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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☐ |
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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 November 3, 2022, 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 September 30, 2022 and December 31, 2021 |
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2 |
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3 |
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4 |
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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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26 |
Item 3. |
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37 |
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Item 4. |
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37 |
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PART II |
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38 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 5 |
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38 |
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Item 6. |
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39 |
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41 |
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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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September 30, |
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December 31, |
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2022 |
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2021 |
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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 STOCKHOLDERS' EQUITY |
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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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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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( |
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( |
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Accumulated deficit |
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( |
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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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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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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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— |
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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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( |
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Loss on foreign currency transactions |
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( |
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( |
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( |
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Interest expense, net |
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( |
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( |
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( |
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Gain on debt forgiveness |
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Non-operating income (loss), net |
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( |
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( |
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( |
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Loss before income tax provision |
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( |
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( |
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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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( |
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( |
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Other comprehensive loss items: |
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Foreign currency translation adjustments |
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( |
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( |
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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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( |
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( |
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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 and Diluted - Note 1 |
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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 and Diluted - Note 1 |
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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 G |
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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, June 30, 2022 |
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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, net of fees |
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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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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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— |
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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 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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— |
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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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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, September 30, 2022 |
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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, 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, net of fees |
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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 Series G Redeemable |
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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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Redemption of Series G Redeemable |
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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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( |
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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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— |
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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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— |
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— |
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Liability award reclass |
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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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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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— |
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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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( |
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— |
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( |
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Balances, September 30, 2022 |
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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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Stockholders' Equity |
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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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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, 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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Exercise of stock option |
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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 restricted shares |
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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 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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— |
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Deemed dividend on Series F 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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Issuance of stock from RSUs, net |
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64 |
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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 |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Exercise of common stock warrants |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances, September 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balances, December 31, 2020 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Sale of common stock |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Exercise of stock option |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for settlement of liability |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of restricted shares |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Conversion of Series F Convertible Preferred Stock |
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Deemed dividend on Series F |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of stock from RSUs, net |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Exercise of common stock warrants |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances, September 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
See accompanying notes to unaudited consolidated financial statements.
5
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
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 |
|
|
|
|
|
( |
) |
|
Provision for inventory excess and obsolescence |
|
|
|
|
|
|
||
Inventory write-offs and disposals |
|
|
|
|
|
( |
) |
|
Amortization of discount on lines of credit |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Patent litigation mark-to-market |
|
|
|
|
|
|
||
Issuance of restricted shares |
|
|
|
|
|
|
||
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 |
|
|
|
|
|
|
||
Payments of equity offering costs |
|
|
|
|
|
( |
) |
|
Principal payment on loan |
|
|
( |
) |
|
|
|
|
Proceeds from the exercise of common stock warrants |
|
|
|
|
|
|
||
Payment of debt issuance costs |
|
|
|
|
|
( |
) |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash and cash equivalents provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes |
|
|
( |
) |
|
|
( |
) |
(Decrease) increase 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 settlement of liability |
|
$ |
|
|
$ |
|
||
Non-cash right-of-use assets obtained in exchange for lease obligation |
|
$ |
|
|
$ |
|
||
Deemed dividend on preferred stock |
|
$ |
|
|
$ |
|
||
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, 2021 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 unaudited consolidated results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, included in BIOLASE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2022 (the “2021 Form 10-K”).
Except as the context otherwise requires, all common stock share numbers, share price amounts (including exercise prices, conversion prices, and closing market prices), and warrant numbers contained in the unaudited consolidated financial statements and notes thereto reflect the
Liquidity and Management’s Plans
The Company incurred losses from operations and used cash in operating activities for the three and nine months ended September 30, 2022 and for the years ended December 31, 2021, 2020, and 2019. The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
As of September 30, 2022, the Company had working capital of approximately $
On June 27, 2022, BIOLASE entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering,
7
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
The COVID-19 pandemic severely impacted global economic activity, and many countries and many states in the United States reacted to the 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. As these quarantines and restrictions began to be lifted in 2021, the Company's sales began to return to pre-pandemic levels. However, there are still uncertainties regarding the ongoing and future effects of COVID-19, and there is no assurance that the Company's sales will not be further impacted in 2022 or at any time thereafter.
Membership Interest Purchase Agreement
On September 22, 2022, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with Med-Fiber LLC ("Med-Fiber") and Alexei Tchapyjnikov, pursuant to which
Reverse Stock Split
At the 2022 annual meeting of BIOLASE stockholders (the "2022 Annual Meeting"), BIOLASE stockholders approved an amendment to BIOLASE’s Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), to effect a reverse stock split of BIOLASE common stock, at a ratio ranging from one-for-two (1:2) to one-for-twenty-five (1:25), with the final ratio to be determined by the Board. Immediately after the 2022 Annual Meeting, the Board approved a one-for-twenty-five (1:25) reverse stock split of the outstanding shares of BIOLASE common stock (the “Reverse Stock Split”). On April 28, 2022, BIOLASE filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split, which became effective on April 28, 2022. The amendment did not change the number of authorized shares of BIOLASE common stock.
Cyber Incident
In December 2021, the Company experienced a cybersecurity attack that caused a brief network disruption and impacted certain systems. Upon detection, the Company took immediate steps to address the incident, engaged third-party experts, and notified law enforcement. The Company has taken actions to strengthen its existing systems and implement additional prevention measures. The Company will continue to monitor and assess as needed. All liabilities were fully insured, and as of December 31, 2021 the Company recorded an accrued liability and an insurance receivable within prepaid expenses and other current assets of $
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these consolidated financial statements include allowances on accounts receivable, inventory, and deferred taxes, as well as estimates for accrued warranty expenses, goodwill and the ability of goodwill to be realized, revenue deferrals, effects of stock-based compensation and warrants, contingent liabilities, and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.
8
Critical Accounting Policies
Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management as discussed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K. Management believes that there have been no significant changes during the nine months ended September 30, 2022 in the Company’s critical accounting policies from those disclosed in the Company’s 2021 audited financial statements included in the 2021 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 – Debt, approximate fair value because of the relative short maturity of these items and the market interest rates the Company could obtain.
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 its 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 nine months ended September 30, 2022 and 2021, respectively, the Company did not enter into any hedging contracts. Future fluctuations in the value of the U.S. dollar may affect the price competitiveness of the Company’s products outside the U.S.
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“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 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 became effective for the Company beginning on January 1, 2022. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements.
9
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact 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—REVENUE RECOGNITION
Contracts with Customers
Revenue for sales of products and services is derived from contracts with customers. The products and services promised in customer contracts include delivery of laser systems, imaging systems, and consumables as well as certain ancillary services such as training and extended warranties. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract and vary according to the arrangement. Because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the Company’s contracts do not contain variable consideration. The Company 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
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.
10
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.
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
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 September 30, 2022 and December 31, 2021.
The amount of revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in the opening contract liability balance related to undelivered elements was $
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
11
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
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 authorize the issuance from time to time of up to
Preferred Stock
Series G Preferred Stock
On March 1, 2022, the Board declared a dividend of one one-thousandth of a share of Series G Preferred Stock, par value $
Series F Convertible Preferred Stock
On July 23, 2020, the Company consummated the sale of an aggregate of
12
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 $
The remaining shares of Series F Preferred Stock were converted into shares of BIOLASE common stock in the first quarter of 2022 with
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 to the Company. As of September 30, 2022, 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 effective as of September 21, 2018, May 15, 2019, May 13, 2020, and June 11, 2021, the “2018 Plan”). The purposes of the 2018 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2018 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors, and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.
Under the terms of the 2018 Plan, approximately
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Engineering and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
13
The fair values of stock options granted in the period were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Expected term (years) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Volatility |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Annual dividend per share |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Risk-free interest rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
A summary of option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
||||
|
|
Shares |
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
||||
Options outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Forfeited, cancelled, or expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options outstanding at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested options expired during the period |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
A summary of unvested stock option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested options at December 31, 2021 |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested options at September 30, 2022 |
|
|
|
|
$ |
|
||
Fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Proceeds from stock options exercised |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Tax benefit related to stock options exercised (1) |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Intrinsic value of stock options exercised (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted-average fair value of options granted per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total fair value of stock options vested during the period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
14
Restricted Stock Units
A summary of unvested RSU activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested RSUs at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested RSUs at September 30, 2022 |
|
|
|
|
$ |
|
||
Warrants
The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board.
June 2022 Direct Offering and Private Placement
On June 27, 2022, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers (as defined therein), (i) in a registered direct offering,
Based on the terms and conditions of the June 2022 Warrants, the Company determined that equity classification was appropriate and recognized the net proceeds in excess of par of $
July 2020 Rights Offering
On July 23, 2020, the Company consummated the Rights Offering issuing (i)
On September 28, 2020, the warrant agreement with respect to the July 2020 Warrants was amended. The amended terms of the July 2020 Warrants meet the requirements for the July 2020 Warrants’ classification as equity. The fair value upon the amendment was estimated to be $
15
June 2020 Registered Direct Offering and Private Placement
On June 8, 2020, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers in a registered direct offering and concurrent private placement,
Based on the terms and conditions of the June 2020 Warrants, the Company determined that equity classification was appropriate and recognized the values of the common stock and June 2020 Warrants in excess of par in Additional Paid-In Capital. The Company allocated the net proceeds of $
Western Alliance Warrants
On March 6, 2018, in connection with the execution of a business financing agreement with Western Alliance Bank ("Western Alliance"), the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the number of shares of BIOLASE common stock equal to $
SWK Warrants
On November 9, 2018, in connection with the Credit Agreement (as defined below), the Company issued to SWK warrants (the "SWK Warrants") to purchase up to
In November 2019, the SWK Warrants were consolidated and the exercise price was adjusted to $
16
DPG Warrants
On November 14, 2018, 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 $
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
A summary of warrant activity for the nine months ended September 30, 2022 is as follows (in thousands, except exercise price amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average |
|
||
|
|
Shares |
|
|
Exercise |
|
||
Warrants outstanding, December 31, 2021 |
|
|
|
|
$ |
|
||
Granted or Issued |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
$ |
|
|
Forfeited, cancelled, or expired |
|
|
( |
) |
|
$ |
|
|
Warrants outstanding at September 30, 2022 |
|
|
|
|
$ |
|
||
Warrants exercisable at September 30, 2022 |
|
|
|
|
$ |
|
||
Vested warrants expired during the period |
|
|
( |
) |
|
$ |
|
|
Phantom Awards and Stock Appreciation Rights
During the nine months ended September 30, 2022, the Company issued approximately
17
During the year ended December 31, 2021, the Company issued approximately
Net Loss Per Share – Basic and Diluted
Basic net loss per share is computed by dividing net loss attributable 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. Net income (loss) is adjusted for any deemed dividends to preferred stockholders to compute net income attributable to common stockholders. The June 2022 Pre-Funded Warrants were included in the calculation of diluted loss per share for the period ended September 30, 2022.
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):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory |
|
$ |
|
|
$ |
|
||
Inventory has been reduced by estimates for excess and obsolete amounts totaling $
NOTE 6—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net is comprised of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
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 |
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense related to property, plant, and equipment totaled $
18
NOTE 7—INTANGIBLE ASSETS AND GOODWILL
The Company conducted its last annual impairment test of goodwill as of September 30, 2021 and determined that there was
As of September 30, 2022 and December 31, 2021, the Company had goodwill of $
NOTE 8—ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Payroll and benefits |
|
$ |
|
|
$ |
|
||
Warranty accrual, current portion |
|
|
|
|
|
|
||
Contingent Liability |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Lease liability |
|
|
|
|
|
|
||
Taxes |
|
|
|
|
|
|
||
Accrued insurance premium |
|
|
|
|
|
|
||
Settlement accrual |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") allows employers to defer the deposit and payment of the employer's share of Social Security taxes from payroll periods through December 31, 2020. Under the CARES Act, the Company had deferred payments of $
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
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
19
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 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.
NOTE 9—DEBT
The following table presents the details of the principal outstanding and unamortized discount (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
SWK 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 September 30, 2022 are as follows (in thousands):
|
|
Principal |
|
|
Interest (1) |
|
||
Remainder of 2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 and thereafter |
|
|
|
|
|
|
||
Total future payments |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
(1) Estimated using London Interbank Bank Offered Rate (“LIBOR”) as of September 30, 2022 |
|
|
|
|
|
|
||
Term Loan
On November 9, 2018, the Company entered into a
As of September 30, 2022, the Company was in compliance with the debt covenants of the Credit Agreement.
20
EIDL Loan
On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the Small Business Administration ("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 $
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
During 2020, the Company requested forgiveness of the PPP Loan in accordance with the application requirements.
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 Company's consolidated statement of operations for the year ended December 31, 2021. The SBA may undertake a review of a loan of any size during the
NOTE 10—LEASES
The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from one to
On January 22, 2020, the Company entered into a
On February 4, 2020, the Company entered into a
On May 26, 2022, the Company entered into a lease agreement to expand training operations and establish a dental office with approximately
21
Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
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.
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 September 30, 2022 for leases that have commenced are as follows (in thousands):
|
|
September 30, |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 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 September 30, 2022, right-of-use assets were $
Rent expense totaled $
Future minimum rental commitments under lease agreements, as of September 30, 2022, 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 2022 |
|
|
$ |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 and thereafter |
|
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
|
Less imputed interest |
|
|
|
( |
) |
Total lease liabilities |
|
|
$ |
|
|
22
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 stemmed from a press release that BIOLASE issued on April 30, 2012, which CAO claimed contained false statements that were 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 nine months ended September 30, 2022, sales to customers in the United States accounted for approximately
23
Net revenue by geographic location based on the location of customers was as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Property, plant, and equipment by geographic location was as follows (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
NOTE 13—CONCENTRATIONS
Revenue from the Company’s products are as follows (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||
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.
24
NOTE 14—INCOME TAXES
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest and penalties as a component of its income tax provision. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did
During the three and nine months ended September 30, 2022, the Company recorded an income tax benefit of $
25
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, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2021 (the “2021 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 investment activities, future liquidity, potential collaborations, market opportunities, plans with respect to products and services, future demand for improved dental care and dental laser equipment, 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,” “forecast,” 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:
26
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 2021 Form 10-K and Item 1A of Part II of 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
BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company,” “we,” “our” or “us”) is 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.
27
We offer two categories of laser system products: Waterlase (all-tissue) systems and diode (soft-tissue) systems. Our flagship brand, 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 September 30, 2022 we had approximately 302 issued and 28 pending United States and international patents, the majority of which are related to Waterlase technology. From 1998 through December 31, 2021, we sold over 43,300 laser systems in over 80 countries around the world.
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 26% and 28% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, primarily due to the negative impact of COVID-19 during the first half of 2021 and high demand from new users for the Company's dental lasers during 2022. The Company is currently forecasting revenue for fiscal year 2022 to be significantly above fiscal year 2021, as the Company's strategy described above continues to generate sales to new customers.
To educate providers and increase patient access to our products, over the past couple of years, we have formed specialist training programs focused on expanding awareness of the benefits of our dental lasers among dental specialists. These programs provide clinicians with an immersive training experience through peer-led learning and best practice sharing to help ensure appropriate use of Waterlase technology in clinical practices. In the fourth quarter of 2021, we launched the Epic Hygiene Academy which seeks to bring together leaders in the dental hygiene profession to provide improved continuing education in delivering superior patient care through laser technology.
In 2021, we designed, developed, received FDA clearance for, and began production of a laser using our proprietary Er,Cr:YSGG laser technology in partnership with EdgeEndo, a leading endodontic company. The EdgePro is a state-of-the-art microfluidic irrigation device designed to clean and disinfect root canals. The partnership with EdgeEndo is our first exclusive OEM agreement.
28
Recent Developments
Membership Interest Purchase Agreement
On September 22, 2022, BIOLASE entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Med-Fiber LLC (“Med-Fiber”) and Alexei Tchapyjnikov, pursuant to which we acquired all of the issued and outstanding membership interests of Med-Fiber LLC, on the terms and subject to the conditions set forth in the Purchase Agreement, for a purchase price equal to $1,320,000, plus, subject to the satisfaction of certain milestones, additional earn-out consideration in an aggregate amount of up to $880,000. Med-Fiber was engaged in the business of manufacturing and supplying infrared transmitting fiber optics for laser power delivery applications and activities related thereto.
Direct Offering and Private Placement
On June 27, 2022, BIOLASE entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering, 678,745 shares of BIOLASE common stock, par value $0.001 per share, and pre-funded warrants to purchase 726,660 shares of BIOLASE common stock (the “Pre-Funded Warrants”) with an exercise price of $0.001 per share, and (ii) in a concurrent private placement, warrants to purchase 1,405,405 shares of BIOLASE common stock (the “Common Warrants”). The combined purchase price for one share of common stock and one Common Warrant was determined to be $4.625, and the combined purchase price for one Pre-Funded Warrant and one Common Warrant was determined to be $4.624. BIOLASE received aggregate gross proceeds from the transactions of approximately $6.5 million, before deducting fees to the placement agent and other transaction expenses payable by BIOLASE. The 678,745 shares of BIOLASE's common stock, the Pre-Funded Warrants and the shares of BIOLASE common stock issuable upon exercise of the Pre-Funded Warrants were offered by BIOLASE pursuant to a shelf registration statement on Form S-3, which was declared effective on August 23, 2019.
Reverse Stock Split
On April 28, 2022, BIOLASE’s stockholders approved a proposal at BIOLASE’s 2022 annual meeting of stockholders (the “2022 Annual Meeting”) further amending BIOLASE’s Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split of BIOLASE common stock, par value $0.001 per share, at a ratio between one-for-two (1:2) and one-for-twenty-five (1:25), without reducing the authorized number of shares of BIOLASE common stock. Following the 2022 Annual Meeting, BIOLASE’s board of directors approved a final split ratio of one-for-twenty-five (1:25). Following such approval, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the reverse stock split (the "Reverse Stock Split"), with an effective time of 11:59 p.m. Eastern Time on April 28, 2022. Except as the context otherwise requires, all common stock share numbers and common stock share price amounts in this Part II, Item 2 of this Form 10-Q have been adjusted to reflect the Reverse Stock Split.
Elimination of Series G Preferred Stock
On March 1, 2022, the Board declared a dividend of one one-thousandth of a share of Series G Preferred Stock, par value $0.001 per share (“Series G Preferred Stock”), for each share of BIOLASE common stock outstanding as of 5:00 p.m. Eastern Time on March 25, 2022 (as calculated on a pre-Reverse Stock Split basis). The certificate of designation for the Series G Preferred Stock provided that all shares of Series G Preferred Stock not present in person or by proxy at the 2022 Annual Meeting immediately prior to the opening of the polls at the 2022 Annual Meeting would be automatically redeemed (the “Initial Redemption”) and that any outstanding shares of Series G Preferred Stock that have not been redeemed pursuant to the Initial Redemption would be redeemed in whole, but not in part, (i) if and when ordered by the Board or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation effecting the Reverse Stock Split that was subject to the vote at the 2022 Annual Meeting (the “Subsequent Redemption”). On April 28, 2022, both the Initial Redemption and the Subsequent Redemption occurred. As a result, no shares of Series G Preferred Stock remain outstanding. On June 6, 2022, the Series G Preferred Stock was eliminated.
Ninth Amendment to the Credit Agreement
On June 30, 2022, BIOLASE entered into the ninth amendment to Credit Agreement (the “Ninth Amendment”) with SWK. The Ninth Amendment extended the end of the interest only period of the loan by two quarters, from May 2023 to November 2023, reduced the required minimum consolidated unencumbered liquid assets from $7,500,000 to $3,000,000, reduced the minimum consolidated unencumbered liquid assets triggering the minimum aggregate revenue covenant from $7,500,000 to $5,000,000, and reduced the minimum consolidated unencumbered liquid assets triggering the minimum EBITDA covenant from $7,500,000 to $5,000,000. In connection with the Ninth Amendment, with some of the net proceeds from the June 2022 offering and private placement, the Company prepaid $1.0 million of the outstanding loan balance.
29
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 2021 Form 10-K. There have been no significant changes during the nine months ended September 30, 2022 in our critical accounting policies from those disclosed in Item 7 of the 2021 Form 10-K.
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 |
|
Nine Months Ended |
||||||||||||||||||||
|
|
September 30, |
|
September 30, |
||||||||||||||||||||
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||||||||||||||
Net revenue |
|
$ |
12,010 |
|
100.0 |
% |
|
$ |
9,531 |
|
100.0 |
% |
|
$ |
34,411 |
|
100.0 |
% |
|
$ |
26,780 |
|
100.0 |
% |
Cost of revenue |
|
|
9,565 |
|
79.6 |
% |
|
|
4,689 |
|
49.2 |
% |
|
|
22,096 |
|
64.2 |
% |
|
|
15,157 |
|
56.6 |
% |
Gross profit |
|
|
2,445 |
|
20.4 |
% |
|
|
4,842 |
|
50.8 |
% |
|
|
12,315 |
|
35.8 |
% |
|
|
11,623 |
|
43.4 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
5,008 |
|
41.7 |
% |
|
|
3,451 |
|
36.2 |
% |
|
|
15,224 |
|
44.2 |
% |
|
|
10,315 |
|
38.5 |
% |
General and administrative |
|
|
3,109 |
|
25.9 |
% |
|
|
2,479 |
|
26.0 |
% |
|
|
8,825 |
|
25.7 |
% |
|
|
8,613 |
|
32.2 |
% |
Engineering and development |
|
|
1,979 |
|
16.5 |
% |
|
|
1,540 |
|
16.2 |
% |
|
|
5,177 |
|
15.0 |
% |
|
|
4,506 |
|
16.8 |
% |
Loss on patent litigation settlement |
|
|
— |
|
0.0 |
% |
|
|
29 |
|
0.3 |
% |
|
|
— |
|
0.0 |
% |
|
|
190 |
|
0.7 |
% |
Total operating expenses |
|
|
10,096 |
|
84.1 |
% |
|
|
7,499 |
|
78.7 |
% |
|
|
29,226 |
|
84.9 |
% |
|
|
23,624 |
|
88.2 |
% |
Loss from operations |
|
|
(7,651) |
|
(63.7) |
% |
|
|
(2,657) |
|
(27.9) |
% |
|
|
(16,911) |
|
(49.1) |
% |
|
|
(12,001) |
|
(44.8) |
% |
Non-operating income (loss), net |
|
|
(753) |
|
(6.3) |
% |
|
|
(605) |
|
(6.3) |
% |
|
|
(1,839) |
|
(5.4) |
% |
|
|
1,115 |
|
4.2 |
% |
Loss before income tax provision |
|
|
(8,404) |
|
(70.0) |
% |
|
|
(3,262) |
|
(34.2) |
% |
|
|
(18,750) |
|
(54.5) |
% |
|
|
(10,886) |
|
(40.6) |
% |
Income tax (provision) benefit |
|
|
17 |
|
0.2 |
% |
|
|
(14) |
|
(0.2) |
% |
|
|
(23) |
|
(0.1) |
% |
|
|
7 |
|
0.0 |
% |
Net loss |
|
$ |
(8,387) |
|
(69.8) |
% |
|
$ |
(3,276) |
|
(34.4) |
% |
|
$ |
(18,773) |
|
(54.6) |
% |
|
$ |
(10,879) |
|
(40.6) |
% |
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.
30
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 and other non-cash compensation, the change in allowance for doubtful accounts, and gain on debt forgiveness. 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.
The following table contains a reconciliation of non-GAAP Adjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
GAAP net loss attributable to common stockholders |
|
$ |
(8,387 |
) |
|
$ |
(3,285 |
) |
|
$ |
(18,990 |
) |
|
$ |
(11,425 |
) |
Deemed dividend on convertible preferred stock |
|
|
— |
|
|
|
9 |
|
|
|
217 |
|
|
|
546 |
|
GAAP net loss |
|
$ |
(8,387 |
) |
|
$ |
(3,276 |
) |
|
$ |
(18,773 |
) |
|
$ |
(10,879 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
424 |
|
|
|
569 |
|
|
|
1,287 |
|
|
|
1,727 |
|
Income tax provision (benefit) |
|
|
(17 |
) |
|
|
14 |
|
|
|
23 |
|
|
|
(7 |
) |
Depreciation and amortization |
|
|
122 |
|
|
|
101 |
|
|
|
369 |
|
|
|
281 |
|
Change in allowance for doubtful accounts |
|
|
(87 |
) |
|
|
(83 |
) |
|
|
56 |
|
|
|
(162 |
) |
Loss on patent litigation settlement |
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
190 |
|
Stock-based and other non-cash compensation |
|
|
591 |
|
|
|
192 |
|
|
|
1,691 |
|
|
|
1,488 |
|
Increase in inventory reserves |
|
|
1,731 |
|
|
|
— |
|
|
|
1,731 |
|
|
|
— |
|
Gain on debt forgiveness |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,014 |
) |
Adjusted EBITDA |
|
$ |
(5,623 |
) |
|
$ |
(2,454 |
) |
|
$ |
(13,616 |
) |
|
$ |
(10,376 |
) |
Comparison of Results of Operations
Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Net Revenue: The following table summarizes our unaudited net revenue by category, including each category’s percentage of our total revenue, for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
Laser systems |
|
$ |
7,302 |
|
|
|
60.8 |
% |
|
$ |
6,084 |
|
|
|
63.8 |
% |
|
$ |
1,218 |
|
|
|
20.0 |
% |
Consumables and other |
|
|
2,632 |
|
|
|
21.9 |
% |
|
|
2,331 |
|
|
|
24.5 |
% |
|
|
301 |
|
|
|
12.9 |
% |
Services |
|
|
2,076 |
|
|
|
17.3 |
% |
|
|
1,116 |
|
|
|
11.7 |
% |
|
|
960 |
|
|
|
86.0 |
% |
Net revenue |
|
$ |
12,010 |
|
|
|
100.0 |
% |
|
$ |
9,531 |
|
|
|
100.0 |
% |
|
$ |
2,479 |
|
|
|
26.0 |
% |
31
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each geographic revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
United States |
|
$ |
8,413 |
|
|
|
70.0 |
% |
|
$ |
5,939 |
|
|
|
62.3 |
% |
|
$ |
2,474 |
|
|
|
41.7 |
% |
International |
|
|
3,597 |
|
|
|
30.0 |
% |
|
|
3,592 |
|
|
|
37.7 |
% |
|
|
5 |
|
|
|
0.1 |
% |
Net revenue |
|
$ |
12,010 |
|
|
|
100.0 |
% |
|
$ |
9,531 |
|
|
|
100.0 |
% |
|
$ |
2,479 |
|
|
|
26.0 |
% |
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 $2.5 million, or 26%, during the three months ended September 30, 2022 as compared to the same period in 2021 primarily due to an increase in Waterlase sales to new customers and specialists in the U.S. Outside the U.S., net revenue of $3.6 million during the three months ended September 30, 2022 was consistent with the same period in 2021. We believe patient volume in many countries outside the U.S. is still lagging from 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 September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
Net revenue |
|
$ |
12,010 |
|
|
|
100.0 |
% |
|
$ |
9,531 |
|
|
|
100.0 |
% |
|
$ |
2,479 |
|
|
|
26.0 |
% |
Cost of revenue |
|
|
9,565 |
|
|
|
79.6 |
% |
|
|
4,689 |
|
|
|
49.2 |
% |
|
|
4,876 |
|
|
|
104.0 |
% |
Gross profit |
|
$ |
2,445 |
|
|
|
20.4 |
% |
|
$ |
4,842 |
|
|
|
50.8 |
% |
|
$ |
(2,397 |
) |
|
|
(49.5 |
)% |
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 September 30, 2022, was $2.4 million, or 20% of net revenue, a decrease of approximately $2.4 million, or 50%, as compared with gross profit of $4.8 million, or 51% of net revenue, for the same period in 2021. The decrease in gross profit as a percentage of revenue reflects the impact of a $1.7 million charge for inventory. This inventory charge was driven by the supply chain issues that we have encountered requiring us to change to new suppliers along with end of life designation for certain products and components, which resulted in higher inventory reserves and warranty expenses. In addition, lower margin OEM products were launched at the beginning of 2022, and a $0.4 million Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") received during the three months ended September 30, 2021 did not occur in 2022. The decrease was partially offset by the recognition of more product training revenue during the three months ended September 30, 2022 compared to the same period in 2021.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
Sales and marketing |
|
$ |
5,008 |
|
|
|
41.7 |
% |
|
$ |
3,451 |
|
|
|
36.2 |
% |
|
$ |
1,557 |
|
|
|
45.1 |
% |
General and administrative |
|
|
3,109 |
|
|
|
25.9 |
% |
|
|
2,479 |
|
|
|
26.0 |
% |
|
|
630 |
|
|
|
25.4 |
% |
Engineering and development |
|
|
1,979 |
|
|
|
16.5 |
% |
|
|
1,540 |
|
|
|
16.2 |
% |
|
|
439 |
|
|
|
28.5 |
% |
Loss on patent litigation settlement |
|
|
— |
|
|
|
— |
% |
|
|
29 |
|
|
|
0.3 |
% |
|
|
(29 |
) |
|
|
(100.0 |
)% |
Total operating expenses |
|
$ |
10,096 |
|
|
|
84.1 |
% |
|
$ |
7,499 |
|
|
|
78.7 |
% |
|
$ |
2,597 |
|
|
|
34.6 |
% |
32
Sales and Marketing Expense. Sales and marketing expenses during the three months ended September 30, 2022 increased by $1.6 million, or 45%, as compared to the same period in 2021. This increase is primarily due to $0.7 million of higher compensation expense due to no open territories in 2022 as well as commissions and bonus incentives for achieving sales targets, $0.4 million in higher travel and trade show related expenses incurred in the third quarter of 2022, $0.2 million in supplies and other expenses, and $0.3 million in increased supply costs from an Employee Retention Credit under the CARES Act received during the three months ended September 30, 2021 that did not occur in 2022.
General and Administrative Expense. General and administrative expenses during the three months ended September 30, 2022 increased by $0.6 million, or 25%, compared to the same period in 2021. This increase is primarily due $0.6 million from compensation and bonus incentives for achieving sales targets.
Engineering and Development Expense. Engineering and development expenses during the three months ended September 30, 2022 increased by $0.4 million, or 29%, compared to the same period in 2021. This increase is primarily due to $0.3 million from compensation expenses driven by more engineering projects for 2022 as compared to 2021 and $0.1 million from the impact of an Employee Retention Credit under the CARES Act received during the three months ended September 30, 2021 that did not occur in 2022.
Non-Operating Income (Loss)
Gain (Loss) on Foreign Currency Transactions. We realized an approximately $0.3 million loss on foreign currency transactions during the three months ended September 30, 2022 compared to an approximately $36 thousand loss on foreign currency transactions during the three months ended September 30, 2021, 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 $0.4 million during the three months ended September 30, 2022 compared to $0.6 million for the same period in 2021. The decrease is primarily due to the Ninth Amendment of the SWK Loan, which lowered the stated interest rate from 10% to 9% and the $1.0 million principal payment made in connection with the amendment.
Income Tax (Provision) Benefit. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our benefit (provision) for income taxes for the three months ended September 30, 2022 was consistent with the same period in 2021. 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 $8.4 million for the three months ended September 30, 2022 compared to a net loss of $3.3 million for the three months ended September 30, 2021.
Comparison of Results of Operations
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Net Revenue: The following table summarizes our unaudited net revenue by category, including each category’s percentage of our total revenue, for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Laser systems |
|
$ |
|
21,626 |
|
|
|
62.9 |
% |
|
$ |
|
16,588 |
|
|
|
61.9 |
% |
|
$ |
|
5,038 |
|
|
|
30.4 |
% |
Consumables and other |
|
|
|
8,379 |
|
|
|
24.3 |
% |
|
|
|
6,923 |
|
|
|
25.9 |
% |
|
|
|
1,456 |
|
|
|
21.0 |
% |
Services |
|
|
|
4,406 |
|
|
|
12.8 |
% |
|
|
|
3,269 |
|
|
|
12.2 |
% |
|
|
|
1,137 |
|
|
|
34.8 |
% |
Net revenue |
|
$ |
|
34,411 |
|
|
|
100.0 |
% |
|
$ |
|
26,780 |
|
|
|
100.0 |
% |
|
$ |
|
7,631 |
|
|
|
28.5 |
% |
33
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each geographic revenue category (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
United States |
|
$ |
|
24,290 |
|
|
|
70.6 |
% |
|
$ |
|
17,024 |
|
|
|
63.6 |
% |
|
$ |
|
7,266 |
|
|
|
42.7 |
% |
International |
|
|
|
10,121 |
|
|
|
29.4 |
% |
|
|
|
9,756 |
|
|
|
36.4 |
% |
|
|
|
365 |
|
|
|
3.7 |
% |
Net revenue |
|
$ |
|
34,411 |
|
|
|
100.0 |
% |
|
$ |
|
26,780 |
|
|
|
100.0 |
% |
|
$ |
|
7,631 |
|
|
|
28.5 |
% |
Total net revenue increased by $7.6 million, or 28%, during the nine months ended September 30, 2022 as compared to the same period in 2021, primarily due to an increase in Waterlase sales to new customers and specialists. In the U.S., net revenue increased by $7.3 million, or 43%, for the nine months ended September 30, 2022 as compared to the same period in 2021. Outside the U.S., net revenue increased by $0.4 million, or 4%, during the nine months ended September 30, 2022 as compared to the same period in 2021. We believe patient volume in many countries outside the U.S. is still lagging from pre-COVID-19 levels.
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Net revenue |
|
$ |
|
34,411 |
|
|
|
100.0 |
% |
|
$ |
|
26,780 |
|
|
|
100.0 |
% |
|
$ |
|
7,631 |
|
|
|
28.5 |
% |
Cost of revenue |
|
|
|
22,096 |
|
|
|
64.2 |
% |
|
|
|
15,157 |
|
|
|
56.6 |
% |
|
|
|
6,939 |
|
|
|
45.8 |
% |
Gross profit |
|
$ |
|
12,315 |
|
|
|
35.8 |
% |
|
$ |
|
11,623 |
|
|
|
43.4 |
% |
|
$ |
|
692 |
|
|
|
6.0 |
% |
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 nine months ended September 30, 2022, was $12.3 million, or 36% of net revenue, an increase of approximately $0.7 million, or 6%, as compared with gross profit of $11.6 million, or 43% of net revenue, for the same period in 2021. The decrease in gross profit as a percentage of revenue reflects the impact of a $1.7 million charge for inventory. This inventory charge was driven by the supply chain issues that we have encountered requiring us to change to new suppliers along with end of life designation for certain products and components, which resulted in higher inventory reserves and warranty expenses. In addition, lower margin OEM products were launched at the beginning of 2022, and a $0.7 million Employee Retention Credit under the CARES Act received during the nine months ended September 30, 2021 did not occur in 2022. The decrease was partially offset by the impact of higher sales volumes in the U.S., where margins are greater than our international business, an increase in average selling prices for products sold during the nine months ended September 30, 2022 compared to the same period in 2021, and the effect of favorable absorption of fixed expenses.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Sales and marketing |
|
$ |
|
15,224 |
|
|
|
44.3 |
% |
|
$ |
|
10,315 |
|
|
|
38.5 |
% |
|
$ |
|
4,909 |
|
|
|
47.6 |
% |
General and administrative |
|
|
|
8,825 |
|
|
|
25.6 |
% |
|
|
|
8,613 |
|
|
|
32.2 |
% |
|
|
|
212 |
|
|
|
2.5 |
% |
Engineering and development |
|
|
|
5,177 |
|
|
|
15.0 |
% |
|
|
|
4,506 |
|
|
|
16.8 |
% |
|
|
|
671 |
|
|
|
14.9 |
% |
Loss on patent litigation settlement |
|
|
|
— |
|
|
|
— |
% |
|
|
|
190 |
|
|
|
0.7 |
% |
|
|
|
(190 |
) |
|
|
(100.0 |
)% |
Total operating expenses |
|
$ |
|
29,226 |
|
|
|
84.9 |
% |
|
$ |
|
23,624 |
|
|
|
88.2 |
% |
|
$ |
|
5,602 |
|
|
|
23.7 |
% |
Sales and Marketing Expense. Sales and marketing expenses during the nine months ended September 30, 2022 increased by $4.9 million, or 48%, as compared to the same period in 2021. This increase is primarily due to $2.1 million from compensation expense due to no open territories in 2022, commissions and bonus incentives for achieving sales targets, $1.6 million in higher travel and trade show related expenses, $0.4 million in higher supply costs and other expenses, $0.1 million in additional advertising expenses, and $0.6 million from an Employee Retention Credit under the CARES Act received during the nine months ended September 30, 2021 that did not occur in 2022.
34
General and Administrative Expense. General and administrative expenses during the nine months ended September 30, 2022 increased by $0.2 million, or 2%, compared to the same period in 2021. This increase is primarily due to higher allowance for doubtful accounts of $0.2 million and $0.3 million in expenses incurred in connection with the 2022 Annual Meeting. The 2022 Annual Meeting was significantly more expensive than in recent years due to the proposed reverse stock split. The increase in general and administrative expenses was partially offset by $0.4 million in severance expense that did not occur in 2022.
Engineering and Development Expense. Engineering and development expenses during the nine months ended September 30, 2022 increased by $0.7 million, or 15%, compared to the same period in 2021. This increase is primarily due to $0.4 million from compensation expenses driven by more engineering projects for 2022 as compared to 2021, a $0.1 million increase in other expenses, and $0.2 million for the impact of an Employee Retention Credit under the CARES Act received during the nine months ended September 30, 2021 that did not occur in 2022.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We realized an approximately $0.6 million loss on foreign currency transactions during the nine months ended September 30, 2022 compared to an approximately $0.2 million loss on foreign currency transactions during the nine months ended September 30, 2021, 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 $1.3 million during the nine months ended September 30, 2022 compared to $1.7 million for the same period in 2021. The decrease is primarily due to the Ninth Amendment of the SWK Loan, which lowered the stated interest rate from 10% to 9% and the $1.0 million principal payment made in connection with the amendment.
Income Tax (Provision) Benefit. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our benefit (provision) for income taxes for the nine months ended September 30, 2022 was consistent with the same period in 2021. 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 $18.8 million for the nine months ended September 30, 2022 compared to a net loss of $10.9 million for the nine months ended September 30, 2021.
Liquidity and Capital Resources
At September 30, 2022, we had approximately $10.0 million in cash and cash equivalents compared to $30.0 million as of December 31, 2021. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in cash and cash equivalents from December 31, 2021 was primarily due to a net loss of $18.8 million, a net increase in operating assets and liabilities of $6.5 million, $3.3 million due to purchases of property, plant and equipment, and a $1.0 million payment on the loan under the Credit Agreement (the "SWK Loan") during the nine months ended September 30, 2022, partially offset by $5.6 million of net proceeds from the June 2022 direct offering and private placement.
The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash flows used in operating activities |
|
$ |
(21,179 |
) |
|
$ |
(13,606 |
) |
Net cash flows used in investing activities |
|
|
(3,256 |
) |
|
|
(396 |
) |
Net cash flows provided by financing activities |
|
|
4,635 |
|
|
|
29,886 |
|
Effect of exchange rate changes |
|
|
(415 |
) |
|
|
(171 |
) |
Net change in cash, cash equivalents and restricted |
|
$ |
(20,215 |
) |
|
$ |
15,713 |
|
35
Operating Activities
Net cash used in operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Cash used in operating activities for the nine months ended September 30, 2022 totaled $21.2 million and was primarily comprised of our net loss of $18.8 million, and a net increase in operating assets and liabilities of $6.5 million, partially offset by $1.7 million of stock-based compensation costs and a $1.7 million write-off of inventory. The net increase in our operating assets and liabilities was primarily due to a $5.2 million increase in inventory as we have increased inventory levels to try to mitigate the impact of supply disruptions from potential product shortages and delivery delays due to COVID-19, a $0.9 million increase in prepaid expenses and other current assets, and a $0.7 million increase in accounts receivable.
In January 2022, the Company paid all amounts due to CAO Group, Inc under the Settlement Agreement. Refer to Part I, Item 1, Note 11 - Commitments and Contingencies, for further details.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2022 totaled $3.3 million and was comprised of the purchase of property, plant, and equipment. We expect cash flows from investing activities to increase somewhat through the remainder of 2022 due to the completion of our new training facility.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2022 totaled $4.6 million and was primarily comprised of $5.6 million of net proceeds from the June 2022 direct offering and private placement, partially offset by a $1.0 million payment on the SWK Loan.
Effect of Exchange Rate
The $0.4 million effect of exchange rate on cash for the nine months ended September 30, 2022 was due to recognized loss on foreign currency transactions, primarily driven by changes in the Euro during the period.
Future Liquidity Needs
As of September 30, 2022, we had working capital of approximately $20.1 million. Our principal sources of liquidity as of September 30, 2022 consisted of approximately $10.0 million in cash and cash equivalents and $4.8 million of net accounts receivable.
The Company will need 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, 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 will be available on acceptable terms, if at all, or that any such financing activity will 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.
The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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.
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Term Loan
The information set forth in Part I, Item 1, Note 9 – Debt – Term Loan is hereby incorporated herein by reference.
EIDL Loan
The information set forth in Part I, Item 1, Note 9 – Debt – EIDL Loan is hereby incorporated herein by reference.
2021 Equity Offering
On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of 560,000 shares of common stock at a price of $25.75 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.
2022 Offering and Private Placement
The information set forth in Part II, Item 2 – Recent Developments – Direct Offering and Private Placement is hereby incorporated herein by reference.
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.
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 and our Chief Financial 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 and Chief Financial Officer have 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.
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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 September 30, 2022, 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 2021 Form 10-K. The risks and uncertainties described herein and in the 2021 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.
Although our unaudited condensed consolidated financial statements have been prepared on a going concern basis, our management believes that our recurring losses and negative cash flows from operations and other factors have raised substantial doubt about our ability to continue as a going concern as of September 30, 2022.
Our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 were prepared on a going concern basis in accordance with generally accepted accounting principles in the United States. The going concern basis assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. Thus, our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Our recurring losses, negative cash flow, need for additional capital, and the uncertainties surrounding our ability to raise such capital raise substantial doubt about our ability to continue as a going concern. For us to continue operations beyond the next 12 months and be able to discharge our liabilities and commitments in the normal course of business, we must sell our products directly to end-users and through distributors, establish profitable operations through increased sales, decrease expenses, generate cash from operations or raise additional funds when needed. We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expanding awareness of the benefits of our dental lasers among dental specialists and general practitioners and reducing expenses. If we are unable to raise additional capital, increase sales or reduce expenses, we will be unable to continue to fund our operations, develop our products, realize value from our assets, and discharge our liabilities in the normal course of business. If we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment in our common stock.
ITEM 5. OTHER INFORMATION
None.
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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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2.1† |
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X |
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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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8-K |
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04/28/2022 |
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3.1 |
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05/02/2022 |
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3.2 |
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Eighth Amended and Restated Bylaws of the Registrant adopted on March 1, 2022 |
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8-K |
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03/01/2022 |
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3.1 |
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03/03/2022 |
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4.1 |
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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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4.2 |
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8-K |
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06/27/2022 |
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4.1 |
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06/29/2022 |
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4.3 |
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Form of Warrant to Purchase Common Stock issued on June 30, 2022 |
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8-K |
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06/27/2022 |
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4.2 |
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06/29/2022 |
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31.1 |
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X |
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31.2 |
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X |
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39
32.1 |
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** |
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32.2 |
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** |
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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 September 30, 2022, 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.
† Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission.
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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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November 10, 2022 |
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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) |
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November 10, 2022 |
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By: |
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/s/ JENNIFER BRIGHT |
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Date |
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Jennifer Bright |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
41