4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered |
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(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.
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).
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 |
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Accelerated filer |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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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 August 5, 2021, the registrant had
BIOLASE, INC.
INDEX
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PART I. |
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2 |
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Item 1. |
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2 |
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Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 |
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2 |
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3 |
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4 |
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Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and June 30, 2020 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
Item 3. |
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35 |
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Item 4. |
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35 |
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PART II |
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36 |
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Item 1. |
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36 |
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Item 1A. |
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36 |
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Item 5 |
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37 |
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Item 6. |
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38 |
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40 |
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOLASE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
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June 30, |
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December 31, |
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2021 |
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2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, less allowance of $ |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, net |
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Goodwill |
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Right of use asset |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, REDEEMABLE PREFERRED STOCK AND |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Deferred revenue, current portion |
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Current portion of term loans, net of discount |
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Total current liabilities |
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Deferred revenue |
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Warranty accrual |
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Non current term loans, net of discount |
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Non current operating lease liability |
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Other liabilities |
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Total liabilities |
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Stockholders' equity: |
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Series F Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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( |
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Total stockholders' equity |
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Total liabilities, redeemable preferred stock and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
2
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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General and administrative |
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Engineering and development |
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Loss on patent litigation settlement |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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(Gain) Loss on foreign currency transactions |
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Interest expense, net |
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Gain on debt forgiveness |
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( |
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Non-operating (gain) loss, net |
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( |
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Loss before income tax provision (benefit) |
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( |
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Income tax provision (benefit) |
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( |
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Net loss |
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Other comprehensive loss items: |
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Foreign currency translation adjustments |
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( |
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Comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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$ |
( |
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$ |
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$ |
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$ |
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Deemed dividend on convertible preferred stock |
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Net loss attributable to common stockholders |
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$ |
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$ |
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$ |
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$ |
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Net loss per share attributable to common stockholders: |
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Basic |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Shares used in the calculation of net loss per share: |
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Basic |
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Diluted |
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See accompanying notes to unaudited consolidated financial statements.
3
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
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Mezzanine |
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Stockholders' Equity |
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Series E |
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Common Stock |
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Additional |
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Series F |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Amount |
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Shares |
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Amount |
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Loss |
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Deficit |
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Equity |
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Balances, March 31, 2021 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
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$ |
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$ |
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$ |
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Sale of common stock |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Conversion of Series F |
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— |
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— |
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— |
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— |
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Deemed dividend on Series F |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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Issuance of stock from |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balances, June 30, 2021 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
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$ |
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$ |
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$ |
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Balances, December 31, 2020 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Sale of common stock |
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— |
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— |
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— |
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— |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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Conversion of Series F |
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— |
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— |
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( |
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— |
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— |
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— |
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Deemed dividend on Series F |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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Issuance of stock from |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of common stock |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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Foreign currency |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Balances, June 30, 2021 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
4
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
|
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Mezzanine |
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Stockholders' Equity |
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Series E |
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Common Stock |
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Additional |
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Series F |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Amount |
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Shares |
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Amount |
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Loss |
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Deficit |
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Equity |
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Balances, March 31, 2020 |
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$ |
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$ |
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$ |
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— |
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$ |
— |
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$ |
( |
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$ |
( |
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$ |
( |
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Sale of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Sale of common stock warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of Series E Participating Convertible Preferred Stock |
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( |
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( |
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— |
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— |
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— |
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Settlement of liability awards |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock offering costs |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Warrants issued in connetion with debt instruments |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of stock from RSUs, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balances, June 30, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balances, December 31, 2019 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Sale of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Sale of common stock warrants |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Conversion of Series E Participating Convertible Preferred Stock |
|
|
( |
) |
|
|
( |
) |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Settlement of liability awards |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Stock offering costs |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Warrants issued in connetion with debt instruments |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of stock from |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balances, June 30, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
See accompanying notes to unaudited consolidated financial statements.
5
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Provision for bad debts |
|
|
( |
) |
|
|
|
|
Inventory write-offs and disposals |
|
|
( |
) |
|
|
|
|
Amortization of discount on lines of credit |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Patent litigation mark-to-market |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Gain on debt forgiveness |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Inventory |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Accounts payable and accrued liabilities |
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
|
|
|
( |
) |
|
Net cash and cash equivalents used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash and cash equivalents used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
||
Proceeds from the sale of common stock |
|
|
|
|
|
|
||
Proceeds from the sale of common stock warrants |
|
|
|
|
|
|
||
Payments of equity offering costs |
|
|
( |
) |
|
|
( |
) |
Borrowings on other long-term loans |
|
|
|
|
|
|
||
Borrowings on credit facility |
|
|
|
|
|
|
||
Repayment of credit facility |
|
|
|
|
|
( |
) |
|
Fees paid for debt instruments |
|
|
|
|
|
( |
) |
|
Proceeds from the exercise of common stock warrants |
|
|
|
|
|
|
||
Payment of debt issuance costs |
|
|
( |
) |
|
|
|
|
Net cash and cash equivalents provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes |
|
|
( |
) |
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosure: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash received for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes |
|
$ |
|
|
$ |
|
||
Cash paid for operating leases |
|
$ |
|
|
$ |
|
||
Non-cash accrual for capital expenditures |
|
$ |
|
|
$ |
|
||
Non-cash settlement of liability |
|
$ |
|
|
$ |
|
||
Non-cash right-of-use assets obtained in exchange for lease obligation |
|
$ |
|
|
$ |
|
||
Warrants issued in connection with debt instruments |
|
$ |
|
|
$ |
|
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 leading provider of advanced laser systems for the dental industry. The Company develops, manufactures, markets, and sells laser systems that provide significant benefits for dental practitioners and their patients. The Company’s proprietary systems allow dentists, periodontists, endodontists, pediatric dentists, 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. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals.
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, 2020 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. The unaudited 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 six months ended June 30, 2021 are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2020, included in BIOLASE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021 (the “2020 Form 10-K”).
Liquidity and Management’s Plans
The Company incurred losses from operations and used cash in operating activities for the three and six months ended June 30, 2021 and for the years ended December 31, 2020, 2019, and 2018.
As of June 30, 2021, the Company had working capital of approximately $
Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, the COVID-19 pandemic and the actions taken to contain it, 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. The Company cannot provide assurance that it will be able to successfully enter into any such equity or debt financings 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 its’ stockholders.
COVID-19 Risk and Uncertainties and CARES Act
The COVID-19 pandemic severely impacted global economic activity, and many countries and many states in the United States reacted to the COVID-19 pandemic by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures included dental office closures worldwide, in large part, for all but emergency procedures. The ability of the Company’s salespeople to call on dental customers during these closures was greatly limited. In addition, most dental shows and workshops scheduled in 2020 were canceled. As a result of reduced sales due to the COVID-19 pandemic and actions taken to contain it, cash generated from the Company’s operations during 2020 were less than anticipated. Moreover, in light of the recent increase in
7
COVID-19 cases as a result of the Delta variant, there is no assurance that sales will return to normal levels during the remainder of 2021 or at any time thereafter.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act") was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.
The Company analyzed the provisions of the CARES Act and determined that it will not have a material impact on its future financial condition, results of operations, or liquidity.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“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 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.
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 as discussed in the Company’s 2020 audited financial statements included in the 2020 Form 10-K. Management believes that there have been no significant changes during the six months ended June 30, 2021 in the Company’s critical accounting policies from those disclosed in the Company’s 2020 audited financial statements included in the 2020 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, and the SWK Loan (as defined below) as discussed in Note 9, approximate fair value because of the 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 three and six-month periods ended June 30, 2021 and 2020, respectively, the Company did not enter into any
8
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 (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”).
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.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step-up in the tax basis of goodwill and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company adopted this guidance effective January 1, 2021, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard is effective for the Company beginning on January 1, 2022, with early adoption permitted only in the first quarter of 2021. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company is currently assessing the impact the new guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope and 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, 2023, with early adoption permitted beginning January 1, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.
NOTE 3—
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 establishes a provision for estimated warranty expense.
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
9
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
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 doubtful accounts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs.
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):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Undelivered elements (training, installation, product |
|
$ |
|
|
$ |
|
||
Extended warranty contracts |
|
|
|
|
|
|
||
Total deferred revenue |
|
|
|
|
|
|
||
Less: long-term portion of deferred revenue |
|
|
( |
) |
|
|
( |
) |
Deferred revenue — current |
|
$ |
|
|
$ |
|
The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at June 30, 2021 and December 31, 2020.
The amount of revenue recognized during the six months ended June 30, 2021 and 2020 that was included in the opening contract liability balance related to undelivered elements was $
10
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.
The Company’s revenues related to the following geographic areas were as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Revenue recognized over time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenue recognized at a point in time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company’s sales by end market were as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
End-customer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Distributors |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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—REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
BIOLASE's board of directors (the "Board"), without further stockholder authorization, may issue from time to time up to
Common Stock
On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of
Preferred Stock
Series F Convertible Preferred Stock
On July 23, 2020, the Company consummated the sale of an aggregate of
11
registered rights offering the Company completed on July 22, 2020 (the “Rights Offering”). Each share of Series F Preferred Stock is convertible at the Company’s option at any time on or after July 22, 2021 or at the option of the holder at any time, into the number of shares of BIOLASE common stock determined by dividing the $
In accordance with applicable accounting standards, the $
The Series F Preferred Stock contained a beneficial conversion feature which resulted in a deemed dividend to preferred stockholders of approximately $
Approximately
Redeemable Preferred Stock
Series E Participating Convertible Preferred Stock
As of June 30, 2021 and December 31, 2020, there were
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, 2017, 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, directors of the Company, and consultants. As of June 30, 2021, a total of
2018 Stock Incentive Plan
At the 2018 annual meeting of stockholders, 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, Amendment No. 2 to the 2018 Plan, as approved by the Company’s stockholders on May 15, 2019, Amendment No. 3 to the 2018 Plan, as approved by the Company’s stockholders on May 13, 2020, and Amendment No. 4 to the 2018 Plan, as approved by the Company's stockholders on June 11, 2021. Although the increase of
Under the terms of the 2018 Plan,
12
The Company recognized stock-based compensation expense of $
The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Engineering and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Expected term (years) |
|
N/A |
|
|
|
|
|
|
|
|
|
|
||||
Volatility |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Annual dividend per share |
|
N/A |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Risk-free interest rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
A summary of option activity for the six months ended June 30, 2021 is as follows (in thousands, except per share data):
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
||||
|
|
Shares |
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
||||
Options outstanding at December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted at fair market value |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Forfeited, cancelled, or expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options outstanding at June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested options expired during the period |
|
|
|
|
$ |
|
|
|
|
|
|
|
A summary of unvested stock option activity for the six months ended June 30, 2021 is as follows (in thousands, except per share data):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested options at December 31, 2020 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Unvested options at June 30, 2021 |
|
|
|
|
$ |
|
13
Fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Weighted-average fair value of options granted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total fair value of shares vested during the period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Restricted Stock Units
During the six months ended June 30, 2021, the Company granted approximately
A summary of unvested RSU activity for the six months ended June 30, 2021 is as follows (in thousands, except per share amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested RSUs at December 31, 2020 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested RSUs at June 30, 2021 |
|
|
|
|
$ |
|
Warrants
The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board. During the first quarter of 2021, the Company received proceeds of $
A summary of warrant activity for the six months ended June 30, 2021 is as follows (in thousands, except exercise price amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average |
|
||
|
|
Shares |
|
|
Exercise |
|
||
Warrants outstanding, December 31, 2020 |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
$ |
|
|
Warrants outstanding at June 30, 2021 |
|
|
|
|
$ |
|
||
Warrants exercisable at June 30, 2021 |
|
|
|
|
$ |
|
||
Vested warrants expired during the period |
|
|
|
|
$ |
|
See Note 9 for information on the Western Alliance Warrants, the SWK Warrants, and the DPG Warrants (each as defined below).
Phantom Awards and Stock Appreciation Rights
During the second quarter of 2021, the Company issued
14
During the second quarter of 2021, the Company issued
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 BIOLASE common stock outstanding for the period. In computing diluted net loss per share, the weighted average number of shares of common stock outstanding is adjusted to reflect the effect of potentially dilutive securities. Income is adjusted for any deemed dividends to preferred stockholders to compute income available to common stockholders.
Outstanding stock options, RSUs, and warrants to purchase approximately
NOTE 5—INVENTORY
Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory |
|
$ |
|
|
$ |
|
NOTE 6—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net is comprised of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Building |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Equipment and computers |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property, plant, and equipment, net before land |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
15
NOTE 7—INTANGIBLE ASSETS AND GOODWILL
The Company conducted its annual impairment test of goodwill as of December 31, 2020 and determined that there was
As of June 30, 2021 and December 31, 2020, the Company had goodwill of $
NOTE 8—ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Payroll and benefits |
|
$ |
|
|
$ |
|
||
Settlement accrual |
|
|
|
|
|
|
||
Warranty accrual, current portion |
|
|
|
|
|
|
||
Taxes |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Accrued insurance premium |
|
|
|
|
|
|
||
Lease liability |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
The CARES Act allows employers to defer the deposit and payment of the employer's share of Social Security taxes through December 31, 2020. Under the CARES Act, the Company deferred $
As of June 30, 2021, a settlement accrual liability of $0.7 million related to the CAO Settlement Agreement (as defined below) was included in current accrued liabilities. See Note 11 for additional information.
Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties are included within accrued liabilities and were as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Balance, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for estimated warranty cost |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Warranty expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: long-term portion of warranty accrual |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of warranty accrual |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company's Waterlase laser systems sold domestically are covered by a warranty against defects in material and workmanship for a period of up to
In North America and select international locations, the Company sells extended warranty contracts to its laser systems end users that cover the period after the expiration of the Company's standard warranty coverage for its laser systems. Extended warranty
16
coverage provided under the Company's service contracts varies by the type of system and the level of service desired by the customer. Products or accessories remanufactured, refurbished, or sold by unauthorized parties, voids all warranties in place for such products and exempts the Company from liability issues relating to the use of such products. The Company distributes extended warranties on certain imaging products, including its digital radiography products. However, all imaging products that the Company distributes are initially covered by manufacturer’s warranties.
NOTE 9—DEBT
The following table presents the details of the principal outstanding and unamortized discount (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
SWK Loan |
|
$ |
|
|
$ |
|
||
PPP Loan |
|
|
|
|
|
|
||
EIDL Loan |
|
|
|
|
|
|
||
Discount and debt issuance costs on SWK Loan |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
Current term loans, net of discount |
|
|
( |
) |
|
|
|
|
Non current term loans, net of discount |
|
$ |
|
|
$ |
|
The Company recognized approximately $
The future minimum principal and interest payments as of June 30, 2021 are as follows (in thousands):
|
|
Principal |
|
|
Interest (1) |
|
||
Remainder of 2021 |
|
$ |
|
|
$ |
|
||
2022 |
|
|
|
|
|
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 and thereafter |
|
|
|
|
|
|
||
Total future payments |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
(1) Estimated using London Interbank Bank Offered Rate (“LIBOR”) as of June 30, 2021 |
|
|
|
|
|
|
Lines of Credit
Pacific Mercantile Bank
On October 28, 2019, the Company entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“PMB”), which provides for a revolving line of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $
The Company’s obligations under the PMB Loan are secured by a security interest in substantially all of the Company’s property. No borrowings may be made under the PMB Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and the Company 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
The PMB Loan Agreement requires the Company to maintain unrestricted cash at PMB plus unused availability under the PMB Loan in an amount equal to at least the Burn Rate. “Burn Rate” means the Company’s net profit/net loss plus depreciation plus
17
amortization plus stock-based compensation plus the change in the accounts receivable reserve, measured on a trailing three-month basis. In addition, the PMB Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions).
As of June 30, 2021 and December 31, 2020, the Company had
Term Loan
On November 9, 2018, the Company entered into a
In light of the Company's increase in working capital from the Equity Offering and cash received from warrants exercised, the Company entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”) with SWK on February 24, 2021, which provides for adjusted minimum aggregate revenue and EBITDA requirements at the end of certain periods, to the extent that our liquid assets are less than $
For the Seventh Amendment, the Company paid an incremental amendment fee of $
As of June 30, 2021, the Company was in compliance with debt covenants of the Credit Agreement.
Paycheck Protection Program Loan
On April 14, 2020, the Company was granted a loan (the “PPP Loan”) under the Paycheck Protection Program from PMB in the aggregate amount of $
The PPP Loan, which was in the form of a note dated
In July 2020, the Company amended the provisions of the PPP Loan. The amendment modifies the original payment deferment period from six months to the date that the United States Small Business Administration (“SBA") remits the Company’s loan forgiveness to PMB or if no forgiveness is requested to ten months after the end of the 24-week measurement period. The amendment also increased the amount of non-payroll costs eligible for loan forgiveness from
In June 2021, the Company received a reply to its request, and the PPP Loan along with all accrued interest was forgiven by the SBA. The amount of loan forgiveness is presented as a component of non-operating (gain) loss on the Statement of Operations. The SBA may undertake a review of a loan of any size during the
EIDL Loan
On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $
18
Interest on the EIDL Loan accrues at the rate of
Western Alliance Warrants
On March 6, 2018, the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the number of shares of common stock equal to $
SWK Warrants
In connection with the Credit Agreement, on November 9, 2018, the Company issued to SWK warrants (the “SWK Warrants”) to purchase up to
In November 2019, these warrants were consolidated and the exercise price was adjusted to $
DPG Warrants
In connection with the SWK Loan, the Company paid a finder’s fee to Deal Partners Group ("DPG") of $
In November 2019, the exercise price of the DPG Warrants issued on November 14, 2018 was adjusted from $
19
The value of both the SWK Warrants and the DPG Warrants 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
NOTE 10—LEASES
The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from to
On January 22, 2020, the Company entered into a
On February 4, 2020, the Company also entered into a
Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Cash paid for operating lease liabilities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Right-of-use assets obtained in exchange for new operating |
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||
Weighted-average remaining lease term |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average discount rate |
|
% |
|
|
% |
|
|
% |
|
|
% |
Lease expense consists of payments for real property, office copiers, and IT equipment. The Company recognizes payments for non-lease components such as common area maintenance in the period incurred. As of June 30, 2021, the Company had no significant leases that had not commenced.
The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than
Maturities of lease liabilities as of June 30, 2021 for leases that have commenced are as follows (in thousands):
|
|
June 30, |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 and thereafter |
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
|
|
|
|
|
Current operating lease liabilities, included in |
|
$ |
|
|
Non current lease liabilities |
|
|
|
|
Total lease liabilities |
|
$ |
|
As of June 30, 2021, right-of-use assets were $
Rent expense totaled $
20
Future minimum rental commitments under lease agreements, as of June 30, 2021, with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):
|
|
|
Year Ended |
|
|
|
|
|
December 31, |
|
|
Remainder of 2021 |
|
|
$ |
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 and thereafter |
|
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
|
Less imputed interest |
|
|
|
( |
) |
Total lease liabilities |
|
|
$ |
|
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 did not oppose.
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 sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest.
On
In February 2021, the Company issued
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 six months ended June 30, 2021, sales to customers in the United States
21
accounted for approximately
Net revenue by geographic location based on the location of customers was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Property, plant, and equipment by geographic location was as follows (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
NOTE 13—CONCENTRATIONS
Revenue from the Company’s products are as follows (dollars in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||||||||||||||||
Laser systems |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Consumables and other |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Services |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Total net revenue |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
The Company maintains its cash and cash equivalents in money market investment accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.
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.
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
22
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
During the three and six months ended June 30, 2021, the Company recorded an income tax benefit of $
NOTE 15—SUBSEQUENT EVENTS
On August 12, 2021, the Board of Directors of the Company (the “Board”) elected Drs. Kathleen T. O’Loughlin, Carol Gomez Summerhays, and Martha Somerman to the Board. In addition, the Board appointed Jess Roper, a Director of the Company, to the Compensation Committee.
On August 12, 2021, Dr. Michael DiTolla and Garrett Sato resigned as members of the Board of Directors of the Company to pursue other interests.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes 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 fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021 (the “2020 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”) that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management's expectations. Such forward-looking statements include statements, predictions, or expectations regarding expected revenue, sales and marketing expenses, general and administrative expenses, investments in engineering and development and other investment activities, interest rate fluctuations, future liquidity, potential collaborations, market opportunities, plans with respect to a new device being developed for endodontists, our use of proceeds from the PPP Loan (as defined below), COVID-19, seasonality and the reasons therefor, operating and other expenses, anticipated cash needs, our strategy 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, or as of the date on which the information incorporated by reference was filed with the SEC, as applicable, 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:
24
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 2020 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.
Overview
We are a leading provider of advanced laser systems for the dental industry. We develop, manufacture, market, and sell laser systems that provide significant benefits for dental practitioners and their patients. Our proprietary 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. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals.
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 and is FDA cleared for over 80 clinical indications to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. For example, Waterlase safely debrides implants without damaging or significantly affecting surface temperature and is the only effective, safe solution to preserving sick implants. In addition, Waterlase disinfects root canals more efficiently than some traditional chemical methods. We also offer our diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. As of June 30, 2021 we had approximately 296 issued and 38 pending United States and international patents, the majority of which are related to Waterlase technology. From 1998 through December 31, 2020, we sold over 41,200 laser systems in over 80 countries around the world. Contained in this total are approximately 13,600 Waterlase systems, including over 9,100 Waterlase MD, MDX, Express and iPlus systems.
25
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.
The Company experienced revenue growth of 211% and 120% for the three and six months ended June 30, 2021, compared to the same periods in 2020, primarily due to the negative impact of COVID-19 during 2020 and high demand from new users for the Company's dental lasers. The Company is currently forecasting revenue for the third quarter ending September 30, 2021 to be significantly above the same period in 2020, which was significantly impacted by COVID-19. Although there are signs of recovery from the impact of COVID-19 both domestically and internationally, given the recent trends due to the delta variant, no assurance can be provided that the recovery will continue.
To further accelerate our growth, over the past nine months, we have formed specialist academies focused on expanding awareness of the benefits of our dental lasers into dental specialist communities. During the second quarter of 2021, we launched the Waterlase Pediatric Dental Academy (the "WPDA") for pediatric dentists. This academy provides clinicians with an immersive training experience through peer-led learning, best practice sharing, and ongoing mentorship to help ensure optimal integration of Waterlase technology into clinical practices. During the first quarter of 2021, we also launched an innovative and first-of-its-kind program in the periodontal community. This program fosters peer-led learning about dental lasers and an ongoing mentorship from leading clinicians, featuring online meetings and case reviews by experts in the field. Additionally, during the fourth quarter of 2020, we launched the Waterlase Endo Academy, an exclusive community of leading endodontists dedicated to improving patient outcomes and profitability with new technology, and announced a collaboration with Einstein Healthcare Network’s Residency in Endodontics to train endodontics residents in the use of Waterlase dental lasers.
In April 2021, we also announced plans to develop a new EdgePRO laser-assisted microfluidic irrigation device for endodontists with EdgeEndo, a global leader in commercializing endodontic products. The new microfluidic irrigation device is being developed to offer a solution to endodontists seeking more from their current cleaning and disinfecting techniques. The EdgePRO will be built upon BIOLASE’s patented and proven platform that has been shown to significantly improve debridement, cleaning, and disinfection by up to 99% using the most advanced laser light sound technology.
Recent Developments
Impact of Coronavirus (COVID-19) on Our Operations
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared
26
COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures included dental office closures in Europe and the United States for all but emergency procedures. Our salespeople were unable to call on dental customers during these closures. In addition, most dental shows and workshops scheduled in 2020 were canceled. There is no assurance that the Company’s sales will return to normal levels during 2021 or at any time thereafter, particularly in light of new variants that have emerged in 2021. See Item 1A — “Risk Factors” for additional information regarding the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition.
SWK Loan Amendment
In light of the Company's increase in working capital from the Equity Offering (as defined below) and cash received from warrants exercised, we entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”) with SWK Funding LLC on February 24, 2021, which provides for adjusted minimum aggregate revenue and EBITDA requirements at the end of certain periods, to the extent that the Company's liquid assets are less than $15 million. As amended, the Credit Agreement provides that while the Company's liquid assets are at or above $15 million, no financial maintenance covenants are applicable.
Equity Offering
On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of 14,000,000 shares of common stock at a price of $1.03 per share less underwriting discounts and commissions. The Company received gross proceeds of approximately $14.4 million before deducting underwriting discounts and commissions and estimated offering expenses of $1.1 million. The Company intends to use the aggregate net proceeds of the offering primarily for working capital and general corporate purposes.
Resignation of President and Chief Executive Officer, and Director
On February 22, 2021, Todd Norbe resigned as President and Chief Executive Officer of BIOLASE, and resigned as a member of the Company's board of directors (the "Board").
Appointment of President and Chief Executive Officer
Effective February 23, 2021, the Board appointed John R. Beaver President and Chief Executive Officer of the Company. Mr. Beaver was most recently the Company’s Executive Vice President, Chief Operating Officer and Chief Financial Officer. He joined BIOLASE in 2017 as Senior Vice President and Chief Financial Officer. He assumed roles of varying responsibilities over the past few years, including Interim Chief Executive Officer of BIOLASE from April 2017 until the hiring of Mr. Norbe.
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 2020 Form 10-K. There have been no significant changes during the six months ended June 30, 2021 in our critical accounting policies from those disclosed in Item 7 of the 2020 Form 10-K.
27
Results of Operations
The following table sets forth certain data from our unaudited operating results, expressed in thousands and as percentages of net revenue:
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||||||||||
|
|
June 30, |
|
June 30, |
||||||||||||||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||||||||||||||
Net revenue |
|
$ |
9,134 |
|
100.0 |
% |
|
$ |
2,938 |
|
100.0 |
% |
|
$ |
17,250 |
|
100.0 |
% |
|
$ |
7,721 |
|
100.0 |
% |
Cost of revenue |
|
|
5,093 |
|
55.8 |
% |
|
|
1,997 |
|
68.0 |
% |
|
|
10,469 |
|
60.7 |
% |
|
|
5,427 |
|
70.3 |
% |
Gross profit |
|
|
4,041 |
|
44.2 |
% |
|
|
941 |
|
32.0 |
% |
|
|
6,781 |
|
39.3 |
% |
|
|
2,294 |
|
29.7 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
3,311 |
|
36.2 |
% |
|
|
2,093 |
|
71.2 |
% |
|
|
6,864 |
|
39.8 |
% |
|
|
4,797 |
|
62.1 |
% |
General and |
|
|
2,779 |
|
30.4 |
% |
|
|
2,137 |
|
72.7 |
% |
|
|
6,134 |
|
35.6 |
% |
|
|
5,147 |
|
66.7 |
% |
Engineering and |
|
|
1,162 |
|
12.7 |
% |
|
|
690 |
|
23.5 |
% |
|
|
2,966 |
|
17.2 |
% |
|
|
1,680 |
|
21.8 |
% |
Loss on patent litigation settlement |
|
|
72 |
|
0.8 |
% |
|
|
— |
|
— |
% |
|
|
161 |
|
0.9 |
% |
|
|
— |
|
— |
% |
Total operating expenses |
|
|
7,324 |
|
80.2 |
% |
|
|
4,920 |
|
167.5 |
% |
|
|
16,125 |
|
93.5 |
% |
|
|
11,624 |
|
150.6 |
% |
Loss from operations |
|
|
(3,283) |
|
(35.9) |
% |
|
|
(3,979) |
|
(135.4) |
% |
|
|
(9,344) |
|
(54.2) |
% |
|
|
(9,330) |
|
(120.8) |
% |
Non-operating expense, net |
|
|
(2,501) |
|
(27.4) |
% |
|
|
665 |
|
22.6 |
% |
|
|
(1,721) |
|
(10.0) |
% |
|
|
1,340 |
|
17.4 |
% |
Loss before income tax provision (benefit) |
|
|
(782) |
|
(8.6) |
% |
|
|
(4,644) |
|
(158.1) |
% |
|
|
(7,623) |
|
(44.2) |
% |
|
|
(10,670) |
|
(138.2) |
% |
Income tax provision (benefit) |
|
|
(80) |
|
(0.9) |
% |
|
|
53 |
|
1.8 |
% |
|
|
(20) |
|
(0.1) |
% |
|
|
34 |
|
0.4 |
% |
Net loss |
|
$ |
(702) |
|
(7.7) |
% |
|
$ |
(4,697) |
|
(159.9) |
% |
|
$ |
(7,603) |
|
(44.1) |
% |
|
$ |
(10,704) |
|
(138.6) |
% |
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, are indicative of our ongoing core performance.
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 us may be different from similarly named non-GAAP financial measures used by other companies.
Adjusted EBITDA
Management uses Adjusted EBITDA in its evaluation of our 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, patent litigation settlements, stock-based compensation, debt forgiveness, and the change in allowance for doubtful accounts. Management uses adjusted EBITDA in its evaluation of our 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 us may be different from similarly named non-GAAP financial measures used by other companies.
28
The following table contains a reconciliation of non-GAAP Adjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
GAAP net loss attributable to common stockholders |
|
$ |
(708 |
) |
|
$ |
(4,697 |
) |
|
$ |
(8,141 |
) |
|
$ |
(10,704 |
) |
Deemed dividend on convertible preferred stock |
|
|
6 |
|
|
|
— |
|
|
|
538 |
|
|
|
— |
|
GAAP net loss |
|
$ |
(702 |
) |
|
$ |
(4,697 |
) |
|
$ |
(7,603 |
) |
|
$ |
(10,704 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
582 |
|
|
|
625 |
|
|
|
1,157 |
|
|
|
1,214 |
|
Income tax provision (benefit) |
|
|
(80 |
) |
|
|
53 |
|
|
|
(20 |
) |
|
|
34 |
|
Depreciation and amortization |
|
|
91 |
|
|
|
307 |
|
|
|
176 |
|
|
|
488 |
|
Change in allowance for doubtful accounts |
|
|
27 |
|
|
|
22 |
|
|
|
(79 |
) |
|
|
1,008 |
|
Loss on patent litigation settlement |
|
|
72 |
|
|
|
— |
|
|
|
161 |
|
|
|
— |
|
Stock-based and other non-cash compensation |
|
|
369 |
|
|
|
801 |
|
|
|
1,297 |
|
|
|
1,519 |
|
Gain on debt forgiveness |
|
|
(3,014 |
) |
|
|
— |
|
|
|
(3,014 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
(2,655 |
) |
|
$ |
(2,889 |
) |
|
$ |
(7,925 |
) |
|
$ |
(6,441 |
) |
Comparison of Results of Operations
Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020
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 June 30, 2021 and 2020, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||||||
Laser systems |
|
$ |
5,720 |
|
|
|
62.6 |
% |
|
$ |
1,091 |
|
|
|
37.1 |
% |
|
$ |
4,629 |
|
|
|
424.3 |
% |
Consumables and other |
|
|
2,358 |
|
|
|
25.8 |
% |
|
|
862 |
|
|
|
29.3 |
% |
|
|
1,496 |
|
|
|
173.5 |
% |
Services |
|
|
1,056 |
|
|
|
11.6 |
% |
|
|
985 |
|
|
|
33.6 |
% |
|
|
71 |
|
|
|
7.2 |
% |
Net revenue |
|
$ |
9,134 |
|
|
|
100.0 |
% |
|
$ |
2,938 |
|
|
|
100.0 |
% |
|
$ |
6,196 |
|
|
|
210.9 |
% |
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||||||
United States |
|
$ |
5,865 |
|
|
|
64.2 |
% |
|
$ |
2,195 |
|
|
|
74.7 |
% |
|
$ |
3,670 |
|
|
|
167.2 |
% |
International |
|
|
3,269 |
|
|
|
35.8 |
% |
|
|
743 |
|
|
|
25.3 |
% |
|
|
2,526 |
|
|
|
340.0 |
% |
Net revenue |
|
$ |
9,134 |
|
|
|
100.0 |
% |
|
$ |
2,938 |
|
|
|
100.0 |
% |
|
$ |
6,196 |
|
|
|
210.9 |
% |
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 higher 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.
Total net revenue increased by $6.2 million, or 211%, during the three months ended June 30, 2021 as compared to the same period in 2020 primarily due to worldwide dental office closures in 2020 as a result of the global COVID-19 pandemic. In the U.S.,
29
net revenue increased by $3.7 million, or 167%, for the three months ended June 30, 2021 as compared to the same period in 2020. Outside the U.S., net revenue increased by $2.5 million, or 340%, during the three months ended June 30, 2021 as compared to the same period in 2020. We believe dental offices in the U.S. have begun to return to prior patient volume resulting in better revenue results, while patient volume in many countries outside the U.S. are still lagging from their pre-COVID-19 levels.
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the three months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||||||
Net revenue |
|
$ |
9,134 |
|
|
|
100.0 |
% |
|
$ |
2,938 |
|
|
|
100.0 |
% |
|
$ |
6,196 |
|
|
|
210.9 |
% |
Cost of revenue |
|
|
5,093 |
|
|
|
55.8 |
% |
|
|
1,997 |
|
|
|
68.0 |
% |
|
|
3,096 |
|
|
|
155.0 |
% |
Gross profit |
|
$ |
4,041 |
|
|
|
44.2 |
% |
|
$ |
941 |
|
|
|
32.0 |
% |
|
$ |
3,100 |
|
|
|
329.4 |
% |
Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the three months ended June 30, 2021, was $4.0 million, or 44% of net revenue, an increase of approximately $3.1 million, or 329%, as compared with gross profit of $0.9 million, or 32% of net revenue, for the same period in 2020. The increase in gross profit reflects the impact of the increase in revenues for the period combined with an increase in average selling prices for products sold in the U.S. during the second quarter of 2021 compared to the same period in 2020 and the effect of an Employee Retention Credit under the CARES Act received during the three months ended June 30, 2021.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the three months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||||||
Sales and marketing |
|
$ |
3,311 |
|
|
|
36.2 |
% |
|
$ |
2,093 |
|
|
|
71.2 |
% |
|
$ |
1,218 |
|
|
|
58.2 |
% |
General and administrative |
|
|
2,779 |
|
|
|
30.4 |
% |
|
|
2,137 |
|
|
|
72.7 |
% |
|
|
642 |
|
|
|
30.0 |
% |
Engineering and development |
|
|
1,162 |
|
|
|
12.7 |
% |
|
|
690 |
|
|
|
23.5 |
% |
|
|
472 |
|
|
|
68.4 |
% |
Loss on patent litigation settlement |
|
|
72 |
|
|
|
0.8 |
% |
|
|
— |
|
|
|
— |
% |
|
|
72 |
|
|
|
100.0 |
% |
Total operating expenses |
|
$ |
7,324 |
|
|
|
80.2 |
% |
|
$ |
4,920 |
|
|
|
167.5 |
% |
|
$ |
2,404 |
|
|
|
48.9 |
% |
Sales and Marketing Expense. Sales and marketing expenses during the three months ended June 30, 2021 increased by $1.2 million, or 58%, as compared to the same period in 2020. This increase is primarily due to $0.5 million from compensation expense and bonus incentives for achieving sales targets, $0.3 million in sales commissions, $0.3 million in increased advertising expenses, and $0.2 million in increased travel and trade show related expenses from the impact of the COVID-19 pandemic on our business operations in 2020. These increases were partially offset by $0.3 million from the effect of an Employee Retention Credit under the CARES Act received during the three months ended June 30, 2021.
General and Administrative Expense. General and administrative expenses during the three months ended June 30, 2021 increased by $0.6 million, or 30%, compared to the same period in 2020, primarily due to $0.5 million related to fees incurred in connection with the annual stockholders meeting held in the second quarter of 2021. The meeting had to be postponed and reconvened for lack of a quorum, and soliciting proxies was significantly more expensive than in recent years due to changes in the composition of the Company's stockholder base.
Engineering and Development Expense. Engineering and development expenses during the three months ended June 30, 2021 increased by $0.5 million, or 68%, compared to the same period in 2020, primarily due to an increase in payroll expenses driven by an increase in engineering projects for 2021 as compared to 2020. Although our primary focus will be on our sales and marketing efforts in the remainder of 2021, we expect to continue our investment in engineering and development activity during the period.
Loss on patent litigation settlement. Loss on patent litigation settlement during the three months ended June 30, 2021 was $0.1 million due to the change in fair value of the remaining accrued liability.
30
Non-Operating Loss
(Gain) Loss on Foreign Currency Transactions. We realized a $69 thousand gain on foreign currency transactions during the three months ended June 30, 2021 compared to a $40 thousand loss on foreign currency transactions during the three months ended June 30, 2020, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense, Net. Interest expense was $0.6 million during the three months ended June 30, 2021 and was consistent with the same period in 2020.
Gain on debt forgiveness. Gain on debt forgiveness was $3.0 million for the three months ended June 30, 2021 due to the approval of the Company's request for forgiveness of the loan (the "PPP Loan") pursuant to the Paycheck Protection Program under the CARES Act.
Income Tax Provision (Benefit). We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our benefit for income taxes was $80 thousand for the three months ended June 30, 2021 as compared to a provision of $53 thousand for the same period in 2020. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.
Net Loss. For the reasons stated above, our net loss totaled approximately $0.7 million for the three months ended June 30, 2021 compared to a net loss of $4.7 million for the three months ended June 30, 2020.
Comparison of Results of Operations
Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020
Net Revenue: The following table summarizes our unaudited net revenues by category, including each category’s percentage of our total revenue, for the six months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Laser systems |
|
$ |
|
10,540 |
|
|
|
61.1 |
% |
|
$ |
|
3,142 |
|
|
|
40.7 |
% |
|
$ |
|
7,398 |
|
|
|
235.5 |
% |
Consumables and other |
|
|
|
4,595 |
|
|
|
26.6 |
% |
|
|
|
2,334 |
|
|
|
30.2 |
% |
|
|
|
2,261 |
|
|
|
96.9 |
% |
Services |
|
|
|
2,115 |
|
|
|
12.3 |
% |
|
|
|
2,245 |
|
|
|
29.1 |
% |
|
|
|
(130 |
) |
|
|
(5.8 |
%) |
Net revenue |
|
$ |
|
17,250 |
|
|
|
100.0 |
% |
|
$ |
|
7,721 |
|
|
|
100.0 |
% |
|
$ |
|
9,529 |
|
|
|
123.4 |
% |
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the six months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change in each geographic revenue category (dollars in thousands):
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
United States |
|
$ |
|
11,086 |
|
|
|
64.3 |
% |
|
$ |
|
5,324 |
|
|
|
69.0 |
% |
|
$ |
|
5,762 |
|
|
|
108.2 |
% |
International |
|
|
|
6,164 |
|
|
|
35.7 |
% |
|
|
|
2,397 |
|
|
|
31.0 |
% |
|
|
|
3,767 |
|
|
|
157.2 |
% |
Net revenue |
|
$ |
|
17,250 |
|
|
|
100.0 |
% |
|
$ |
|
7,721 |
|
|
|
100.0 |
% |
|
$ |
|
9,529 |
|
|
|
123.4 |
% |
Total net revenue increased by $9.5 million, or 123%, during the six months ended June 30, 2021 as compared to the same period in 2020 primarily due to worldwide dental office closures in 2020 as a result of the global COVID-19 pandemic. In the U.S., net revenue increased by $5.8 million, or 108%, for the six months ended June 30, 2021 as compared to the same period in 2020. Outside the U.S., net revenue increased by $3.8 million, or 157%, during the six months ended June 30, 2021 as compared to the same period in 2020. We believe dental offices in the U.S. have begun to return to prior patient volume resulting in better revenue results, while patient volume in many countries outside the U.S. are still lagging from their pre-COVID-19 levels.
31
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the six months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Net revenue |
|
$ |
|
17,250 |
|
|
|
100.0 |
% |
|
$ |
|
7,721 |
|
|
|
100.0 |
% |
|
$ |
|
9,529 |
|
|
|
123.4 |
% |
Cost of revenue |
|
|
|
10,469 |
|
|
|
60.7 |
% |
|
|
|
5,427 |
|
|
|
70.3 |
% |
|
|
|
5,042 |
|
|
|
92.9 |
% |
Gross profit |
|
$ |
|
6,781 |
|
|
|
39.3 |
% |
|
$ |
|
2,294 |
|
|
|
29.7 |
% |
|
$ |
|
4,487 |
|
|
|
195.6 |
% |
Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the six months ended June 30, 2021, was $6.8 million, or 39% of net revenue, an increase of approximately $4.5 million, or 196%, as compared with gross profit of $2.3 million, or 30% of net revenue, for the same period in 2020. The increase in gross profit reflects the impact of the increase in revenues combined with an increase in average selling prices for products sold in the U.S. during first half of 2021 compared to the same period in 2020 and the effect of an Employee Retention Credit under the CARES Act received during the three months ended June 30, 2021.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the six months ended June 30, 2021 and 2020, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
June 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Sales and marketing |
|
$ |
|
6,864 |
|
|
|
39.8 |
% |
|
$ |
|
4,797 |
|
|
|
62.1 |
% |
|
$ |
|
2,067 |
|
|
|
43.1 |
% |
General and administrative |
|
|
|
6,134 |
|
|
|
35.6 |
% |
|
|
|
5,147 |
|
|
|
66.7 |
% |
|
|
|
987 |
|
|
|
19.2 |
% |
Engineering and development |
|
|
|
2,966 |
|
|
|
17.2 |
% |
|
|
|
1,680 |
|
|
|
21.8 |
% |
|
|
|
1,286 |
|
|
|
76.5 |
% |
Loss on patent litigation settlement |
|
|
|
161 |
|
|
|
0.9 |
% |
|
|
|
— |
|
|
|
— |
% |
|
|
|
161 |
|
|
|
100.0 |
% |
Total operating expenses |
|
$ |
|
16,125 |
|
|
|
93.5 |
% |
|
$ |
|
11,624 |
|
|
|
150.6 |
% |
|
$ |
|
4,501 |
|
|
|
38.7 |
% |
Sales and Marketing Expense. Sales and marketing expenses during the six months ended June 30, 2021 increased by $2.1 million, or 43%, as compared to the same period in 2020. This increase is primarily due to $1.0 million in compensation expense and bonus incentives for achieving sales targets, $0.6 million in increased advertising expenses and related consulting costs, and $0.5 million in sales commissions. These increases were partially offset by $0.3 million from the effect of an Employee Retention Credit under the CARES Act received during the three months ended June 30, 2021.
General and Administrative Expense. General and administrative expenses during the six months ended June 30, 2021 increased by $1.0 million, or 19%, compared to the same period in 2020, primarily due to $0.5 million related to fees incurred in connection with the annual stockholders meeting held in the second quarter of 2021, $0.5 million in compensation and leadership bonus awards, $0.4 million in severance expense, $0.3 million from a special shareholders meeting scheduled held in the first quarter of 2021, and $0.2 million in legal and audit fees. These increases were partially offset by $1.1 million in lower allowance for doubtful accounts expense.
Engineering and Development Expense. Engineering and development expenses during the six months ended June 30, 2021 increased by $1.3 million, or 77%, compared to the same period in 2020, primarily due to an increase in payroll expenses driven by an increase in engineering projects for 2021 as compared to 2020. Although our primary focus will be on our sales and marketing efforts in the remainder of 2021, we expect to continue our investment in engineering and development activity during the period.
Loss on patent litigation settlement. Loss on patent litigation settlement during the six months ended June 30, 2021 was $0.2 million due to the change in fair value of the remaining accrued liability.
Non-Operating Loss
Loss on Foreign Currency Transactions. We realized a $0.1 million loss on foreign currency transactions during the six months ended June 30, 2021, which was consistent with the same period in 2020. The loss was primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense, Net. Interest expense was $1.2 million during the six months ended June 30, 2021 and was consistent with the same period in 2020. We expect interest expense to fluctuate depending on the movement in the London Interbank Bank Offered Rate
32
(“LIBOR”) through the remainder of 2021 and the outstanding balance of our revolving line of credit with Pacific Mercantile Bank (the "PMB Loan"), if any.
Gain on debt forgiveness. Gain on debt forgiveness was $3.0 million for the six months ended June 30, 2021 due to the approval of the Company's request for forgiveness of the PPP Loan.
Income Tax Provision (Benefit). We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our benefit for income taxes was an expense of $20 thousand for the six months ended June 30, 2021 as compared to a provision of $34 thousand for the same period in 2020. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.
Net Loss. For the reasons stated above, our net loss totaled approximately $7.6 million for the six months ended June 30, 2021 compared to a net loss of $10.7 million for the six months ended June 30, 2020.
Liquidity and Capital Resources
At June 30, 2021, we had approximately $37.3 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 increase in cash, cash equivalents, and restricted cash was primarily due to proceeds of $14.4 million from the issuance of common stock and $16.6 million from warrants exercised during the six months ended June 30, 2021.
The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):
|
|
Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Net cash flows used in operating activities |
|
$ |
(10,008 |
) |
|
$ |
(9,339 |
) |
Net cash flows used in investing activities |
|
|
(311 |
) |
|
|
(81 |
) |
Net cash flows provided by financing activities |
|
|
29,811 |
|
|
|
9,011 |
|
Effect of exchange rate changes |
|
|
(83 |
) |
|
|
57 |
|
Net change in cash, cash equivalents and restricted |
|
$ |
19,409 |
|
|
$ |
(352 |
) |
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 six months ended June 30, 2021 totaled $10.0 million and was primarily comprised of our net loss of $7.6 million, gain on PPP Loan forgiveness of $3.0 million, and a net decrease in operating assets and liabilities of $1.1 million, partially offset by stock-based compensation expense of $1.3 million. The net decrease in our operating assets and liabilities was primarily due to a $1.5 million increase in inventory.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2021 was minimal. We expect cash flows from investing activities to remain minimal through the remainder of 2021.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2021 was approximately $29.8 million primarily due to the sale of common stock from our February 2021 equity offering and the exercise of common stock warrants described below.
Effect of Exchange Rate
The $0.1 million effect of exchange rate on cash for the six months ended June 30, 2021 was due to recognized loss on foreign currency transactions, primarily driven by changes in the Euro during the period.
Future Liquidity Needs
As of June 30, 2021, we had working capital of approximately $42.6 million. Our principal sources of liquidity as of June 30, 2021 consisted of approximately $37.3 million in cash, cash equivalents and restricted cash, $3.8 million of net accounts receivable, and any availability under the PMB Loan.
33
Although the Company received gross proceeds of approximately $14.4 million from an equity offering in February 2021 and $16.6 million for warrant exercises subsequent to December 31, 2020, the Company may still have to raise additional capital in the future. Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, the COVID-19 pandemic and the actions taken to contain it, 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. The Company cannot provide assurance that it will be able to successfully enter into any such equity or debt financings 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 its stockholders.
The Company has historically experienced losses from operations and has used cash and cash equivalents in operating activities. To be able to discharge our liabilities and commitments in the normal course of business, we must increase sales of our products, control or potentially reduce expenses, and establish profitable operations in order to 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 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 our advanced medical technologies, and reducing expenses.
Term Loan
The information set forth in Note 9 – Debt – Term Loan is hereby incorporated herein by reference.
Revolving Credit Facility
The information set forth in Note 9 – Debt – Lines of Credit – Pacific Mercantile Bank is hereby incorporated herein by reference.
Paycheck Protection Program Loan
The information set forth in Note 9 – Debt – Paycheck Protection Program Loan is hereby incorporated herein by reference.
EIDL Loan
The information set forth in Note 9 – Debt – EIDL Loan is hereby incorporated herein by reference.
Equity Offering
On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of 14,000,000 shares of common stock at a price of $1.03 per share less underwriting discounts and commissions (the "Equity Offering"). The Company received gross proceeds of approximately $14.4 million before deducting underwriting discounts and commissions and estimated offering expenses.
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.
34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our President and Chief Executive Officer, the effectiveness of the Company’s 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. Based on that evaluation, our President and Chief Executive Officer has concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
35
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially and adversely affect our results of operations, cash flows and financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. While the outcome of such proceedings and claims cannot be predicted with certainty, there are no matters, as of June 30, 2021, that, in the opinion of management, will have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K. The risks and uncertainties described below and in the 2020 Form 10-K are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, or results of operations.
Failure to meet the continued listing requirements of the NASDAQ Stock Market, LLC (“NASDAQ”) 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.
We have received deficiency letters from NASDAQ in the past. For example, on December 3, 2019, we received a deficiency letter from NASDAQ’s Listing Qualifications Department (the “Staff”), notifying us that we violated the continued listing requirements of NASDAQ listing rule 5550(a)(2) (the “Minimum Bid Price Rule”), which requires that BIOLASE common stock maintain a minimum bid price of at least $1.00 per share. On March 31, 2020, we received a deficiency letter from NASDAQ notifying us that, based on the Company’s stockholders’ equity of $377,000 as of December 31, 2019, as reported in our Form 10-K for the fiscal year ended December 31, 2019, we were no longer in compliance with the minimum stockholders’ equity requirement for continued listing on NASDAQ under NASDAQ Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million.
On May 24, 2021, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying the Company that, for the 30 consecutive business days, ending on May 21, 2021, the bid price for BIOLASE common stock had closed below the minimum required by the Minimum Bid Price Rule. In accordance with Nasdaq rules, we have been provided an initial period of 180 calendar days, or until November 22, 2021 (the “Compliance Date”), to regain compliance with the Minimum Bid Price Rule. If, at any time before the Compliance Date, the bid price for the Company’s common stock closes at $1.00 or more for a minimum of 10 consecutive business days, the Staff will provide written notification to the Company that it complies with the Minimum Bid Price Rule. If we do not regain compliance with the Minimum Bid Price Rule by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to provide written notice of our intention to cure the deficiency during the additional compliance period, by effecting a reverse stock split, if necessary, provided that we meet the continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the Minimum Bid Price Rule. If we do not regain compliance with the Minimum Bid Price Rule by the Compliance Date and are not eligible for an additional compliance period at that time, the Staff will provide written notification to the Company that BIOLASE common stock may be delisted. We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Rule.
If we fail to comply with NASDAQ’s continued listing requirements, including the Minimum Bid Price Rule, 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.
Non-compliance with the objective and subjective criteria for the Paycheck Protection Program loan could have a material adverse effect on our business.
On April 14, 2020, BIOLASE obtained a loan (the “PPP Loan”) from Pacific Mercantile Bank in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program under the CARES Act. On April 23, 2020, the Secretary of the United States Department of the Treasury stated that the Small Business Administration ("SBA") would perform a full review of any PPP loan over $2.0 million before forgiving the loan. In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in
36
good faith after analyzing, among other things, the maintenance of our entire workforce, notwithstanding certain obvious “work-from-home” limitations associated with the nature of our business. We also took into account our need for additional funding to continue operations, and our ability to access alternative forms of capital in the then-current market environment. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent with the objectives of the PPP of the CARES Act.
The PPP Loan was forgiven in full by the SBA in June 2021. The PPP Loan is subject to review by the SBA for a period up to six-years following forgiveness. If it is later determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties and adverse publicity, which could have a material adverse effect on our business, results of operations, and financial condition.
We have experienced net losses for each of the past three years, and we could experience additional losses and have difficulty achieving profitability in the future.
We had an accumulated deficit of approximately $259.0 million at June 30, 2021. We recorded net losses of approximately $7.6 million, $16.8 million, $17.9 million, and $21.5 million for the six months ended June 30, 2021 and the years ended December 31, 2020, 2019, and 2018, respectively. In order to achieve profitability, we must increase net revenue through new sales and control our costs. Failure to increase our net revenue and decrease our costs could cause our stock price to decline and could have a material adverse effect on our business, financial condition, and results of operations.
ITEM 5. OTHER INFORMATION
On August 12, 2021, the Board of Directors of the Company (the “Board”) elected Drs. Kathleen T. O’Loughlin, and Carol Gomez Summerhays and Martha Somerman (Dr. O'Loughlin, Dr. Summerhays and Ms. Somerman each a "New Director") to the Board. In addition, the Board appointed Jess Roper, an incumbent director of the Company, to the Compensation Committee.
There are no understandings or arrangements between any New Director or any other person and the Company or any of its subsidiaries pursuant to which any New Director was selected to serve as a director of the Company. There are no family relationships between any New Director and any director, executive officer or person nominated or chosen by the Company to become a director or executive officer, and there are no transactions between and New Director or any immediate family members of any New Director and the Company or any of its subsidiaries.
Pursuant to the terms of the Company’s 2018 Long-Term Incentive Plan, upon election to the Board, each New Director received an automatic award of 98,955 stock appreciation rights, with an exercise price of $0.63, which fully vest on May 26, 2022. Upon vesting, each unit shall be settled with one share of Company’s common stock.
On August 12, 2021, Dr. Michael DiTolla and Garrett Sato resigned as members of the Board of Directors of the Company to pursue other interests.
37
ITEM 6. EXHIBITS
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Incorporated by Reference |
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Exhibit |
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Description |
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Filed Herewith |
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Form |
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Period Ending/Date of Report |
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Exhibit |
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Filing Date |
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3.1.1 |
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S-1, Amendment |
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12/23/2005 |
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3.1 |
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12/23/2005 |
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3.1.2 |
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8-K |
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05/10/2012 |
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3.1 |
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05/16/2012 |
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3.1.3 |
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8-A/A |
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11/04/2014 |
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3.1.3 |
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11/04/2014 |
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3.1.4 |
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S-3 |
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07/21/2017 |
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3.4 |
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07/21/2017 |
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3.1.5 |
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8-K |
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05/10/2018 |
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3.1 |
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05/11/2018 |
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3.1.6 |
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8-K |
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05/28/2020 |
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3.1 |
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06/01/2020 |
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3.1.7 |
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Certificate of Elimination of Series B Junior Participating Cumulative Preferred Stock |
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8-K |
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11/10/2015 |
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3.1 |
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11/12/2015 |
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3.1.8 |
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8-K |
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04/18/2017 |
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3.2 |
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04/20/2017 |
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3.1.9 |
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8-K |
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10/29/2019 |
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3.1 |
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10/30/2019 |
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3.1.10 |
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8-K |
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07/15/2020 |
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3.1 |
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07/22/2020 |
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3.2 |
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Seventh Amended and Restated Bylaws of the Registrant, adopted on October 8, 2018 |
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8-K |
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10/08/2018 |
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3.1 |
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10/09/2018 |
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4.1 |
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8-K |
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11/03/2014 |
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99.1 |
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11/07/2014 |
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4.2 |
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8-K |
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08/01/2016 |
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99.1 |
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08/02/2016 |
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4.3 |
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DEF14A |
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D |
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05/19/2017 |
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4.4 |
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Warrant to Purchase Stock issued on March 6, 2018 to Western Alliance Bank |
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10-K |
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12/31/2017 |
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4.4 |
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03/14/2018 |
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4.5 |
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Warrant to Purchase Stock issued on September 27, 2018 to Western Alliance Bank |
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10-Q |
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09/30/2018 |
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4.1 |
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11/14/2018 |
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4.6 |
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Warrant to Purchase Stock issued on September 27, 2018 to SWK Funding LLC |
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10-Q |
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09/30/2019 |
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4.2 |
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11/14/2018 |
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4.7 |
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Warrant to Purchase Stock issued on May 7, 2019 to SWK Funding LLC |
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10-Q |
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03/31/2019 |
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4.7 |
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05/10/2019 |
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4.8 |
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10-Q |
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09/30/2019 |
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4.8 |
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11/08/2019 |
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4.9 |
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Warrant to Purchase Stock issued on May 15, 2020 to SWK Funding LLC |
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S-1/A |
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06/19/2020 |
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4.14 |
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06/19/2020 |
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4.10 |
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8-K |
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06/08/2020 |
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4.1 |
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06/09/2020 |
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4.11 |
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8-K |
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07/15/2020 |
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4.2 |
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07/22/2020 |
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4.12 |
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8-K |
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07/15/2020 |
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4.1 |
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07/22/2020 |
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31.1 |
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X |
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32.1 |
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** |
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32.2 |
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** |
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10-Q |
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09/30/2020 |
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32.2 |
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11/13/2020 |
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101 |
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The following unaudited financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended June 30, 2021, 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 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Compensatory contract or arrangement
** Furnished herewith.
39
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.
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BIOLASE, INC. |
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(Registrant) |
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August 13, 2021 |
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By: |
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/s/ JOHN R. BEAVER |
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Date |
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John R. Beaver |
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President and Chief Executive Officer |
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(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
40