLASE’s property. No borrowings may be made under the Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and BIOLASE has entered into a borrower agreement with Exim Bank. Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in The Wall Street Journal, plus 1.5% per annum; provided, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, BIOLASE is required to pay an initial and annual fee of $52,500 to Exim Bank, as well as a termination fee equal to $30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.

The Loan Agreement requires BIOLASE to maintain unrestricted cash at Lender plus unused availability under the PMB Loan in an amount equal to at least the Burn Rate (as defined in the Loan Agreement). In addition, the Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions). Upon the occurrence and during the continuation of an event of default (as described in the Loan Agreement), Lender may exercise any remedies available to it, including accelerating the repayment of the PMB Loan.

On October 29, 2019, we successfully consummated an underwritten public offering of BIOLASE common stock and a concurrent private placement of BIOLASE Series E Participating Convertible Preferred Stock, and on November 5, 2019, the underwriters of the public offering exercised their over-allotment option to acquire additional shares of BIOLASE common stock. The underwritten public offering and concurrent private placement resulted in net proceeds of approximately $8.4 million after deducting underwriter discounts and other fees and expenses. See Part I, Item I, Note 15 – Subsequent Events for additional information.

On November 6, 2019, the Company agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment).

41


 

In order for us to continue operations beyond the next 12 months and be able to discharge our liabilities and commitments in the normal course of business, we must increase sales of our products directly to end-users and through distributors, establish profitable operations through the combination of increased sales and decreased expenses, generate cash from operations or obtain additional funds when needed. We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expansion of our product offerings, continuing to expand and develop our fields sales force and distribution relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of our advanced medical technologies, and reducing expenses. Additional capital requirements may depend on many factors, including, among other things, continued losses, the rate at which our business grows, demands for working capital, manufacturing capacity, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to raise capital, through either equity or debt offerings, or enter into another line of credit facility. We may not be able to successfully consummate any equity or debt financings or enter into any other line of credit facility in the future or that the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to our stockholders.

Recent Accounting Pronouncements

For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, please refer to Part I, Item 1, Note 2 – Summary of Significant Accounting Policies, which is incorporated herein by this reference.

Additional Information

BIOLASE®, ZipTip®, ezlase®, eztips®, ComfortPulse®, Waterlase®, Waterlase Dentistry®, Waterlase Express®, iLase®, iPlus®, Epic®, Epic Pro®, WCLI®, World Clinical Laser Institute®, Waterlase MD®, Waterlase Dentistry®, and EZLase® are registered trademarks of BIOLASE, and Pedolase™ is a trademark of BIOLASE. All other product and company names are registered trademarks or trademarks of their respective owners.

 

 

42


 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any change in our internal control over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM  1.

LEGAL PROCEEDINGS

The disclosure contained in Part I, Item 1, Note 11 – Commitments and Contingencies is hereby incorporated herein by reference.

ITEM  1A.

RISK FACTORS

Except for the following, there have been no material changes to the risk factors as disclosed in Part I, Item 1A “Risk Factors” in the 2018 Form 10-K.

Failure to meet Nasdaq’s continued listing requirements could result in the delisting of our common stock, negatively impact the price of our common stock and negatively impact our ability to raise additional capital.

On August 9, 2017, we received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market stating that, for the preceding 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). While the Company subsequently regained compliance with the minimum bid price requirement by effecting a reverse stock split, the Company’s common stock has recently traded at prices below $1.00 per share and there is no assurance that we will maintain compliance with this or any of the other Nasdaq continued listing requirements in the future.

As of September 30, 2019, we were not in compliance with Nasdaq requirements for stockholders’ equity because our stockholders’ equity on that date was below the $2.5 million required by Nasdaq Listing Rule 5550(b)(1). As of the date of this quarterly report on Form 10-Q, we believe that we have regained compliance with this requirement as a result of the October 29, 2019 public offering and concurrent private placement described elsewhere in this report. However, Nasdaq is continuing to monitor our ongoing compliance with the stockholders’ equity requirement and, if at the time we file our annual report on Form 10-K for the year ending December 31, 2019, we do not evidence compliance, our common stock may be subject to delisting.

43


 

If, in the future, we fail to comply with Nasdaq’s continued listing requirements, our common stock will be subject to delisting. If that were to occur, our common stock would be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our common stock. This would adversely affect the ability of investors to trade our common stock and would adversely affect the value of our common stock. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock. If we seek to implement a further reverse stock split in order to remain listed on The Nasdaq Capital Market, the announcement or implementation of such a reverse stock split could negatively affect the price of our common stock.

 

Future sales of shares of our common stock may depress the price of our shares.

The sales of a substantial amount of common stock in the public market in the future, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future. All of the shares of our common stock sold in our October 2019 underwritten public offering are freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), unless the shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. In addition, two of our stockholders held approximately 60% of our outstanding common stock, in the aggregate, as of September 30, 2019. Such stockholders also purchased the Series E Participating Convertible Preferred Stock in our October 2019 private placement. Substantially all of the shares of common stock currently held by those stockholders have been registered for resale under the Securities Act and, subject to certain limitations, including certain lock-up restrictions agreed to by those stockholders, all or a portion of such shares may be offered and sold to the public in the future. In addition, all such shares of common stock plus any shares of common stock issued as a result of the conversion of the Series E Participating Convertible Preferred Stock purchased by those stockholders are eligible for resale under, but subject to the “affiliate” restrictions of, Rule 144. If some or all of the shares held by those stockholders are sold, or if it is perceived that they will be sold, the market price of our common stock could decline.

 

ITEM 5.

OTHER INFORMATION

On November 6, 2019, the Company agreed to further amend the Credit Agreement. Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.

 

44


 

ITEM 6.

EXHIBITS

 

 

  

 

  

 

  

Incorporated by Reference

Exhibit

  

Description

  

Filed

Herewith

  

Form

  

Period

Ending/Date

of Report

  

Exhibit

  

Filing

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

     1.1

  

Underwriting Agreement, dated as of October 24, 2019, between the Registrant, The Benchmark Company, LLC and Dougherty & Company LLC, as underwriters

  

 

 

8-K

 

10/29/2019

 

1.1

 

10/30/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.1

  

Restated Certificate of Incorporation, including, (i) Certificate of Designations, Preferences and Rights of 6% Redeemable Cumulative Convertible Preferred Stock of the Registrant; (ii) Certificate of Designations, Preferences and Rights of Series A 6% Redeemable Cumulative Convertible Preferred Stock of the Registrant; (iii) Certificate of Correction Filed to Correct a Certain Error in the Certificate of Designation of the Registrant; and (iv) Certificate of Designations of Series B Junior Participating Cumulative Preferred Stock of the Registrant.

  

 

 

S-1,
Amendment
No. 1

 

12/23/2005

 

3.1

 

12/23/2005

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.2

 

Amendment to Restated Certificate of Incorporation

 

 

 

8-K

 

05/10/2012

 

3.1

 

05/16/2012

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.3

 

Second Amendment to Restated Certificate of Incorporation

 

 

 

8-A/A

 

11/04/2014

 

3.1.3

 

11/04/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.4

 

Third Amendment to Restated Certificate of Incorporation

 

 

 

S-3

 

07/21/2017

 

3.4

 

07/21/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.5

 

Fourth Amendment to Restated Certificate of Incorporation

 

 

 

8-K

 

05/10/2018

 

3.1

 

05/11/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.6

 

Certificate of Elimination of Series B Junior Participating Cumulative Preferred Stock

 

 

 

8-K

 

11/10/2015

 

3.1

 

11/12/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.7

 

Certificate of Designations, Preferences and Rights of Series C Participating Convertible Preferred Stock of the Registrant

 

 

 

8-K

 

08/08/2016

 

3.1

 

08/08/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.8

 

Certificate of Elimination of Series C Participating Convertible Preferred Stock of the Registrant

 

 

 

8-K

 

04/18/2017

 

3.1

 

04/20/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

     3.1.9

 

Certificate of Designations, Preferences and Rights of Series D Participating Convertible Preferred Stock of the Registrant

 

 

 

8-K

 

04/18/2017

 

3.2

 

04/20/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

45


 

 

  

 

  

 

  

Incorporated by Reference

Exhibit

  

Description

  

Filed

Herewith

  

Form

  

Period

Ending/Date

of Report

  

Exhibit

  

Filing

Date

     3.1.10

 

Certificate of Designations, Preferences

and Rights of Series E Participating Convertible Preferred Stock of the Registrant

 

 

 

8-K

 

10/29/2019

 

3.1

 

10/30/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

  3.2

  

Seventh Amended and Restated Bylaws of the Registrant, adopted on October 8, 2018

  

 

  

8-K

  

10/08/2018

  

3.1

  

10/09/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.1

 

Form of Warrant issued on November 7, 2014 (attached as Exhibit A to the Securities Purchase Agreement, dated November 3, 2014, by and among the Registrant and the investors listed on Schedule I thereto)

 

 

 

8-K

 

11/03/2014

 

99.1

 

11/07/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.2

 

Form of Warrant issued on August 8, 2016 (attached as Exhibit B to the Securities Purchase Agreement, dated August 1, 2016, by and among the Registrant and the investors listed on Schedule I thereto)

 

 

 

8-K

 

08/01/2016

 

99.1

 

08/02/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.3

 

Form of Warrant issued April 18, 2017

 

 

 

DEF14A

 

 

 

D

 

05/19/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.4

 

Warrant to Purchase Stock issued on March 6, 2018 to Western Alliance Bank

 

 

 

10-K

 

12/31/2017

 

4.4

 

03/14/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.5

 

Warrant to Purchase Stock issued on September 27, 2018 to Western Alliance Bank

 

 

 

10-Q

 

09/30/2018

 

4.1

 

11/14/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.6

 

Warrant to Purchase Stock issued on November 9, 2018 to SWK Funding LLC

 

 

 

10-Q

 

09/30/2018

 

4.2

 

11/14/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.7

 

Warrant to Purchase Stock issued on May 7, 2019 to SWK Funding LLC

 

 

 

10-Q

 

03/31/2019

 

4.7

 

5/10/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

4.8

 

Consolidated Amended and Restated Warrant to Purchase Common Stock, dated November 6, 2019, by and between the Registrant and SWK Funding, LLC

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Letter Agreement, dated August 20, 2019, by and between the Registrant and SWK Funding LLC

 

 

 

S-1

 

09/04/2019

 

10.28

 

09/05/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2

 

Second Amendment to Credit Agreement, dated as of September 30, 2019, by and between the Registrant and SWK Funding LLC

 

 

 

S-1/A

 

10/04/2019

 

10.35

 

10/07/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

10.3

 

Securities Purchase Agreement, dated as of October 24, 2019, by and among the Registrant and the investors listed on Schedule I thereto

  

 

  

8-K

  

10/29/2019

  

99.1

  

10/30/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

46


 

 

  

 

  

 

  

Incorporated by Reference

Exhibit

  

Description

  

Filed

Herewith

  

Form

  

Period

Ending/Date

of Report

  

Exhibit

  

Filing

Date

10.4

 

Loan and Security Agreement, dated October 28, 2019, by and between the Registrant and Pacific Mercantile Bank

  

 

  

8-K

  

10/28/2019

  

10.1

  

11/01/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

10.5

 

Third Amendment to Credit Agreement dated November 6, 2019, by and between Registrant and SWK Funding, LLC

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

 

The following unaudited financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, (iv) Notes to Consolidated Financial Statements

 

X

 

 

 

 

 

 

 

 

 

*

Compensatory contract or arrangement.

**

Furnished herewith.

 

 

 

47


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

BIOLASE, INC.

 

 

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 8, 2019

 

By:

 

/s/ Todd A. Norbe 

 

Date

 

 

 

Todd A. Norbe

 

 

 

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 8, 2019

 

By:

 

/s/ JOHN R. BEAVER 

 

Date

 

 

 

John R. Beaver

 

 

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

(Principal Financial Officer and

 

 

 

 

 

 

 Principal Accounting Officer)

 

 

48


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
9/27/28
12/31/21
10/28/21
10/28/20
9/30/20
3/6/20
1/1/20
12/31/19
Filed as of:11/12/19
Filed on:11/8/19
11/6/198-K
11/5/19D
10/31/194,  SC 13G
10/29/194,  SC 13D/A
10/28/19424B4,  8-K
For Period end:9/30/198-K
8/20/194,  8-K
6/30/1910-Q
5/15/198-K,  DEF 14A
5/7/19
3/31/1910-Q
3/8/1910-K
3/6/19
1/31/198-K
1/25/198-K
1/1/19
12/31/1810-K,  SD
11/9/18
10/22/18
9/30/1810-Q
9/27/188-K
9/21/184,  8-K,  DEF 14A
8/13/1810-Q
5/10/188-K,  S-8
5/9/188-K,  DEF 14A,  PRE 14A
3/6/188-K
1/25/184,  EFFECT
1/24/18
1/23/18CORRESP
8/9/178-K
1/27/17
5/6/164,  8-K,  DEF 14A
4/27/154,  8-K
10/30/14
6/6/134,  8-K,  DEF 14A,  PRE 14A
9/9/12
4/30/128-K
4/24/128-K
5/5/114,  8-K,  DEF 14A
5/16/074,  8-K,  DEF 14A
11/15/054,  8-K,  DEF 14A,  PRE 14A
5/26/043,  4,  DEF 14A
 List all Filings 
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