UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
March 31, 2020
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36385
BIOLASE, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 87-0442441 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
4 Cromwell
Irvine, California 92618
(Address of principal executive offices) (Zip code)Code)
(949) 361-1200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☒ |
| Smaller reporting company |
| ☒ |
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| Emerging growth company |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Common stock at par value $0.001 per share | BIOL | The NASDAQ Stock Market LLC (NASDAQ Capital Market) |
As of November 6, 2019,May 4, 2020, the registrant had 30,947,42331,743,102 shares of common stock, $0.001 par value per share, outstanding.
INDEX
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| Page |
PART I. |
|
| 3 | |
Item 1. |
|
| 3 | |
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| Consolidated Balance Sheets as of |
| 3 |
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| 4 | |
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| 5 | |
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| 6 | |
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| 7 | |
Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II |
|
| 42 | |
Item 1. |
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Item 1A. |
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Item 5 |
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Item 6. |
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2
BIOLASE, INC.
(in thousands, except share and per share data)
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (audited) |
| ||||
ASSETS |
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|
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|
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Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,091 |
|
| $ | 8,044 |
|
| $ | 1,511 |
|
| $ | 5,789 |
|
Restricted cash |
|
| 312 |
|
|
| 312 |
|
|
| 312 |
|
|
| 312 |
|
Accounts receivable, less allowance of $2,084 and $850 in 2019 and 2018, respectively |
|
| 8,474 |
|
|
| 11,112 |
| ||||||||
Accounts receivable, less allowance of $3,560 and $2,531 in 2020 and 2019, respectively |
|
| 4,749 |
|
|
| 8,760 |
| ||||||||
Inventory |
|
| 11,537 |
|
|
| 12,248 |
|
|
| 12,192 |
|
|
| 10,995 |
|
Prepaid expenses and other current assets |
|
| 875 |
|
|
| 1,591 |
|
|
| 1,205 |
|
|
| 1,163 |
|
Total current assets |
|
| 23,289 |
|
|
| 33,307 |
|
|
| 19,969 |
|
|
| 27,019 |
|
Property, plant, and equipment, net |
|
| 1,340 |
|
|
| 1,975 |
|
|
| 1,017 |
|
|
| 1,193 |
|
Goodwill |
|
| 2,926 |
|
|
| 2,926 |
|
|
| 2,926 |
|
|
| 2,926 |
|
Right of use asset |
|
| 135 |
|
|
| 276 |
| ||||||||
Other assets |
|
| 718 |
|
|
| 308 |
|
|
| 484 |
|
|
| 433 |
|
Total assets |
| $ | 28,273 |
|
| $ | 38,516 |
|
| $ | 24,531 |
|
| $ | 31,847 |
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY |
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| ||||||||
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY |
|
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Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Accounts payable |
|
| 6,604 |
|
|
| 5,953 |
|
| $ | 4,056 |
|
| $ | 5,332 |
|
Accrued liabilities |
|
| 4,950 |
|
|
| 7,538 |
|
|
| 4,079 |
|
|
| 4,744 |
|
Deferred revenue, current portion |
|
| 2,512 |
|
|
| 2,476 |
|
|
| 1,982 |
|
|
| 2,237 |
|
Term loan (net of discount) |
|
| 13,562 |
|
|
| 13,466 |
| ||||||||
Total current liabilities |
|
| 14,066 |
|
|
| 15,967 |
|
|
| 23,679 |
|
|
| 25,779 |
|
Deferred income taxes, net |
|
| 71 |
|
|
| 77 |
| ||||||||
Deferred revenue |
|
| 390 |
|
|
| 358 |
| ||||||||
Warranty accrual |
|
| 701 |
|
|
| 447 |
|
|
| 246 |
|
|
| 245 |
|
Other liabilities |
|
| 1,145 |
|
|
| 100 |
|
|
| 1,107 |
|
|
| 1,123 |
|
Term loan |
|
| 13,356 |
|
|
| 10,836 |
| ||||||||
Total liabilities |
|
| 29,339 |
|
|
| 27,427 |
|
|
| 25,422 |
|
|
| 27,505 |
|
Commitments and contingencies — Note 11 |
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Stockholders' (deficit) equity: |
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Preferred stock, par value $0.001 per share; 1,000 shares authorized; 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively |
|
| — |
|
|
| — |
| ||||||||
Common stock, par value $0.001 per share; 40,000 shares authorized, 21,954 and 21,072 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively |
|
| 22 |
|
|
| 21 |
| ||||||||
Redeemable preferred stock: |
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|
|
|
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| ||||||||
Preferred stock, par value $0.001 per share; 1,000 shares authorized, 70 and 70 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively |
|
| 3,965 |
|
|
| 3,965 |
| ||||||||
Total redeemable preferred stock |
|
| 3,965 |
|
|
| 3,965 |
| ||||||||
Stockholders' equity: |
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|
|
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Common stock, par value $0.001 per share; 40,000 shares authorized, 31,582 and 31,439 shares issued and 31,537 and 31,439 outstanding as of March 31, 2020 and December 31, 2019, respectively |
|
| 32 |
|
|
| 31 |
| ||||||||
Additional paid-in-capital |
|
| 230,712 |
|
|
| 228,430 |
|
|
| 236,384 |
|
|
| 235,594 |
|
Accumulated other comprehensive loss |
|
| (840 | ) |
|
| (670 | ) |
|
| (719 | ) |
|
| (701 | ) |
Accumulated deficit |
|
| (230,960 | ) |
|
| (216,692 | ) |
|
| (240,553 | ) |
|
| (234,547 | ) |
Total stockholders' (deficit) equity |
|
| (1,066 | ) |
|
| 11,089 |
|
|
| (4,856 | ) |
|
| 377 |
|
Total liabilities and stockholders' (deficit) equity |
| $ | 28,273 |
|
| $ | 38,516 |
| ||||||||
Total liabilities, redeemable preferred stock and stockholders' (deficit) equity |
| $ | 24,531 |
|
| $ | 31,847 |
|
See accompanying notes to unaudited consolidated financial statements.
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(Unaudited, in thousands, except per share data)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Net revenue |
| $ | 8,646 |
|
| $ | 10,936 |
|
| $ | 27,617 |
|
| $ | 33,110 |
|
| $ | 4,783 |
|
| $ | 10,326 |
|
Cost of revenue |
|
| 5,677 |
|
|
| 6,995 |
|
|
| 17,746 |
|
|
| 21,828 |
|
|
| 3,430 |
|
|
| 6,804 |
|
Gross profit |
|
| 2,969 |
|
|
| 3,941 |
|
|
| 9,871 |
|
|
| 11,282 |
|
|
| 1,353 |
|
|
| 3,522 |
|
Operating expenses: |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sales and marketing |
|
| 3,515 |
|
|
| 4,489 |
|
|
| 10,665 |
|
|
| 13,037 |
|
|
| 2,704 |
|
|
| 3,879 |
|
General and administrative |
|
| 3,210 |
|
|
| 2,685 |
|
|
| 8,114 |
|
|
| 8,691 |
|
|
| 3,010 |
|
|
| 2,393 |
|
Engineering and development |
|
| 1,126 |
|
|
| 1,277 |
|
|
| 3,665 |
|
|
| 3,927 |
|
|
| 991 |
|
|
| 1,424 |
|
Change in fair value of patent litigation settlement liability |
|
| — |
|
|
| 190 |
| ||||||||||||||||
Total operating expenses |
|
| 7,851 |
|
|
| 8,451 |
|
|
| 22,444 |
|
|
| 25,655 |
|
|
| 6,705 |
|
|
| 7,886 |
|
Loss from operations |
|
| (4,882 | ) |
|
| (4,510 | ) |
|
| (12,573 | ) |
|
| (14,373 | ) |
|
| (5,352 | ) |
|
| (4,364 | ) |
Loss on foreign currency transactions |
|
| 19 |
|
|
| 73 |
|
|
| 68 |
|
|
| 53 |
|
|
| 84 |
|
|
| 43 |
|
Interest expense |
|
| 551 |
|
|
| 33 |
|
|
| 1,559 |
|
|
| 80 |
|
|
| 589 |
|
|
| 478 |
|
Non-operating loss, net |
|
| 570 |
|
|
| 106 |
|
|
| 1,627 |
|
|
| 133 |
| ||||||||
Non-operating loss (income), net |
|
| 673 |
|
|
| 521 |
| ||||||||||||||||
Loss before income tax provision |
|
| (5,452 | ) |
|
| (4,616 | ) |
|
| (14,200 | ) |
|
| (14,506 | ) |
|
| (6,025 | ) |
|
| (4,885 | ) |
Income tax provision |
|
| 26 |
|
|
| 49 |
|
|
| 68 |
|
|
| 91 |
|
|
| (19 | ) |
|
| 15 |
|
Net loss |
|
| (5,478 | ) |
|
| (4,665 | ) |
|
| (14,268 | ) |
|
| (14,597 | ) |
|
| (6,006 | ) |
|
| (4,900 | ) |
Other comprehensive income item: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (128 | ) |
|
| 3 |
|
|
| (170 | ) |
|
| (31 | ) |
|
| (18 | ) |
|
| (55 | ) |
Comprehensive loss |
| $ | (5,606 | ) |
| $ | (4,662 | ) |
| $ | (14,438 | ) |
| $ | (14,628 | ) |
| $ | (6,024 | ) |
| $ | (4,955 | ) |
Net loss attributable to common stockholders |
| $ | (5,478 | ) |
| $ | (4,665 | ) |
| $ | (14,268 | ) |
| $ | (14,597 | ) | ||||||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
| $ | (0.25 | ) |
| $ | (0.23 | ) |
| $ | (0.66 | ) |
| $ | (0.71 | ) |
| $ | (0.19 | ) |
| $ | (0.23 | ) |
Diluted |
| $ | (0.25 | ) |
| $ | (0.23 | ) |
| $ | (0.66 | ) |
| $ | (0.71 | ) |
| $ | (0.19 | ) |
| $ | (0.23 | ) |
Shares used in the calculation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 21,898 |
|
|
| 20,610 |
|
|
| 21,545 |
|
|
| 20,539 |
|
|
| 31,509 |
|
|
| 21,134 |
|
Diluted |
|
| 21,898 |
|
|
| 20,610 |
|
|
| 21,545 |
|
|
| 20,539 |
|
|
| 31,509 |
|
|
| 21,134 |
|
See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
(Unaudited, in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Total stockholders' (deficit) equity, beginning balances |
| $ | 3,784 |
|
| $ | 20,391 |
|
| $ | 11,089 |
|
| $ | 16,337 |
| ||||||||
Total redeemable preferred stock, beginning balance |
| $ | 3,965 |
|
| $ | — |
| ||||||||||||||||
Issuance of Redeemable preferred stock |
|
| — |
|
|
| — |
| ||||||||||||||||
Total redeemable preferred stock, ending balance |
| $ | 3,965 |
|
| $ | — |
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Common stock and additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| 229,994 |
|
|
| 226,109 |
|
|
| 228,451 |
|
|
| 225,619 |
|
|
| 235,625 |
|
|
| 228,451 |
|
Issuance of common stock upon exercise of options |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 2 |
|
|
| — |
|
|
| 3 |
|
Settlement of liability awards |
|
| 151 |
|
|
| 202 |
| ||||||||||||||||
Stock offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38 | ) |
|
| — |
|
|
| — |
|
Liability award settlement |
|
| 81 |
|
|
| — |
|
|
| 236 |
|
|
| — |
| ||||||||
Stock-based compensation expense |
|
| 659 |
|
|
| 607 |
|
|
| 1,835 |
|
|
| 1,133 |
|
|
| 640 |
|
|
| 634 |
|
Warrants issued in connection with debt instruments |
|
| — |
|
|
| — |
|
|
| 209 |
|
|
| — |
| ||||||||
Ending balance |
|
| 230,734 |
|
|
| 226,716 |
|
|
| 230,734 |
|
|
| 226,716 |
|
|
| 236,416 |
|
|
| 229,290 |
|
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| (712 | ) |
|
| (610 | ) |
|
| (670 | ) |
|
| (576 | ) |
|
| (701 | ) |
|
| (670 | ) |
Other comprehensive (loss) income |
|
| (128 | ) |
|
| 3 |
|
|
| (170 | ) |
|
| (31 | ) | ||||||||
Other comprehensive loss |
|
| (18 | ) |
|
| (55 | ) | ||||||||||||||||
Ending balance |
|
| (840 | ) |
|
| (607 | ) |
|
| (840 | ) |
|
| (607 | ) |
|
| (719 | ) |
|
| (725 | ) |
Accumulated deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| (225,482 | ) |
|
| (205,108 | ) |
|
| (216,692 | ) |
|
| (195,176 | ) |
|
| (234,547 | ) |
|
| (216,692 | ) |
Net loss |
|
| (5,478 | ) |
|
| (4,665 | ) |
|
| (14,268 | ) |
|
| (14,597 | ) |
|
| (6,006 | ) |
|
| (4,900 | ) |
Ending balance |
|
| (230,960 | ) |
|
| (209,773 | ) |
|
| (230,960 | ) |
|
| (209,773 | ) |
|
| (240,553 | ) |
|
| (221,592 | ) |
Total stockholders' (deficit) equity, ending balances |
| $ | (1,066 | ) |
| $ | 16,336 |
|
| $ | (1,066 | ) |
| $ | 16,336 |
| ||||||||
Total stockholders' (deficit) equity, ending balance |
| $ | (4,856 | ) |
| $ | 6,973 |
|
See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (14,268 | ) |
| $ | (14,597 | ) |
| $ | (6,006 | ) |
| $ | (4,900 | ) |
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 754 |
|
|
| 712 |
|
|
| 177 |
|
|
| 258 |
|
Gain on disposal of assets, net |
|
| — |
|
|
| (12 | ) | ||||||||
Provision for bad debts |
|
| 1,243 |
|
|
| 316 |
|
|
| 987 |
|
|
| 19 |
|
Provision for inventory excess and obsolescence |
|
| — |
|
|
| 59 |
| ||||||||
Amortization of discounts on lines of credit |
|
| 103 |
|
|
| 31 |
|
|
| 46 |
|
|
| 38 |
|
Amortization of debt issuance costs |
|
| 130 |
|
|
| 43 |
|
|
| 50 |
|
|
| 49 |
|
Stock-based compensation |
|
| 1,974 |
|
|
| 1,862 |
|
|
| 719 |
|
|
| 757 |
|
Deferred income taxes |
|
| (6 | ) |
|
| 1 |
|
|
| (32 | ) |
|
| (5 | ) |
Earned interest income |
|
| 2 |
|
|
| — |
| ||||||||
Earned interest income, net |
|
| — |
|
|
| (1 | ) | ||||||||
Change in fair value of patent litigation settlement liability |
|
| — |
|
|
| 190 |
| ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 1,393 |
|
|
| (1,591 | ) |
|
| 3,024 |
|
|
| (650 | ) |
Inventory |
|
| 711 |
|
|
| (1,184 | ) |
|
| (1,197 | ) |
|
| 225 |
|
Prepaid expenses and other current assets |
|
| 1,011 |
|
|
| 940 |
|
|
| (142 | ) |
|
| 463 |
|
Accounts payable and accrued liabilities |
|
| (1,157 | ) |
|
| 3,200 |
|
|
| (1,541 | ) |
|
| (1,514 | ) |
Deferred revenue |
|
| 36 |
|
|
| (370 | ) |
|
| (219 | ) |
|
| 37 |
|
Net cash and cash equivalents used in operating activities |
|
| (8,074 | ) |
|
| (10,590 | ) |
|
| (4,134 | ) |
|
| (5,034 | ) |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
|
| (138 | ) |
|
| (110 | ) |
|
| (9 | ) |
|
| (8 | ) |
Proceeds from disposal of property, plant, and equipment |
|
| — |
|
|
| 36 |
| ||||||||
Net cash and cash equivalents used in investing activities |
|
| (138 | ) |
|
| (74 | ) |
|
| (9 | ) |
|
| (8 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments under capital lease obligation |
|
| — |
|
|
| (46 | ) | ||||||||
Borrowings under line of credit |
|
| — |
|
|
| 3,323 |
| ||||||||
Payments under line of credit |
|
| — |
|
|
| (1,823 | ) | ||||||||
Borrowings under term loan |
|
| 2,500 |
|
|
| — |
| ||||||||
Payments of debt issuance costs |
|
| (38 | ) |
|
| (87 | ) | ||||||||
Payments of equity offering costs |
|
| (50 | ) |
|
| (138 | ) |
|
| (117 | ) |
|
| — |
|
Proceeds from exercise of stock options |
|
| 4 |
|
|
| 2 |
|
|
| — |
|
|
| 3 |
|
Net cash and cash equivalents provided by financing activities |
|
| 2,416 |
|
|
| 1,231 |
| ||||||||
Net cash and cash equivalents (used in) provided by financing activities |
|
| (117 | ) |
|
| 3 |
| ||||||||
Effect of exchange rate changes |
|
| (157 | ) |
|
| (23 | ) |
|
| (18 | ) |
|
| (49 | ) |
Decrease in cash, cash equivalents and restricted cash |
|
| (5,953 | ) |
|
| (9,456 | ) |
|
| (4,278 | ) |
|
| (5,088 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 8,356 |
|
|
| 11,896 |
|
|
| 6,101 |
|
|
| 8,356 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 2,403 |
|
| $ | 2,440 |
|
| $ | 1,823 |
|
| $ | 3,268 |
|
Supplemental cash flow disclosure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 1,315 |
|
| $ | — |
|
| $ | 485 |
|
| $ | 430 |
|
Cash paid for income taxes |
| $ | 19 |
|
| $ | 31 |
|
| $ | 28 |
|
| $ | 31 |
|
Cash paid for operating leases |
| $ | 606 |
|
| $ | — |
|
| $ | 192 |
|
| $ | 189 |
|
Non-cash accrual for capital expenditures |
| $ | 4 |
|
| $ | 3 |
|
| $ | 7 |
|
| $ | 24 |
|
Non-cash accrual for equity offering costs |
| $ | 191 |
|
| $ | — |
| ||||||||
Non-cash right-of-use assets obtained in exchange for lease obligation |
| $ | 824 |
|
| $ | — |
|
| $ | — |
|
| $ | 824 |
|
Non-cash settlement of performance award liability |
| $ | 236 |
|
| $ | — |
| ||||||||
Warrants issued in connection with debt instruments |
| $ | 209 |
|
| $ | — |
|
See accompanying notes to unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Company
BIOLASE,BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company”) is a medical device company that develops, manufactures, markets, and sells laser systems in dentistry and medicine. The Company’s products advance the practice of dentistry and medicine for patients and health care professionals. The Company’s proprietary dental laser systems allow dentists, periodontists, endodontists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. The Company’s laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. The Company has clearance from the Food and Drug Administration (“FDA”) to market and sell its laser systems in the United States and also have the necessary registration to market and sell its laser systems in Canada, the European Union, and many other countries outside the United States.
Basis of Presentation
The unaudited consolidated financial statements include the accounts of BIOLASE and its wholly-owned subsidiaries and have been prepared on a basis consistent with the December 31, 20182019 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. These unaudited, interim, consolidated financial statements do not include all the footnotes, presentations, and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements.
The consolidated results of operations for the three and nine months ended September 30, 2019March 31, 2020 are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018,2019, included in BIOLASE’s Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (the “SEC”) on March 8, 201930, 2020 (the “2018“2019 Form 10-K”).
Liquidity and Management’s Plans
The Company incurred a loss from operations and a net loss, and used cash in operating activities for the three and nine months ended September 30, 2019.March 31, 2020. 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.
Fourth Amendment to the SWK Loan
As of MarchDecember 31, 2019, the Company was not in compliance with certain of its loan covenants relating tounder the SWKTerm Loan (as defined below). In May 2019,On March 25, 2020 the Company and SWK Funding, LLC entered into a Fourth Amendment to the Credit Agreement and granted the Company a waiver of such covenants. On May 7, 2019, the Company entered into an amendment of its Credit Agreement with SWK Funding, LLCcovenants through March 31, 2020. The Fourth Amendment included revisions to increase the total loan commitment in the SWK Loan from $12.5 million to $15.0 million, to revise certain of the financial covenants and to issuethe warrant price for the SWK warrants. See Note 9 for additional warrantsinformation.
Due to purchasethe uncertainty surrounding the Company’s common stock. On September 30, 2019,continued inability to meet debt covenants in addition to the uncertainties surrounding the impact of COVID-19 on the Company’s business, the Company entered into a second amendment ofis not forecasting compliance with its Credit Agreementdebt covenants in the next twelve months and has classified the Term Loan with SWK Funding, LLC to provide for(the “Term Loan”) as a revolving loan facility, secured by a first lien security interest in the Company’s inventory and accounts receivable. On November 6, 2019, the Company entered into a third amendment to its Credit Agreement to further modify its loan covenants. See Notes 9 and 15 for additional information.short-term liability.
On October 28, 2019, BIOLASE, Inc. (the “Company”) entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“Lender”), which provides for a revolving lineAs of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in the Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated. See Note 15 for additional information.
On October 29, 2019,March 31, 2020, the Company successfully consummated an underwritten public offering of BIOLASE common stock and a concurrent private placement of BIOLASE Series E Participating Convertible Preferred Stock, resulting in net proceeds of approximately $7.8 million after deducting underwriter discounts and other fees and expenses. On November 5, 2019, the underwriters exercised their over-allotment option and the Company received approximately $0.6 million in additional proceeds from the sale of 1.1 million additional shares. See Note 15 for additional information.
As of September 30, 2019, the Company had negative working capital of approximately $9.2$3.7 million. The Company’s principal sources of liquidity as of September 30, 2019March 31, 2020 consisted of approximately $2.4$1.8 million in cash,cash, cash equivalents and restricted cash and $8.5$4.7 million of accounts receivable. receivable, net.
In order for the Company to continue operations beyond the next 12 months and be able to discharge its liabilities and commitments in the normal course of business, itthe Company must sellincrease sales of its products, directly to end userscontrol or potentially reduce expenses and through distributors, establish profitable operations through increased sales, decrease expenses,in order to generate cash from operations or obtain additional funds when needed. The Company intends to improve its financial condition and ultimately improve its financial results by increasing revenues through expansion of its product offerings, continuing to expand and develop its field sales force and distributor relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of its advanced medical technologies, and reducing expenses.
Additional capital requirements may depend on many factors, including, among other things, continued losses, the rate at which the Company’s business grows, the extent of the Company’s revenue from ventilator sales, 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, orofferings. The Company cannot provide assurance that it will be able to successfully enter into an additional lineany such equity or debt financings in the future or that the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to its stockholders.
COVID-19 Risk and Uncertainties and CARES Act
Additionally, on January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of credit facility.
Reverse Stock Split
Excepta new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the context otherwise requires, all share numbersvirus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally and share price amounts (including exercise priceson March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, tax and closing market prices) containedmany countries and many states in the unauditedUnited States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures have included dental office closures in Europe and the United States for all but emergency procedures. Our salespeople have been unable to call on dental customers during these closures. In addition, most dental shows and workshops scheduled in the first and second quarters of 2020 have been canceled. There is no assurance that sales will return to normal levels during the second quarter of 2020 or at any time thereafter. However, the full impact of the COVID-19 outbreak continues to evolve and it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial statementscondition, liquidity, and notes thereto reflectfuture results of operations. Management is actively monitoring the one-for-five reverse stock splitglobal situation on its financial condition, liquidity, operations, suppliers, industry, and workforce and have taken actions to mitigate the impact including among other things, temporary reductions in pay, furloughs of certain positions along with deferrals in payment for cash preservation. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.
We continue to examine the impact that the CARES Act may have on our business. Currently, we are unable to determine the impact that the CARES Act will have on our financial condition, results of operations, or liquidity.
Paycheck Protection Program Loan (“Reverse Stock Split”PPP Loan”)
On April 14, 2020, Biolase, Inc., was granted a loan from Pacific Mercantile Bank in the aggregate amount of $2,980,000.00, pursuant to the Paycheck Protection Program (the “PPP”) effectuatedunder Division A, Title I of the CARES Act, which was enacted March 27, 2020.
The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by the Company, matures on May 10, 2018. SeeApril 13, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020. The Note 4 belowmay be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for additional information.payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these unaudited consolidated financial statements in conformity with GAAPgenerally accepted accounting principles in the United States of America (“GAAP”) requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these unaudited consolidated financial statements include allowances on accounts receivable, inventory, and deferred taxes, as well as estimates for accrued warranty expenses, goodwill and the ability of goodwill to be realized, revenue deferrals, effects of stock-based compensation and warrants, contingent liabilities, and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.
Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the 20182019 Form 10-K. Management believes that there have been no significant changes during the ninethree months ended September 30, 2019March 31, 2020 in the Company’s critical accounting policies from those disclosed in Item 7 of the 20182019 Form 10-K.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market (or, if none exists, the most advantageous market) for the specific asset or liability at the measurement date (referred to as the “exit price”). The fair value is based on assumptions that market participants would use, including a consideration of non-performance risk. Under the accounting guidance for fair value hierarchy, there are three levels of measurement inputs. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable, either directly or indirectly. Level 3 inputs are unobservable due to little or no corroborating market data.
The Company’s financial instruments, consisting of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, liability for patent litigation settlement, and the SWK Loan as discussed in Note 9, approximate fair value because of the liquid or short-term nature of these items.
Concentration of Credit Risk, Interest Rate Risk and Foreign Currency Exchange Rate
Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents, restricted cash, and trade accounts receivable. The Company maintains its cash and cash equivalents and restricted cash with established commercial banks. At times, balances may exceed federally insured limits. To minimize the risk associated with trade accounts receivable, management performs ongoing credit evaluations of customers’ financial condition and maintains relationships with the Company’s customers that allow management to monitor current changes in business operations so the Company can respond as needed. The Company does not, generally, require customers to provide collateral before it sells them its products. However, the Company has required certain distributors to make prepayments for significant purchases of products.
Substantially all of the Company’s revenue is denominated in U.S. dollars, including sales to international distributors. Only a small portion of its revenue and expenses is denominated in foreign currencies, principally the Euro and Indian Rupee. The Company’s foreign currency expenditures primarily consist of the cost of maintaining offices, consulting services, and employee-related costs. During the nine-monththree-month periods ended September 30,March 31, 2020 and 2019, and 2018, the Company did not enter into any hedging contracts. Future fluctuations in the value of the U.S. dollar may affect the price competitiveness of the Company’s products outside the U.S.
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations.
Adopted Accounting Pronouncements
In February 2016, the FASB established ASU Topic 842 – Leases, by issuing ASU Topic No. 2016-02 (“Topic 842”), which requires lessees to recognize lease on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU Topic 2018-11 – Targeted Improvements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and a lease liability for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
The Company adopted Topic 842 in the first quarter of 2019 utilizing the modified retrospective transition method and a cumulative effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date, and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of the right-to-use assets. The adoption of Topic 842 resulted in the recognition of right-of use assets of approximately $0.8 million after a $0.2 million adjustment for deferred rent, and lease liabilities for operating leases of approximately $1.0 million, and no cumulative effect adjustment on retained earnings on its unaudited Consolidated Balance Sheets nor material impact to its unaudited Consolidated Statements of Operations and Comprehensive Loss in the period of adoption. Right-of-use assets are included in Other assets, and lease liabilities are included in Accrued liabilities and in Other liabilities in the unaudited consolidated balance sheet for the period ended September 30, 2019. See Note 10 for additional information.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. This ASU was issued because the London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating alternative benchmark rates to replace LIBOR and is still in the process of evaluating the impact that adopting this new accounting standard will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued a new standardASU 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, 2020.2023, with early adoption permitted beginning January 1, 2019. The Company is evaluatingcurrently assessing the impact ofthat adopting this new accounting standard will have on the Company’sits consolidated financial statements, including accounting policies, processes, and systems.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 also establishes a provision for estimated warranty expense.
At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, the Company considers all of the products or services promised in contracts regardless of whether they are explicitly stated or are implied by customary business practices.
Revenue from products and services transferred to customers at a single point in time accounted for 77%74% and 81%84% of net revenue for the three and nine months ended September 30,March 31, 2020 and March 31, 2019, respectively, and 85% and 85% for the three and nine months ended September 30, 2018, respectively. The majority of the Company’s revenue recognized at a point in time is for the sale of laser systems, imaging systems, and consumables. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process.
Revenue from services transferred to customers over time accounted for 23%26% and 19%16% of net revenue for the three and nine months ended September 30,March 31, 2020 and March 31, 2019, respectively, and 15% and 15% for the three and nine months ended September 30, 2018, respectively. The majority of the Company’s revenue that is recognized over time relates to product training and extended warranties. Deferred revenue attributable to undelivered elements, which primarily consists of product training, totaled approximately $0.6$0.5 million and $0.7$0.6 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Transaction Price Allocation
The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers.
Significant Judgments
Revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage. This revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. Revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation, which is generally after nine months.
The Company also has contracts that include both the product sales and product training as performance obligations. In those cases, the Company records revenue for product sales at the point in time when the product has been shipped. The customer obtains control of the product when it is shipped, as all shipments are made FOB shipping point, and after the customer selects its shipping method and pays all shipping costs and insurance. The Company has concluded that control is transferred to the customer upon shipment.
Accounts Receivable
Accounts receivable are stated at estimated net realizable value. The allowance for bad debtsdoubtful accounts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs. In the third quarter of 2019, the Company increased its allowance for doubtful accounts reserve by approximately $1.1 million relating to our distributor in China.
The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services and the Company has not transferred control of the goods and/or services. The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):
|
|
|
| |||||||||||||
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Undelivered elements (training, installation, product and support services) |
| $ | 566 |
|
| $ | 730 |
|
| $ | 476 |
|
| $ | 559 |
|
Extended warranty contracts |
|
| 1,940 |
|
|
| 1,735 |
|
|
| 1,896 |
|
|
| 2,063 |
|
Deferred royalties |
|
| 6 |
|
|
| 11 |
| ||||||||
Total deferred revenue |
|
| 2,512 |
|
|
| 2,476 |
|
|
| 2,372 |
|
|
| 2,622 |
|
Less long-term portion of deferred revenue |
|
| — |
|
|
| — |
|
|
| 390 |
|
|
| 385 |
|
Total deferred revenue — long -term |
|
| 390 |
|
|
| 385 |
| ||||||||
Deferred revenue — current |
| $ | 2,512 |
|
| $ | 2,476 |
|
| $ | 1,982 |
|
| $ | 2,237 |
|
The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at September 30, 2019March 31, 2020 and December 31, 2018.2019.
The amount of revenue recognized during the three-month periodthree months ended September 30, 2019 and September 30, 2018 andMarch 31, 2020 that was included in the opening contract liability balance related to undelivered elements was $0.1 million and $0.2 million, respectively. The amount of revenue recognized during the nine-month period ended September 30, 2019 and September 30, 2018 and included in the opening contract liability balancerelated to extended warranty contracts was $0.5 million and $0.8 million, respectively. Revenue recognized during 2018 and 2019 relating to deferred royalties was not material in either period.$1.0 million.
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 for the periods indicated (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
United States |
| $ | 4,949 |
|
| $ | 6,953 |
|
| $ | 16,962 |
|
| $ | 19,810 |
|
| $ | 3,129 |
|
| $ | 6,116 |
|
International |
|
| 3,697 |
|
|
| 3,983 |
|
|
| 10,655 |
|
|
| 13,300 |
|
|
| 1,654 |
|
|
| 4,210 |
|
|
| $ | 8,646 |
|
| $ | 10,936 |
|
| $ | 27,617 |
|
| $ | 33,110 |
|
| $ | 4,783 |
|
| $ | 10,326 |
|
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 |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Revenue recognized over time |
| $ | 1,997 |
|
| $ | 1,594 |
|
| $ | 5,267 |
|
| $ | 4,848 |
|
| $ | 1,260 |
|
| $ | 1,698 |
|
Revenue recognized at a point in time |
|
| 6,649 |
|
|
| 9,342 |
|
|
| 22,350 |
|
|
| 28,262 |
|
|
| 3,523 |
|
|
| 8,628 |
|
Total |
| $ | 8,646 |
|
| $ | 10,936 |
|
| $ | 27,617 |
|
| $ | 33,110 |
|
| $ | 4,783 |
|
| $ | 10,326 |
|
The Company’s sales by end market were as follows for the periods indicated (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
End-customer |
| $ | 3,727 |
|
| $ | 7,387 |
|
| $ | 11,068 |
|
| $ | 21,093 |
|
| $ | 2,340 |
|
| $ | 6,346 |
|
Distributors |
|
| 4,919 |
|
|
| 3,549 |
|
|
| 16,549 |
|
|
| 12,017 |
|
|
| 2,443 |
|
|
| 3,980 |
|
|
| $ | 8,646 |
|
| $ | 10,936 |
|
| $ | 27,617 |
|
| $ | 33,110 |
|
| $ | 4,783 |
|
| $ | 10,326 |
|
The Company acts as the principal in all its imaging equipment distribution sales. The Company takes possession and control of the equipment before they are sold and transferred to the customer. The Company provides the equipment and any related services directly to the customer. The Company has inventory risk before the equipment is transferred to a customer. The Company purchases and obtains the goods before obtaining a contract with a customer. The Company also has discretion in establishing the price sold to the customer for the equipment.
The revenue and percentages of revenue of the Company’s sales by product line were as follows for the periods indicated:
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
| |||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
|
| March 31, |
| |||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
| 2020 |
|
| 2019 |
| ||||||||||||||
Laser systems |
|
| 59.8 |
| % |
| 64.5 |
| % |
| 58.1 |
| % |
| 62.5 |
| % |
| $ | 2,051 |
|
|
| 42.9 | % |
| $ | 5,964 |
|
|
| 57.8 | % |
Imaging systems |
|
| — |
| % |
| 3.5 |
| % |
| 2.2 |
| % |
| 4.0 |
| % |
|
| — |
|
|
| — | % |
|
| 552 |
|
|
| 5.3 | % |
Consumables and other |
|
| 17.1 |
| % |
| 17.4 |
| % |
| 20.6 |
| % |
| 18.9 |
| % |
|
| 1,472 |
|
|
| 30.8 | % |
|
| 2,112 |
|
|
| 20.5 | % |
Services |
|
| 23.1 |
| % |
| 14.6 |
| % |
| 19.1 |
| % |
| 14.6 |
| % |
|
| 1,260 |
|
|
| 26.3 | % |
|
| 1,695 |
|
|
| 16.4 | % |
License fees and royalties |
|
| — |
| % |
| — |
| % |
| — |
| % |
| — |
| % |
|
| — |
|
|
| — | % |
|
| 3 |
|
|
| — | % |
|
|
| 100.0 |
| % |
| 100.0 |
| % |
| 100.0 |
| % |
| 100.0 |
| % | ||||||||||||||||
Total revenue |
| $ | 4,783 |
|
|
| 100.0 | % |
| $ | 10,326 |
|
|
| 100.0 | % |
Shipping and Handling Costs and Revenues
Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs.
NOTE 4—REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
On October 29,Redeemable Preferred Stock
The board of directors of Biolase (the “Board”), without further stockholder authorization, may from time to time authorize the issuance of up to 1,000,000 shares of the Company’s preferred stock. Of the 1,000,000 shares of preferred stock, 500,000 shares are designated as Series B Junior Participating Cumulative Preferred Stock. In 2019, the Company successfully consummated an underwritten publicsold Series E Convertible Preferred Shares in a private offering and as of 7,820,000March 31, 2020 and December 31, 2019, 69,565 of these shares were issued and outstanding.
The shares of BIOLASE common stock and a concurrent private placement of 69,695Series E Preferred Stock automatically convert into shares of BIOLASECommon Stock upon receipt of the Requisite Stockholder Approval (as defined in the Certificate of Designations, Preferences and Rights of Series E Participating Convertible Preferred Stock. The shares of Series E Preferred Stock have no other conversion rights.
The Purchase Agreement contains customary representations, warranties and on November 5, 2019,covenants by the underwritersCompany, customary indemnification obligations of the public offering exercised their over-allotment optionCompany and the Investors, including for liabilities under the Securities Act, and other obligations of the parties. The representations, warranties and covenants contained in the Purchase Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to acquire additionalsuch agreement and may be subject to limitations agreed upon by the contracting parties.
The shares of BIOLASE common stock.Series E Preferred Stock were offered in reliance upon exemptions from registration under the Securities Act afforded by Regulation D and corresponding provisions of state securities laws. The underwritten public offering and concurrent private placement resulted in net proceedsCompany has agreed to use commercially reasonable efforts to file, within 30 days following receipt of $8.4 million after deducting underwriter discounts and other fees and expenses. See Note 15 for additional information.
Reverse Stock Split
At BIOLASE’s annual meeting of stockholders on May 9, 2018 (the “2018 Annual Meeting”), BIOLASE stockholders approved an amendment to BIOLASE’s Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split and on May 10, 2018, the Company filed an amendment (the “Amendment”) to its Restated Certificate of Incorporation, as amended,Requisite Stockholder Approval, a registration statement with the Secretary of StateU.S. Securities and Exchange Commission to register the resale of the State of Delaware to effect the Reverse Stock Split, effective as of 11:59 p.m. on May 10, 2018. The Amendment also reduced the authorized shares of common stock from 200,000,000 shares to 40,000,000 shares. Prior year share and per share amounts have been adjusted to reflectCommon Stock underlying the impact of the Reverse Stock Split.Series E Preferred Stock.
Stock-Based Compensation
2002 Stock Incentive Plan
The 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, October 30, 2014, April 27, 2015, and May 6, 2016, the “2002 Plan”) was replaced by the 2018 Plan (as defined below) with respect to future equity awards. Persons eligible to receive awards under the 2002 Plan included officers, employees, and directors of the Company, as well as consultants. As of September 30, 2019,March 31, 2020, a total of approximately 3.1 million shares of the Company’s common stock have been authorized for issuance under the 2002 Plan, of which approximately 1.0 million shares of the Company’s common stock have been issued pursuant to options that were exercised and restricted stock units (“RSUs”) that were settled in common stock and 1.31.2 million shares of common stock have been reserved for outstanding options and unvested RSUs, and no shares are available for future grants.
At the 2018 Annual Meeting, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended, the “2018 Plan”), which was amended by Amendment No. 1 to the 2018 Plan, approved by the Company’s stockholders at a special meeting on September 21, 2018 and Amendment No. 2 to the 2018 Plan, as approved by the Company’s stockholder’s at its annual meeting of stockholders on May 15, 2019. The purposes of the 2018 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2018 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.
Subject to the terms and conditions of the 2018 Plan, the number of shares authorized for grants under the 2018 Plan is 5.0 million. As of September 30, 2019,March 31, 2020, a total 3.92.3 million shares of the Company’s common stock have been reserved for outstanding options and unvested RSUs, and 1.10.8 million shares of the Company’s common stock remain available for future grants.
The Company recognized stock-based compensation expense of $0.8$0.7 million and $0.5$0.8 million, for the three months ended September 30,March 31, 2020 and 2019, and2018, respectively, and $1.9 million and $1.9 million for the nine months ended September 30, 2019 and September 30, 2018, respectively, based on the grant-date fair value. AsThe net impact of ninestock-based compensation expense to earnings was $(0.02), and $(0.04) per basic and diluted share for the three months ended September 30,March 31, 2020 and 2019, respectively. At March 31, 2020, the Company had approximately $2.3$1.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements. The Company expects that expense to be recognized over a weighted-average period of 1.691.5 years.
The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Cost of revenue |
| $ | 94 |
|
| $ | 127 |
|
| $ | 229 |
|
| $ | 289 |
|
| $ | 51 |
|
| $ | 82 |
|
Sales and marketing |
|
| 173 |
|
|
| 134 |
|
|
| 411 |
|
|
| 368 |
|
|
| 210 |
|
|
| 160 |
|
General and administrative |
|
| 442 |
|
|
| 258 |
|
|
| 1,167 |
|
|
| 932 |
|
|
| 425 |
|
|
| 441 |
|
Engineering and development |
|
| 61 |
|
|
| 85 |
|
|
| 167 |
|
|
| 273 |
|
|
| 33 |
|
|
| 74 |
|
|
| $ | 770 |
|
| $ | 604 |
|
| $ | 1,974 |
|
| $ | 1,862 |
|
| $ | 719 |
|
| $ | 757 |
|
The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Expected term |
| 6.1 years |
|
| 5.9 years |
|
| 6.1 years |
|
| 5.9 years |
|
| 5.9 years |
|
| 6.1 years |
| ||||||
Volatility |
|
| 85.4 | % |
|
| 81.9 | % |
|
| 85.4 | % |
|
| 81.4 | % |
|
| 82.2 | % |
|
| 86.2 | % |
Annual dividend per share |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Risk-free interest rate |
|
| 2.60 | % |
|
| 2.90 | % |
|
| 2.60 | % |
|
| 2.50 | % |
|
| 1.25 | % |
|
| 2.64 | % |
A summary of option activity for the ninethree months ended September 30, 2019 is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
| Weighted Average |
|
|
|
|
| |
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
|
| ||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| |||
| Shares |
|
| Exercise Price |
|
| Term (Years) |
|
| Intrinsic Value(1) |
| ||||
Options outstanding, December 31, 2018 |
| 1,623 |
|
| $ | 6.54 |
|
|
|
|
|
| $ | — |
|
Granted at fair market value |
| 70 |
|
| $ | 2.08 |
|
|
|
|
|
|
|
|
|
Exercised |
| (2 | ) |
| $ | 2.10 |
|
|
|
|
|
|
|
|
|
Forfeited, cancelled, or expired |
| (332 | ) |
| $ | 7.27 |
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2019 |
| 1,359 |
|
| $ | 6.14 |
|
|
| 5.63 |
|
| $ | — |
|
Options exercisable at September 30, 2019 |
| 1,080 |
|
| $ | 7.00 |
|
|
| 5.01 |
|
| $ | — |
|
Vested options expired during the period ended September 30, 2019 |
| 124 |
|
| $ | 9.08 |
|
|
|
|
|
|
|
|
|
(1) The intrinsic value calculation does not include negative values. This can occur when the fair market value on the reporting date is less than the exercise price of the grant.
A summary of unvested stock option activity for the nine months ended September 30, 2019March 31, 2020 is as follows (in thousands, except per share data):
|
|
|
|
| Weighted |
| |
|
|
|
|
| Average Grant |
| |
| Shares |
|
| Date Fair Value |
| ||
Unvested options at December 31, 2018 |
| 522 |
|
| $ | 2.11 |
|
Granted |
| 70 |
|
| $ | 1.51 |
|
Vested |
| (229 | ) |
| $ | 2.55 |
|
Forfeited or cancelled |
| (84 | ) |
| $ | 2.39 |
|
Unvested options at September 30, 2019 |
| 279 |
|
| $ | 1.59 |
|
|
|
|
|
| Weighted |
|
| Weighted Average Remaining |
|
|
|
|
| ||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| |||
| Shares |
|
| Exercise Price |
|
| Term (Years) |
|
| Intrinsic Value(1) |
| ||||
Options outstanding, December 31, 2019 |
| 1,287 |
|
| $ | 5.77 |
|
|
|
|
|
| $ | — |
|
Granted at fair market value |
| 20 |
|
| $ | 0.77 |
|
|
|
|
|
|
|
|
|
Exercised |
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
Forfeited, cancelled, or expired |
| (32 | ) |
| $ | 8.87 |
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2020 |
| 1,275 |
|
| $ | 5.61 |
|
|
| 5.68 |
|
| $ | — |
|
Options exercisable at March 31, 2020 |
| 1,061 |
|
| $ | 6.35 |
|
|
| 5.11 |
|
| $ | — |
|
Vested options expired during the quarter ended March 31, 2020 |
| 17 |
|
| $ | 13.2 |
|
|
|
|
|
|
|
|
|
(1) | The intrinsic value calculation does not include negative values. This can occur when the fair market value on the reporting date is less than the exercise price of the grant. |
A summary of unvested stock option activity for the three months ended March 31, 2020 is as follows (in thousands, except per share data):
|
|
|
|
| Weighted |
| |
|
|
|
|
| Average Grant |
| |
| Shares |
|
| Date Fair Value |
| ||
Unvested options at December 31, 2019 |
| 254 |
|
| $ | 1.44 |
|
Granted |
| 20 |
|
| $ | 0.54 |
|
Vested |
| (47 | ) |
| $ | 1.63 |
|
Forfeited or cancelled |
| (14 | ) |
| $ | 2.61 |
|
Unvested options at March 31, 2020 |
| 213 |
|
| $ | 1.25 |
|
Cash proceeds, along with fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Proceeds from stock options exercised |
| $ | — |
|
| $ | — |
|
| $ | 3 |
|
| $ | 2 |
|
Tax benefit related to stock options exercised (1) |
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
| ||||
Intrinsic value of stock options exercised (2) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Weighted-average fair value of options granted during period |
| $ | — |
|
| $ | 1.02 |
|
| $ | 1.53 |
|
| $ | 1.38 |
|
Total fair value of shares vested during the period |
| $ | — |
|
| $ | 164 |
|
| $ | 683 |
|
| $ | 1,008 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Proceeds from stock options exercised |
| $ | — |
|
| $ | 3 |
|
Tax benefit related to stock options exercised (1) |
| N/A |
|
| N/A |
| ||
Intrinsic value of stock options exercised (2) |
| $ | — |
|
| $ | — |
|
Weighted-average fair value of options granted during period |
| $ | 0.54 |
|
| $ | 1.53 |
|
Total fair value of shares vested during the period |
| $ | 67 |
|
| $ | 342 |
|
(1) Excess tax benefits received related to stock option exercises are presented as operating cash inflows. The Company currently does not receive a tax benefit related to the exercise of stock options due to the Company’s net operating losses.
(2) The intrinsic value of stock options exercised is the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant.
(1) | Excess tax benefits received related to stock option exercises are presented as operating cash inflows. The Company currently does not receive a tax benefit related to the exercise of stock options due to the Company’s net operating losses. |
(2) | The intrinsic value of stock options exercised is the amount by which the market price of the stock on the date of exercise exceeded the strike price of the stock on the date of grant. |
The Company granted approximately 1.9 million and 2.2 million RSUsThere were no material grants made during the three and nine months ended September 30, 2019, respectively.March 31, 2020, and the Company canceled approximately 840,000 grants with performance based vesting due to non achievement of the performance targets.
A summary of unvested RSU activity for the ninethree months ended September 30, 2019March 31, 2020 is as follows (in thousands, except per share amounts):
|
|
|
|
| Weighted |
|
|
|
|
| Weighted |
| ||
|
|
|
|
| Average Grant |
|
|
|
|
| Average Grant |
| ||
| Shares |
|
| Date Fair Value |
| Shares |
|
| Date Fair Value |
| ||||
Unvested RSUs at December 31, 2018 |
| 2,163 |
|
| $ | 1.84 |
| |||||||
Unvested RSUs at December 31, 2019 |
| 3,564 |
|
| $ | 1.68 |
| |||||||
Granted |
| 1,851 |
|
| $ | 2.08 |
|
| 20 |
|
| $ | 0.38 |
|
Vested |
| (841 | ) |
| $ | 1.74 |
|
| (416 | ) |
| $ | 0.67 |
|
Forfeited or cancelled |
| (113 | ) |
| $ | 2.37 |
|
| (840 | ) |
| $ | 1.96 |
|
Unvested RSUs at September 30, 2019 |
| 3,060 |
|
| $ | 1.87 |
| |||||||
Unvested RSUs at March 31, 2020 |
| 2,328 |
|
|
| 1.63 |
|
Warrants
The Company issues warrants to acquire shares of itsthe Company’s common stock as approved by the Board. A summary of warrant activity for the ninethree months ended September 30, 2019March 31, 2020 is as follows (in thousands, except exercise price amounts):
|
|
|
|
| Weighted |
| |
|
|
|
|
| Average |
| |
| Shares |
|
| Exercise Price |
| ||
Warrants outstanding, December 31, 2018 |
| 1,934 |
|
| $ | 6.62 |
|
Granted or Issued |
| 149 |
|
| $ | 2.22 |
|
Exercised |
| — |
|
| $ | — |
|
Forfeited, cancelled, or expired |
| — |
|
| $ | — |
|
Warrants outstanding at September 30, 2019 |
| 2,083 |
|
| $ | 6.30 |
|
Warrants exercisable at September 30, 2019 |
| 2,083 |
|
| $ | 6.30 |
|
Vested warrants expired during the quarter ended September 30, 2019 |
| — |
|
| $ | — |
|
|
|
|
|
| Weighted |
| |
|
|
|
|
| Average |
| |
| Shares |
|
| Exercise Price |
| ||
Warrants outstanding, December 31, 2019 |
| 2,083 |
|
| $ | 6.12 |
|
Granted or Issued |
| — |
|
| $ | — |
|
Exercised |
| — |
|
| $ | — |
|
Forfeited, cancelled, or expired |
| — |
|
| $ | — |
|
Warrants outstanding at March 31, 2020 |
| 2,083 |
|
| $ | 5.96 |
|
Warrants exercisable at March 31, 2020 |
| 2,083 |
|
| $ | 5.96 |
|
Vested warrants expired during the quarter ended March 31, 2020 |
| — |
|
| $ | — |
|
See Note 9 for additional information on the Western Alliance Warrants, the SWK Warrants, and the DPG Warrants (each as defined below).
Net Loss Per Share – Basic and Diluted
Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding for the period. In computing diluted net loss per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.
Outstanding stock options, RSUs and warrants to purchase approximately 5.63.4 million shares were not included in the calculation of diluted loss per share for the three and nine months ended September 30, 2019,March 31, 2020, as their effect would have been anti-dilutive. For the same 20182019 periods, anti-dilutive outstanding stock options and warrants to purchase 3.25.7 million shares were not included in the computation of diluted loss per share.
Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Raw materials |
| $ | 3,714 |
|
| $ | 3,590 |
|
| $ | 4,465 |
|
| $ | 3,689 |
|
Work-in-process |
|
| 1,164 |
|
|
| 1,435 |
|
|
| 1,475 |
|
|
| 1,064 |
|
Finished goods |
|
| 6,659 |
|
|
| 7,223 |
|
|
| 6,252 |
|
|
| 6,242 |
|
Inventory |
| $ | 11,537 |
|
| $ | 12,248 |
|
| $ | 12,192 |
|
| $ | 10,995 |
|
Inventory includes write-downshas been reduced by estimates for excess and obsolete inventoryamounts totaling approximately $0.8$1.3 million and $1.1$1.3 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
NOTE 6—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net is comprised of the following (in thousands):
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Building |
| $ | 203 |
|
| $ | 213 |
|
| $ | 205 |
|
| $ | 209 |
|
Leasehold improvements |
|
| 2,003 |
|
|
| 2,004 |
|
|
| 2,004 |
|
|
| 2,004 |
|
Equipment and computers |
|
| 7,421 |
|
|
| 7,277 |
|
|
| 7,477 |
|
|
| 7,479 |
|
Furniture and fixtures |
|
| 634 |
|
|
| 634 |
|
|
| 634 |
|
|
| 634 |
|
Construction in progress |
|
| 21 |
|
|
| 25 |
|
|
| 34 |
|
|
| 27 |
|
|
|
| 10,282 |
|
|
| 10,153 |
| ||||||||
Total |
|
| 10,354 |
|
|
| 10,353 |
| ||||||||
Accumulated depreciation and amortization |
|
| (9,100 | ) |
|
| (8,344 | ) |
|
| (9,496 | ) |
|
| (9,322 | ) |
|
|
| 1,182 |
|
|
| 1,809 |
| ||||||||
Property, plant, and equipment, net before land |
|
| 858 |
|
|
| 1,031 |
| ||||||||
Land |
|
| 158 |
|
|
| 166 |
|
|
| 159 |
|
|
| 162 |
|
Property, plant, and equipment, net |
| $ | 1,340 |
|
| $ | 1,975 |
|
| $ | 1,017 |
|
| $ | 1,193 |
|
Depreciation and amortization expense related to property, plant, and equipment totaled $0.2 million and $0.8$0.3 million for the three and nine months ended September 30,March 31, 2020 and March 31, 2019, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2018, respectively.
NOTE 7—INTANGIBLE ASSETS AND GOODWILL
The Company conducted its annual impairment test of goodwill as of June 30, 2019 and determined that there was no impairment. The Company also tests its intangible assets and goodwill between the annual impairment tests if events occur or circumstances change that would more likely than not reduce the fair value of the Company or its assets below their carrying amounts. For intangible assets subject to amortization, the Company performs its impairment test when indicators, such as reductions in demand or significant economic slowdowns, are present. NoDue to the uncertainty surrounding the impact of COVID-19 on the Company’s business, the Company performed an assessment at March 31, 2020 which resulted in no impairment required. Beyond the impact of COVID-19, no events have occurred since June 30, 2019 through the date of these unaudited consolidated financial statements that would trigger further impairment testing of the Company’s intangible assets and goodwill.
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company had goodwill (indefinite life) of $2.9 million. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, all intangible assets have been fully amortized and no amortization expense was recognized during the three and nine months ended September 30, 2019March 31, 2020 and 2018.2019.
Accrued liabilities are comprised of the following (in thousands):
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| |||||
Payroll and benefits |
| $ | 1,726 |
|
| $ | 2,400 |
|
| $ | 1,465 |
|
| $ | 1,726 |
|
Patent litigation settlement |
|
| — |
|
|
| 1,500 |
| ||||||||
Warranty accrual, current portion |
|
| 954 |
|
|
| 861 |
|
|
| 911 |
|
|
| 865 |
|
Lease liability |
|
| 476 |
|
|
| — |
|
|
| 140 |
|
|
| 323 |
|
Accrued professional services |
|
| 992 |
|
|
| 1,044 |
|
|
| 443 |
|
|
| 330 |
|
Taxes |
|
| 255 |
|
|
| 714 |
|
|
| 31 |
|
|
| 242 |
|
Accrued insurance premium |
|
| — |
|
|
| 328 |
|
|
| 374 |
|
|
| 546 |
|
Customer deposits |
|
| 82 |
|
|
| 21 |
| ||||||||
Other |
|
| 465 |
|
|
| 670 |
|
|
| 715 |
|
|
| 712 |
|
Total accrued liabilities |
| $ | 4,950 |
|
| $ | 7,538 |
|
| $ | 4,079 |
|
| $ | 4,744 |
|
Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 are included within accrued liabilities on the Consolidated Balance Sheets and were as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
Balance, beginning of period |
| $ | 1,498 |
|
| $ | 1,359 |
|
| $ | 1,308 |
|
| $ | 1,190 |
| ||||||||
Balance, January 1 |
| $ | 1,110 |
|
| $ | 1,308 |
| ||||||||||||||||
Provision for estimated warranty cost |
|
| 523 |
|
|
| 203 |
|
|
| 1,145 |
|
|
| 827 |
|
|
| 203 |
|
|
| 239 |
|
Warranty expenditures |
|
| (366 | ) |
|
| (182 | ) |
|
| (798 | ) |
|
| (637 | ) |
|
| (156 | ) |
|
| (163 | ) |
Balance, September 30 |
|
| 1,655 |
|
|
| 1,380 |
|
|
| 1,655 |
|
|
| 1,380 |
| ||||||||
Balance, March 31 |
|
| 1,157 |
|
|
| 1,384 |
| ||||||||||||||||
Less warranty accrual, long-term |
|
| 701 |
|
|
| 375 |
|
|
| 701 |
|
|
| 375 |
|
|
| 246 |
|
|
| 577 |
|
Total warranty accrual, current portion |
| $ | 954 |
|
| $ | 1,005 |
|
| $ | 954 |
|
| $ | 1,005 |
|
| $ | 911 |
|
| $ | 807 |
|
The Company’s Waterlase laser systems sold worldwide are covered by a warranty against defects in material and workmanship for a period of up to 16 months domestically and up to 28 months internationally, from the date of sale by the Company or a distributor to the end-user. The Company’s Diode systems sold worldwide are covered by a warranty against defects in material and workmanship for a period of up to 28 months from the date of sale by the Company or a distributor to the end-user.
NOTE 9—DEBT
The following table presents the details of the principal outstanding and unamortized discount (in thousands):
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Term loan |
| $ | 15,000 |
|
| $ | 12,500 |
|
| $ | 15,000 |
|
| $ | 15,000 |
|
Discount and debt issuance costs on term loan |
|
| (1,644 | ) |
|
| (1,664 | ) |
|
| (1,438 | ) |
|
| (1,534 | ) |
Total long-term debt, net |
| $ | 13,356 |
|
| $ | 10,836 |
| ||||||||
Total |
| $ | 13,562 |
|
| $ | 13,466 |
|
Pacific Mercantile Bank
On March 6, 2018, BIOLASE and two of its wholly-owned subsidiaries (such subsidiaries, together with BIOLASE,October 28, 2019, the “Borrower”)Company entered into the Business Financing Agreementa loan and security agreement (the “Business Financing“Loan Agreement”) with Western AlliancePacific Mercantile Bank, (“Western Alliance”as lender (the “Lender”). Pursuant to the terms and conditions of the Business Financing Agreement, Western Alliance agreed to provide the Borrower, which provides for a secured revolving line of credit permitting the Borrower(the “PMB Loan”) in a maximum principal amount not to borrow or receive letters of credit up toexceed the lesser of $6.0(i) $3 million (the “Domestic Revolver”) (subject to a $6.0 million credit limit relating to domestic eligible accounts receivable (the “Domestic Credit Limit”) and a $3.0 million credit limit relating to export-related (the “EXIM Revolver”) eligible accounts receivable (the “EXIM Credit Limit”)) and the borrowing base, which is defined asor (ii) the sum of 90% of the domestic borrowing base (up toEligible Accounts (as defined in the Loan Agreement) plus 75% of the Borrower’s eligible domestic accounts receivable less such reserves as Western Alliance may deem properEligible Inventory (as defined in the Loan Agreement, and necessary) andsubject to certain limitations set forth therein); provided that the export-related borrowing base (up to 85%maximum principal amount of the Borrower’s eligible export-related accounts receivable less such reservesPMB Loan may be reduced from time to time in the Lender’s good faith business judgment as Western Allianceset forth in the Loan Agreement. Borrowings under the PMB Loan may deem proper and necessary).be used for working capital. The Business FinancingPMB Loan matures on October 28, 2021, unless earlier terminated.
The Company’s obligations under the Loan Agreement was set to expire on March 6, 2020, and the Borrower’s obligations thereunder wereare secured by a security interest in substantially all of the Borrower’s assets.Company’s property. No borrowings may be made under the Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and the Company has entered into a borrower agreement with Exim Bank.
Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in the Wall Street Journal, plus 1.5% per annum; provided, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, the Company was required to pay an initial fee and is required to pay an annual fee of $52,500 as well as a termination fee equal to $30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.
The Business FinancingLoan Agreement requiredrequires the Company to maintain compliance with certain financial and non-financial covenants, as defined therein. Western Alliance hadunrestricted cash at the right to declare the amounts outstandingLender plus unused availability under the Business Financing Agreement immediately due and payable upon a default.
Amounts outstanding under the Business Financing Agreement bore interest at a per annum floating ratePMB Loan in an amount equal to at least the greater of 4.5% orBurn Rate. “Burn Rate” means the “Prime Rate” published in the Money Rates section of the Western Edition of The Wall Street Journal (or such other rate of interest publicly announced from time to time by Western Alliance as its “Prime Rate”), Company’s net profit/net loss plus 1.5% with respect to advances made under the line of credit, depreciation plus an additional 5.0% during any period that an event of default occurred and was continuing. The commitment fee under the Business Financing Agreement was 0.25% of the Domestic Credit Limit and 1.75% of the EXIM Credit Limit, payable on March 6, 2018 and each anniversary thereof.
Pursuant to the Business Financing Agreement, the Company paid the first of two annual commitment fees totaling $67,500, being 0.25% of the aggregate $6.0 million commitment for the Domestic Revolver and 1.75% of the aggregate $3.0 million commitment for the EXIM Revolver. The commitment fees and the legal costs associated with acquiring the credit facilities were capitalized and were amortized amortization plus stock-based compensation, measured on a straight-line basis as interest expense overtrailing three month basis. In addition, the termLoan Agreement contains customary affirmative and negative covenants for financings of the Business Financing Agreement.its type (subject to customary exceptions).
As additional consideration for the lines of credit, the Company also issued to Western Alliance warrants to purchase shares of its common stock (the “Original Western Alliance Warrants”). The fair value of the Original Western Alliance Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 10 years; volatility of 91.49%; annual dividend per share of $0.00; and risk-free interest rate of 2.88%; and resulted in an estimated fair value of $0.1 million, which was recorded as a liability and resulted in a discount to the credit facilities at issuance. The discount was expensed to interest expense at the time the Business Financing Agreement was terminated, as discussed below.
On August 13, 2018, the Borrower and Western Alliance entered into a Waiver and Business Financing Modification Agreement, pursuant to which Western Alliance waived certain of the Borrower’s covenants under the Business Financing Agreement and provided an advance of $1.5 million, which advance was due by September 27, 2018.
On September 27, 2018, the Borrower and Western Alliance entered into a second Business Financing Modification Agreement which reduced the credit limit under the Business Financing Agreement to $2.5 million and extended the due date of the $1.5 million advance to March 6, 2019. In connection with the agreement, the Original Western Alliance Warrants were terminated, and the Company issued to Western Alliance new warrants (the “Western Alliance Warrants”) to purchase up to 56,338 shares of the Company’s common stock. The Western Alliance Warrants are immediately exercisable and expire on September 27, 2028. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price less than the $2.13 per share exercise price.
On October 22, 2018, the Borrower and Western Alliance entered into a third Business Financing Modification Agreement, pursuant to which Western Alliance waived BIOLASE’s non-compliance with certain financial operating covenants as set forth in the Business Financing Agreement, and the Borrower agreed to certain amended covenants contained in the Business Financing Agreement, including a $300,000 minimum unrestricted cash balance covenant and a waiver of reporting items required to be delivered by BIOLASE to Western Alliance under the Business Financing Agreement.
On November 9, 2018, all outstanding borrowings, accrued interest and fees under the Business Financing Agreement were repaid with a portion of the proceeds under the Credit Agreement (as defined and described below), and the Business Financing Agreement was terminated. The Company recorded approximately $0.1 million of interest expense including unamortized debt issuance costs that were written-off upon extinguishment of the debt. As of September 30, 201931, 2020 and December 31, 2018,2019, the Western Alliance Warrants remainCompany had no borrowings outstanding and are classifiedunused availability under this credit facility of $3.0 million and $2.7 million, respectively. The Company was in equitycompliance with all debt covenants at March 31, 2020.
In April 2020, the Company drew $3.0 million under the PMB Loan. Additional information is discussed in the consolidated balance sheets.Note 15 – Subsequent Events.
Term Loan
On November 9, 2018, the Company entered into a five-year secured Credit Agreement (the “Credit(“Credit Agreement”) with SWK Funding LLC (“SWK”), pursuant to which the Company has borrowed $12.5 million (the “SWK(“SWK Loan”). The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s assets. Under the terms of the Credit Agreement, repayment of the loan is interest-only for the first two years, paid quarterly with the option to extend the interest-only period. Principal repayments will begin in the first quarter of 2021 and will be approximately $0.7 million quarterly until the loan matures in the fourth quarter of 2023. The loan bears interest at the London Interbank Bank Offered Rate (“LIBOR”) plus 10% or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. Approximately $0.9 million of the proceeds from the SWK Loan were used to pay off all amounts owed to Western Alliance Bank under the Business Financing Agreement. The Company plans to use the remaining proceeds to provide additional working capital to fund its growth initiatives, such as broadening its customer base and increasing the utilization of its products to drive recurring higher margin consumables revenue.business financing agreement entered into in 2018.
The Credit Agreement contains financial and non-financial covenants requiring the Company to, among other things, (i) maintain unencumbered liquid assets of (A) no less than $1.5 million or (B) the sum of aggregate cash flow from operations less capital expenditures, (ii) achieve certain revenue and EBITDA levels during the first two years of the loan, (iii) limit future borrowing, investments and dividends, and (iv) submit monthly and quarterly financial reporting.
In connection with the SWK Loan, the Company paid approximately $1.0 million in debt issuance costs, including a $0.2 million loan origination fee, a $0.4 million finder’s fee, and $0.4 million in legal and other fees. These costs were recognized as a discount on the SWK Loan and are being amortized on a straight-line basis over the loan term which approximates the effective-interest method.
The Company recognized approximately $0.6 and $1.6 million in interest expense relating to the SWK Loan for the three and nine-month periods ended September 30, 2019, respectively. The weighted-average interest rate for the three months ended September 30, 2019 was 12.7%.
As of March 31, 2019, the Company was not in compliance with certain covenants in the Credit Agreement. InAgreement and in May 2019, SWK granted the Company a waiver of such covenants through September 30, 2019.covenants. On May 7, 2019, the Company and SWK agreed to amend the Credit Agreement (the “First Amendment) to increase the total commitment from $12.5 million to $15.0 million, and to revise the financial covenants to (a) adjust minimum revenue and EBITDA levels, (b) require the Company to have a shelf registration statement declared effective by the SECSecurities and Exchange Commission before September 30, 2019, with a proposed maximum aggregate offering price of at least $10.0 million if the Company doesdid not reach set minimum revenue levels for the three-month period ended JuneSeptember 30, 2019, and (c) require minimum liquidity of $1.5 million at all times. The First Amendment providesprovided that if aggregate minimum revenue and EBITDA levels arewere not achieved by September 30, 2019, the minimum liquidity requirement willwould be increased to $3.0 million, until the Company has obtained additional equity or debt funding of no less than $5.0 million. In 2019, the Company obtained additional equity financing greater than $5.0 million. The Company borrowed the additional $2.5 million during the year ended December 31, 2019.
In connection with the amendment, the Company paid to SWK loan origination and other fees of approximately $0.1 million payable in cash and approximately $0.2 million in additional SWK Warrants (as defined below) to purchase the Company’s common stock. The Company paid an additional finder’s fee to Deal Partners Group (“DPG”) of approximately $0.1 million in cash and $0.1 million in additional DPG Warrants (as defined below) to purchase the Company’s common stock. The Company accounted for the First Amendment as a modification to existing debt and as a result, recognized the amounts paid to SWK in cash and SWK warrants as additional debt issuance costs. Amounts paid to DPG in cash and warrants relating to the First Amendment were expensed as incurred in the Company’s consolidated statement of operations for the three and nine months ended
On September 30, 2019.
On August 20, 2019, BIOLASE, Inc entered into a Letterthe Second Amendment to Credit Agreement (the “Letter Agreement”“Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among the Company, SWK, and the lender parties thereto. The Second Amendment amended the Credit Agreement. PursuantAgreement to provide for a permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in the Letter Agreement,Company’s inventory and accounts receivable, with a maximum principal amount of $5 million and with such other material terms and conditions acceptable to SWK in its commercially reasonable discretion. In addition, SWK agreed to waive the effect of the Company’s potential non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through September 30,October 31, 2019, or earlier in the event of the consummation of an additional secured financing or an event of default under the Credit Agreement.
On September 30, 2019, the Company agreed to further amend the Credit Agreement (the “Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among the Company, SWK, and the lender parties thereto. The Second Amendment provides for a revolving loan facility, secured by first lien security permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in the Company’s inventory and accounts receivable, with a maximum principal amount of $5 million. In addition, SWK agreed to waive the effect of the Company’s non-compliance through October 31, 2019, with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of the consummation of an additional equity or subordinated debt financing is consummated with gross proceeds of not less than $5 million, or anin the event of a default under the Credit Agreement.
On November 6, 2019, the Company agreed to further amend the Credit Agreement (the “Third Amendment”).Agreement. Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The price was adjusted to $1.00 and the impact of this was de minimis.
As of December 31, 2019, the Company was not in compliance with the covenants under the Credit Agreement, as amended, and on March 25, 2020, the Company agreed to further amend the Credit Agreement (“Fourth Amendment”). Pursuant to the Fourth Amendment to the Credit Agreement, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants contained in the Credit Agreement through March 31, 2020. Also pursuant to the Fourth Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) revise the financial covenant with respect to required unencumbered liquid assets.
The Company does not anticipate it will regain compliance with the financial covenants under the Credit Agreement by June 30, 2020 due to the uncertainty surrounding the impact of COVID-19 on its business. Therefore the Term Loan is classified as a current liability in the unaudited consolidated balance sheets.
The Company recognized approximately $0.6 million and $0.5 million in interest expense for the three months ending March 31, 2020 and 2019, respectively. The weighted-average interest rate as of March 31, 2020 was 12.25%.
Western Alliance Warrants
On March 6, 2018, the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the number of shares of common stock equal to $120,000 divided by the applicable exercise price at the time such warrants are exercised. The Original Western Alliance Warrants are fully vested and exercisable. The Original Western Alliance Warrants may be exercised with a cash payment from Western Alliance, or, in lieu of a cash payment, Western Alliance may convert the warrants into a number of shares, in whole or in part. The initial exercise price of the warrants was $2.35 per share. On September 27, 2018, the Company entered into the Second Modification Agreement to amend the Original Business Financing Agreement. In connection with the Second Modification Agreement, the Original Western Alliance Warrants were terminated, and the Company issued new warrants (the “Western Alliance Warrants”) to purchase up to the number of shares of common stock equal to $120,000 divided by the exercise price of $2.13, which was the closing price of the Company’s common stock on September 27, 2018. The Western Alliance Warrants are immediately exercisable and expire on September 27, 2028. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price.
In connection with the Credit Agreement, as amended, the Company issued warrants to SWK (the “SWK Warrants”) on November 9, 2018, to purchase up to 372,023 and on May 7, 2019, to purchase up to 115,175 shares of the Company’s common stock. The SWK Warrants are immediately exercisable and expire 7 years after the issuance date.on November 9, 2026. The exercise price of the SWK Warrants issued on November 9, 2018 is $1.34, and the exercise price of the SWK Warrants issued on May 7, 2019 is $2.17, both of which were based onwas the average closing price of the Company’s common stock for the ten trading days immediately preceding the issuance date.November 9, 2018. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the 372,023 SWK Warrants issued on November 9, 2018 was $0.4 million and estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. The; and resulted in an estimated fair value of the 115,175 SWK Warrants issued on May 7, 2019 was $0.2 million and estimated using a binomial option pricing model with the following assumptions: expected term of 8 years; volatility of 80.73%; annual dividend per share of $0.00; and a risk-free rate of 2.37%.$0.4 million.
In connection withNovember 2019, these warrants were consolidated and the Third Amendment,strike price was adjusted to $1.00, and in March 2020, the Companystrike price was adjusted a second time to $0.49. The impact of both reprice events was de minimis to the unaudited consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.
financial statements.
DPG Warrants
In connection with the SWK Loan, the Company paid a finder’s fee to DPGDeal Partners Group of $0.5$0.4 million cash and issued warrants (“the DPG warrants) on November 9, 2018 to purchase up to 279,851 shares of common stock and on May 7, 2019 to purchase up to 34,552 shares of the Company’s common stock.(the “DPG Warrants”). The DPG Warrants arewere issued on November 14, 2018, were exercisable immediately, and expire 7 years after the issuance date.on November 9, 2026. The exercise price of the DPG Warrants issued on November 9, 2018 is $1.34 and the exercise price of the DPG warrants issued on May 7, 2019 is $2.17, both of which were based onwas the average closing price of the Company’s common stock for the ten trading days immediately preceding the issuance date.November 9, 2018. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the 279,851 DPG Warrants issued on November 9, 2018 wasof $0.3 million was estimated using the Black Scholes option pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. The fair valueIn November 2019, the exercise price of the 34,552DPG Warrants issued on November 9, 2018 was adjusted from $1.34 per share to $0.8767 per share and the exercise price of the DPG Warrants issued on May, 7, 2019 was $0.1 million and estimated using a binomial option pricing model with the following assumptions: expected term of 8 years; volatility of 80.73%; annual dividendadjusted from $2.17 per share to $1.4197 per share. The impact of $0.00; and a risk-free rate of 2.37%.the reprice was de minimis to the unaudited consolidated financial statements.
The value of both of the SWK Warrants issued in 2018 and 2019 and the DPG Warrants issued in 2018, was recognized as a discount on the SWK Loan and isare being amortized on a straight-line basis which approximates the effective-interest method, over the loan term of five years. The value of the DPG Warrants issued in 2019 in connection with the First Amendment were expensed in the three-month period ended September 30, 2019.
Additionally, based on the adoption of ASU 2017-11 in the fourth quarter of 2018, these warrants are classified as equity in the consolidated Balance Sheetsbalance sheet as of September 30, 2019 and DecemberMarch 31, 2018.2020.
The future minimum principal and interest payments as of September 30, 2019March 31, 2020 are as follows (in thousands):
|
| Principal |
|
| Interest (1) |
|
| Principal |
|
| Interest (1) |
| ||||
2019 (three months) |
| $ | — |
|
| $ | 484 |
| ||||||||
2020 |
|
| — |
|
|
| 1,931 |
|
|
| — |
|
|
| 1,388 |
|
2021 |
|
| 2,100 |
|
|
| 1,848 |
|
|
| 2,100 |
|
|
| 1,793 |
|
2022 |
|
| 2,800 |
|
|
| 1,517 |
|
|
| 2,800 |
|
|
| 1,472 |
|
2023 |
|
| 10,100 |
|
|
| 1,063 |
|
|
| 10,100 |
|
|
| 2,455 |
|
Total future payments |
| $ | 15,000 |
|
| $ | 6,843 |
|
| $ | 15,000 |
|
| $ | 7,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) estimated using LIBOR rates as at September 30, 2019 |
|
|
|
|
|
|
|
| ||||||||
(1) estimated using LIBOR rates as at March 31, 2020 |
|
|
|
|
|
|
|
|
The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from one to five years, and often include options to renew for one year. On January 1, 2019, the Company adopted Topic 842, using the modified-retrospective approach as discussed in Note 2, and as a result recognized a right-of-use asset of approximately $0.8 million as adjusted for deferred rent at the date of adoption of $0.2 million, and a lease liability of approximately $1.0 million. No cumulative-effect adjustment to retained earnings was required upon adoption of Topic 842. Right-of-use assets are recorded in OtherPrepaid and other assets and lease liabilities are included in Accrued liabilities or Other liabilities depending on whether they are current or noncurrent. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate (“IBR”) to determine the present value of the lease payments and on the date of adoption, the Company determined its IBR to be 12.78%. This rate was based on the Company’s financing of the SWK Loan which is a collateralized loan, and was based on prevailing market rates during the fourth quarter of 2018.
Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
|
| Nine Months Ended |
|
| Three Months Ended, |
| ||
|
| September 30, 2019 |
|
| March 31, 2020 |
| ||
Cash paid for operating lease liabilities |
| $ | 606 |
|
| $ | 192 |
|
Right-of-use assets obtained in exchange for new operating lease obligations |
|
| 803 |
|
|
| — |
|
Weighted-average remaining lease term |
| 1.4 years |
|
|
| — |
| |
Weighted-average discount rate |
|
| 12.8 | % |
|
| 0.0 | % |
The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets.
Maturities of lease liabilities as of September 30, 2019March 31, 2020 for leases that have commenced were as follows (in thousands):
Due in 12 month period ended September 30, |
|
|
|
| ||||
Due in 12 month period ended March 31, |
|
|
|
| ||||
2020 |
| $ | 484 |
|
| $ | 138 |
|
2021 |
|
| 45 |
|
|
| 7 |
|
Thereafter |
|
| — |
|
|
| — |
|
|
| $ | 529 |
|
| $ | 145 |
|
Less imputed interest |
|
| (38 | ) |
|
| (5 | ) |
Total lease liabilities |
| $ | 491 |
|
| $ | 140 |
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
|
| 476 |
|
|
| 140 |
|
Non-current lease liabilities |
|
| 15 |
|
|
| — |
|
Total lease liabilities |
| $ | 491 |
|
| $ | 140 |
|
As of September 30, 2019,March 31, 2020, right-of-use assets were $0.4$0.1 million and lease liabilities were $0.6$0.1 million. During the three and nine months ended September 30, 2019,March 31, 2020, the Company did not enterentered into anytwo new real property leases which will commence in July 1, 2020. The Company expects to recognize a right-of-use asset and an offsetting lease arrangements, nor did it have any arrangements that had not commenced.liability in the amount of $1.8 million in the unaudited consolidated balance sheet upon lease commencement.
Future minimum rental commitments under lease agreements, as of September 30, 2019,March 31, 2020, with non-cancelable terms greater than one year for each of the periodsyears ending September 30,December 31 are as follows (in thousands):
|
| Period Ended September 30, 2019 |
| |
2019 (three months) |
| $ | 192 |
|
2020 |
|
| 314 |
|
2021 |
|
| 23 |
|
2022 and thereafter |
|
| — |
|
Total future minimum lease obligations |
| $ | 529 |
|
|
| Year Ended |
| |
|
| December 31, |
| |
2020 (nine months) |
| $ | 217 |
|
2021 |
|
| 448 |
|
2022 |
|
| 481 |
|
2023 |
|
| 492 |
|
2024 |
|
| 503 |
|
2025 and thereafter |
|
| 462 |
|
Total future minimum lease obligations |
| $ | 2,603 |
|
NOTE 11— COMMITMENTS AND CONTINGENCIES
On April 24, 2012, CAO Group, Inc. (“CAO”) filed a lawsuit against BIOLASE in the District of Utah alleging that BIOLASE’s ezlase dental laser infringes on U.S. Patent No. 7,485,116 (the “116 Patent”). On September 9, 2012, CAO amended its complaint, adding claims for (1) business disparagement/injurious falsehood under common law and (2) unfair competition under 15 U.S.C. Section 1125(a). The additional claims stem from a press release that BIOLASE issued on April 30, 2012, which CAO claims contained false statements that are disparaging to CAO and its diode product. The amended complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. Until January 24, 2018, this lawsuit was stayed in connection with United States Patent and Trademark Office proceedings relating to the 116 Patent, which proceedings ultimately culminated in a January 27, 2017 decision by the United States Court of Appeals for the Federal Circuit, affirming the findings of the Patent Trial and Appeal Board, which were generally favorable to the Company. On January 25, 2018, CAO moved for leave to file a second amended complaint to add certain claims, which filing the Company is not opposing.
On January 23, 2018, CAO filed a lawsuit against BIOLASE in the Central District of California alleging that BIOLASE’s diode lasers infringe on U.S. Patent Nos. 8,337,097, 8,834,497, 8,961,040 and 8,967,883. The complaint seeks injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest.
On January 25, 2019 (the “Effective Date”), BIOLASE entered into a settlement agreement (the “Settlement Agreement”) with CAO. Pursuant to the Settlement Agreement, CAO agreed to dismiss with prejudice the lawsuits filed by CAO against the Company in April 2012 and January 2018. In addition, CAO granted to the Company and its affiliates a non-exclusive, non-transferable (except as provided in the Settlement Agreement), royalty-free, fully-paid, worldwide license to the licensed patents for use in the licensed products and agreed not to sue the Company, its affiliates or any of its manufacturers, distributors, suppliers or customers for use of the licensed patents in the licensed products, and the parties agreed to a mutual release of claims. The Company has agreed (i) to pay to CAO, within five days of the Effective Date, $500,000 in cash, (ii) to issue to CAO, within 30 days of the Effective Date, 500,000 restricted shares of common stock of the Company (the “Stock Consideration”), and (iii) to pay to CAO, within 30 days of December 31, 2021, an amount in cash equal to the difference (if positive) between $1,000,000 and the value of the Stock Consideration on December 31, 2021. The Stock Consideration vests and becomes transferrable on December 31, 2021, subject to the terms of a restricted stock agreement to be entered into between the parties. The Company considered this a Type I subsequent event and recognized a $1.5 million contingent loss on patent litigation settlement in its statement of operations for the year ended December 31, 2018. In January 2019, the Company paid CAO $500,000 in cash. On January 31, 2019, the case was dismissed with prejudice. During the three and nine month periodsthree-month period ended September 30,March 31, 2019, the Company did not record any gain orrecorded an additional loss on patent litigation of $0.2 million which representsrepresented the change in fair value of the restricted stock to be issued to CAO.CAO at March 31, 2019. Subsequent to March 31,2019, the Company reversed the additional loss commensurate with the fluctuations in the Company’s share price. As of September 30,March 31, 2020 and December 31, 2019, the total accrued liability isrelating to this agreement was $1.0 million and is included in other long-term liabilities in the consolidated balance sheet.million.
The Company currently operates in a single business segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. For the three and nine months ended September 30, 2019,March 31, 2020, sales to customers in the United States accounted for approximately 57% and 61%65% of net revenue respectively, and international sales accounted for approximately 43% and 39%35% of net revenue, respectively. No individual country, other than the United States, represented more than 10% of total net revenue during the three and nine months ended September 30, 2019March 31, 2020 or 2018.2019.
Net revenue by geographic location based on the location of customers was as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
United States |
| $ | 4,949 |
|
| $ | 6,953 |
|
| $ | 16,962 |
|
| $ | 19,810 |
|
| $ | 3,129 |
|
| $ | 6,116 |
|
International |
|
| 3,697 |
|
|
| 3,983 |
|
|
| 10,655 |
|
|
| 13,300 |
|
|
| 1,654 |
|
|
| 4,210 |
|
|
| $ | 8,646 |
|
| $ | 10,936 |
|
| $ | 27,617 |
|
| $ | 33,110 |
|
| $ | 4,783 |
|
| $ | 10,326 |
|
Property, plant, and equipment by geographic location was as follows (in thousands):
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
United States |
| $ | 1,060 |
|
| $ | 1,673 |
|
| $ | 742 |
|
| $ | 908 |
|
International |
|
| 280 |
|
|
| 302 |
|
|
| 275 |
|
|
| 285 |
|
|
| $ | 1,340 |
|
| $ | 1,975 |
|
| $ | 1,017 |
|
| $ | 1,193 |
|
NOTE 13—CONCENTRATIONS
Revenue from the Company’s products for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 are as follows (dollars in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||
Laser systems |
| $ | 5,167 |
|
|
| 59.8 | % |
| $ | 7,055 |
|
|
| 64.5 | % |
| $ | 16,047 |
|
|
| 58.1 | % |
| $ | 20,678 |
|
|
| 62.5 | % |
| $ | 2,051 |
|
|
| 42.9 | % |
| $ | 5,964 |
|
|
| 57.8 | % |
Imaging systems |
|
| 4 |
|
|
| — | % |
|
| 382 |
|
|
| 3.5 | % |
|
| 619 |
|
|
| 2.2 | % |
|
| 1,336 |
|
|
| 4.0 | % |
|
| — |
|
|
| — | % |
|
| 552 |
|
|
| 5.3 | % |
Consumables and other |
|
| 1,478 |
|
|
| 17.1 | % |
|
| 1,902 |
|
|
| 17.4 | % |
|
| 5,678 |
|
|
| 20.6 | % |
|
| 6,239 |
|
|
| 18.9 | % |
|
| 1,472 |
|
|
| 30.8 | % |
|
| 2,112 |
|
|
| 20.5 | % |
Services |
|
| 1,994 |
|
|
| 23.1 | % |
|
| 1,594 |
|
|
| 14.6 | % |
|
| 5,264 |
|
|
| 19.1 | % |
|
| 4,848 |
|
|
| 14.6 | % |
|
| 1,260 |
|
|
| 26.3 | % |
|
| 1,695 |
|
|
| 16.4 | % |
License fees and royalties |
|
| 3 |
|
|
| — | % |
|
| 3 | �� |
|
| — | % |
|
| 9 |
|
|
| — | % |
|
| 9 |
|
|
| — | % |
|
| — |
|
|
| — | % |
|
| 3 |
|
|
| — | % |
Net revenue |
| $ | 8,646 |
|
|
| 100.0 | % |
| $ | 10,936 |
|
|
| 100.0 | % |
| $ | 27,617 |
|
|
| 100.0 | % |
| $ | 33,110 |
|
|
| 100.0 | % | ||||||||||||||||
Total revenue |
| $ | 4,783 |
|
|
| 100.0 | % |
| $ | 10,326 |
|
|
| 100.0 | % |
No individual customer represented more than 10% of the Company’s net revenue for the three and nine months ended September 30, 2019March 31, 2020 or 2018.2019.
The Company maintains its cash and cash equivalent accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.
There were noOne individual customers thatcustomer represented more than 10% of the Company’s accounts receivable at September 30, 2019,March 31, 2020 and one individual customer that represented more than 10% of the Company’s accounts receivable at December 31, 2018.2019.
The Company currently purchases certain key components of its products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause delays in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, results of operations and financial condition.
NOTE 14—INCOME TAXES
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest and penalties as a component of its income tax provision. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did not record a liability for unrecognized tax benefits for the three and nine months ended September 30, 2019March 31, 2020 and 2018.2019. The Company does not expect any changes to its unrecognized tax benefit for the next 12 months that would materially impact its consolidated financial statements.
During the three and nine months ended September 30,March 31, 2020 and March 31, 2019, the Company recorded an income tax benefit of $19,000 and a provision of $26,000 and $68,000,$15,000, respectively, resulting in an effective tax rate of 0.02%0.2% and 0.3%, respectively. During the three and nine months ended September 30, 2018, the Company recorded an income tax provision of $49,000 and $91,000, respectively, resulting in an effective tax rate of 0.5% and 0.6%, respectively. The income tax provisions for the three and nine months ended September 30,March 31, 2020 and 2019 were calculated using the discrete year-to-date method. The effective tax rate differs from the statutory tax rate of 21% primarily due to the existence of valuation allowances against net deferred tax assets and current liabilities resulting from the estimated state income tax liabilities and foreign tax liability.
NOTE 15—SUBSEQUENT EVENT
Paycheck Protection Program Loan
On April 14, 2020, Biolase, Inc., was granted a loan from Pacific Mercantile Bank in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020.
The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by the Company, matures on April 13, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, amounts spent on authorized purchases over eight weeks after receiving the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
NOTE 15—SUBSEQUENT EVENTSRevolving Credit Facility
Public Offering and Concurrent Private Placement
On October 29, 2019, BIOLASE sold 7,820,000 shares of its common stock in an underwritten public offering (the “Public Offering”) at a public offering price of $0.5750 per share and received net proceeds of approximately $4.2 million, after deducting underwriting discounts, but before deducting other fees and expenses. The Company granted the underwriters of the Public Offering an over-allotment option to purchase up to an additional 1,173,000 shares of common stock at the public offering price, less the underwriting discount, which the underwriters exercised on November 5, 2019, for which it received approximately $0.6 million, after deducting underwriting discounts.Concurrently with the Public Offering, the company sold to certain existing shareholders an aggregate of 69,565 shares of Series E Participating Convertible Preferred Stock, par value $0.001 per share, at a per share price of $57.50 in a private placement, and received gross proceeds of approximately $4.0 million, before deducting fees and expenses. Each share of Series E Preferred Stock will be convertible into 100 shares of common stock reflecting a conversion price equal to $0.5750 per share, subject to customary anti-dilution adjustments. The shares of Series E Participating Convertible Preferred Stock automatically convert into shares of common stock upon a stockholder vote to approve an amendment of BIOLASE’s charter to increase the number of authorized shares of BIOLASE common stock and satisfy Nasdaq requirements with respect to the issuance of common stock upon conversion of the Series E Participating Convertible Preferred Stock.
On November 5, 2019, the underwriters exercised their over-allotment option andIn April 2020, the Company issued an additional 1.1borrowed $3.0 million shares for gross proceeds of approximately $0.6 million.
On October 28, 2019, BIOLASE entered into the Loan Agreement with Pacific Mercantile Bank, as Lender, which provides for the PMB Loan, a revolving line of credit in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated.
BIOLASE’s obligations under the Loan Agreement are secured by a security interest in substantially all of BIOLASE’s property. No borrowings may be made under the Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and BIOLASE has entered into a borrower agreement with Exim Bank. Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in The Wall Street Journal, plus 1.5% per annum; provided, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, BIOLASE is required to pay an initial and annual fee of $52,500 to Exim Bank, as well as a termination fee equal to $30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.
The Loan Agreement requires BIOLASE to maintain unrestricted cash at Lender plus unused availability under the PMB Loan in an amount equal to at least the Burn Rate (as defined in the Loan Agreement). In addition, the Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions). Upon the occurrence and during the continuation of an event of default (as described in the Loan Agreement), Lender may exercise any remedies available to it, including accelerating the repayment of the PMB Loan.
SWK Loan Amendment
On November 6, 2019, the Company agreed to further amend the Credit Agreement. Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.
The following information should be read in conjunction with the unaudited consolidated financial statements and related notes of BIOLASE, Inc. (“BIOLASE”) and its consolidated subsidiaries (together with BIOLASE, the “Company,” “we,” “our,” or “us”) included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and our audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (the “SEC”) on March 8, 201930, 2020 (the “2018“2019 Form 10-K”). In addition to historical information, this discussion and analysis contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements, predictions, or expectations regarding market opportunities, our plans to expand our product linefuture products and clinical applications, plans to exploreservices and enhancements of existing products and services, potential collaborations, statements regarding the effects of seasonality on revenue, operating expenses, anticipatedour use of proceeds from debt financing,the PPP Loan (as defined below), seasonality and the reasons therefor, operating and other expenses, anticipated cash needs, needs for additional financing,our strategy and any other statement that is not historical fact. Forward-looking statements are identified by the use of words such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “continue,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “outlook,” “potential,” “plan,” “seek,” and similar expressions and variations or the negatives of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-Q are based on the expectations, estimates, projections, beliefs, and assumptions of our management based on information available to management as of the date on which this Form 10-Q was filed with the SEC, 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:
losses that we have experienced and doubt about our ability to continue as a going concern as of March 31, 2020;
the coronavirus outbreak, the effects of the COVID-19 pandemic and the actions taken to contain it;
uncertainty around forgiveness of the PPP Loan;
global economic uncertainty and volatility in financial markets;
inability to raise additional capital on terms acceptable to us;
our relationships with, and the efforts of, third-party distributors;
failure in our efforts to train dental practitioners or to overcome the hesitation of dentists and patients to adopt laser technologies;
inconsistencies between future data and our clinical results;
competition from other companies, including those with greater resources;
our inability to successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others;
the inability of our customers to obtain third-party reimbursement for their use of our products;
limitations on our ability to use net operating loss carryforwards;
problems in manufacturing our products;
warranty obligations if our products are defective;
adverse publicity regarding our technology or products;
adverse events to our patients during the use of our products, regardless of whether caused by our products;
issues with our suppliers, including the failure of our suppliers to supply us with a sufficient amount or adequate quality of materials;
|
|
rapidly changing standards and competing technologies;
our inability to effectively manage and implement our growth strategies;
risks associated with operating in international markets, including potential liabilities under the Foreign Corrupt Practices Act;
breaches of our information technology systems;
seasonality;
litigation, including the failure of our insurance policies to cover certain expenses relating to litigation and our inability to reach a final settlement related to certain litigation;
disruptions to our operations at our primary facility;
loss of our key management personnel or our inability to attract or retain qualified personnel;
risks and uncertainties relating to acquisitions, including difficulties integrating acquired businesses successfully into our existing operations and risks of discovering previously undisclosed liabilities;
continued failure to meet covenants in the Credit Agreement dated as of November 9, 2018 (as amended from time to time, the “Credit Agreement”), by and between BIOLASE and SWK Funding, LLC and related risks of foreclosure triggered by an event of default under the Credit Agreement;
interest rate risk, which could result in higher expense in the event of interest rate increases;
failure to comply with the reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 404 of the Sarbanes-Oxley Act of 2002, as amended or maintain adequate internal control over financial reporting;
climate change initiatives;
failure of our intellectual property rights to adequately protect our technologies and potential third-party claims that our products infringe their intellectual property rights;
changes in government regulation or the inability to obtain or maintain necessary governmental approvals;
our failure to comply with existing or new laws and regulations, including fraud and abuse and health information privacy and securities laws;
changes in the regulatory requirements of the Food and Drug Administration (“FDA”) applicable to laser products, dental devices, or both;
recall or other regulatory action concerning our products after receiving FDA clearance or approval;
our failure to comply with continued listing requirements of the Nasdaq Capital Market; and
risks relating to ownership of our common stock, including low liquidity, low trading volume, high volatility and dilution.
Further information about factors that could materially affect the Company, including our results of operations and financial condition, is contained under “Risk Factors” in Item 1A in the 20182019 Form 10-K and in Item 1A to this Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise.
We are a medical device company that develops, manufactures, markets, and sellsleading provider of advanced laser systems in dentistryfor the dental industry. We develop, manufacture, market, and medicine.sell laser systems that provide significant benefits for dental practitioners and their patients. Our products advance the practice of dentistry and medicine for patients and health care professionals. Our proprietary dental laser systems allow dentists, periodontists, endodontists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. Our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. We have clearance fromPotential 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 FDAability to marketperform a higher volume and sell our laser systems in the United Stateswider variety of procedures and also have the necessary registration to market and sell our laser systems in Canada, the European Union, and many other countries outside the United States. Additionally, our in-licensed imaging equipment and related products improve diagnoses, applications, and procedures in dentistry and medicine.generate more patient referrals.
We offer two categories of laser system products: Waterlase (all-tissue) systems and Diodediode (soft-tissue) systems. Our flagship brand, the Waterlase, uses a patented combination of water and laser energy and is FDA cleared for over 80 clinical indications to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. For example, Waterlase safely debrides implants without damaging or significantly affecting surface temperature and is the only effective, safe solution to preserving sick implants. In addition, Waterlase disinfects root canals more efficiently than some traditional chemical methods. We also offer our Diodediode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. WeAs of March 31, 2020 we have approximately 144261 issued and 7952 pending U.S.United States and international patents, the majority of which are related to Waterlase technology. From 1998 through September 30, 2019,March 31, 2020, we sold over 40,00041,200 laser systems in over 80 countries around the world. Contained in this total are approximately 13,20013,400 Waterlase systems, including over 9,0008,900 Waterlase MD, MDX, Express and iPlus systems.
Consistent with our goal to focus our energies on strengthening our leadership, and worldwide competitiveness and increasing the amount of attention we pay to our professional customers and their patients, we have made strategic personnel additions to our senior management team.
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.
Recent Developments
Impact of Coronavirus (COVID-19) on Our Operations
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures have included dental office closures worldwide for all but emergency procedures, for the most part. The ability of our salespeople to call on dental customers during these closures has been greatly limited. In addition, most dental shows and workshops scheduled in the first and second quarters of 2020 have been canceled. As a result of reduced sales due to the COVID-19 pandemic and actions taken to contain it, cash generated from our operations during the first quarter of 2020 were negatively impacted. The full impact of the COVID-19 outbreak continues to evolve and the full magnitude that the pandemic may have on our financial condition, liquidity, and future results of operations remains uncertain. There is no assurance that sales will return to normal levels during the second quarter of 2020 or at any time thereafter.
Paycheck Protection Program Loan
On April 14, 2020, BIOLASE was granted a loan from Pacific Mercantile Bank (the “PPP Loan”) in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid Relief and Economic Securities (CARES) Act, which was enacted March 27, 2020.
The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by the Company, matures on April 13, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, amounts spent on authorized purchases over eight weeks after receiving the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
Recent DevelopmentsSWK Fourth Amendment
On November 9, 2018, weAs of December 31, 2019, the Company was not in compliance with its debt covenants under its credit agreement (as amended) with SWK Funding, LLC. In March 2020, the Company entered into a five-year securedFourth Amendment to its Credit Agreement (the “Credit Agreement”) with SWK Funding, LLC (“SWK”), pursuantSWK. Under this Amendment, the financial covenant is amended to whichrequire consolidated unencumbered liquid assets of no less than $3.0 million as of any date of determination. The amendment also adjusted the Minimum Aggregate Revenue requirements.
Revolving Credit Facility
In April 2020, the Company has borrowed $12.5$3.0 million (the “SWK Loan”). On May 7, 2019, we entered into an amendment to our Credit Agreement (“First Amendment” with SWK Funding LLC to increase the total commitment in the SWK Loan, as defined and described in Part I, Item I, Note 9 – Debt, from $12.5 million to $15.0 million and to revise certain of the financial covenants. Also on May 7, 2019 in connection with such amendment, we issued warrants to purchase up to 115,175 shares of BIOLASE common stock to SWK Funding LLC and warrants to purchase up to 34,552 shares of BIOLASE common stock to Deal Partners Group. See Part I, Item I, Note 9 - Debt for additional information.
On August 20, 2019, we entered into a Letter Agreement (the “Letter Agreement”) with SWK, in connection with the Credit Agreement. Pursuant to the Letter Agreement, SWK agreed to waive the effect of our potential non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through September 30, 2019, or earlier in the event of the consummation of an additional secured financing or an event of default under the Credit Agreement.
On September 30, 2019, we agreed to further amend the Credit Agreement (the “Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among us, SWK, and the lender parties thereto. The Second Amendment provides for a revolving loanits credit facility secured by first lien security permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in our inventory and accounts receivable, with a maximum principal amount of $5 million. In addition, SWK agreed to waive the effect of our non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of the consummation of an additional equity or subordinated debt financing with gross proceeds of not less than $5 million or an event of a default under the Credit Agreement.
On October 28, 2019, BIOLASE entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank as lender (“Lender”), which provides for a revolving line of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated. See “Liquidity and Capital Resources” for additional detail..
On October 29, 2019
Portable Ventilator Partnership
In April, 2020, the Company successfully consummatedentered into a partnership with an underwritten public offering of BIOLASE common stock and a concurrent private placement of BIOLASE Series E Participating Convertible Preferred Stock, resulting in net proceeds of approximately $7.8 million after deducting underwriter discounts and other fees and expenses. On November 5, 2019, the underwriters exercised their over-allotment option and the Company issued an additional 1.1 million shares for gross proceeds of approximately $0.6 million. See Part I, Item I, Note 15 for additional information.intensive care equipment manufacturer to supply ICU-grade portable ventilators through BIOLASE’s FDA-registered manufacturing facility.
On November 6, 2019, the Company agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). Also on November 6, 2019 in connection with such amendment, we consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.
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 20182019 Form 10-K. There have been no significant changes during the ninethree months ended September 30, 2019March 31, 2020 in our critical accounting policies from those disclosed in Item 7 of the 20182019 Form 10-K.
Effective May 10, 2018, the Company effectuated a one-for-five reverse stock split (the “Reverse Stock Split”). In connection with the Reverse Stock Split, the number of authorized shares of BIOLASE common stock was reduced from 200,000,000 shares to 40,000,000 shares. All prior period share and per share amounts (including exercises and closing market prices) contained in this discussion have been adjusted to reflect the impact of the Reverse Stock Split.
Results of Operations
The following table sets forth certain data from our unaudited consolidated statements of operations expressed as percentages of net revenue (in thousands):revenue:
|
| Three Months Ended |
|
|
| Nine Months Ended |
|
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||
|
| September 30, |
|
|
| September 30, |
|
|
| March 31, |
| March 31, | ||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
|
| 2018 |
|
|
| 2019 |
|
|
| 2018 |
|
|
| 2020 |
| 2019 | ||||||||||||||||||||||||||||||||||
Net revenue |
|
| 8,646 |
|
|
| 100.0 |
| % |
|
| 10,936 |
|
|
| 100.0 |
| % |
|
| 27,617 |
|
|
| 100.0 |
| % |
|
| 33,110 |
|
|
| 100.0 |
| % | ||||||||||||||||||
Products and services |
| $ | 4,783 |
|
|
| 100.0 |
| % |
| $ | 10,326 |
|
|
| 100.0 |
| % | ||||||||||||||||||||||||||||||||||||
Cost of revenue |
|
| 5,677 |
|
|
| 65.7 |
| % |
|
| 6,995 |
|
|
| 64.0 |
| % |
|
| 17,746 |
|
|
| 64.3 |
| % |
|
| 21,828 |
|
|
| 65.9 |
| % |
|
| 3,430 |
|
|
| 71.7 |
| % |
|
| 6,804 |
|
|
| 65.9 |
| % |
Gross profit |
|
| 2,969 |
|
|
| 34.3 |
| % |
|
| 3,941 |
|
|
| 36.0 |
| % |
|
| 9,871 |
|
|
| 35.7 |
| % |
|
| 11,282 |
|
|
| 34.1 |
| % |
|
| 1,353 |
|
|
| 28.3 |
| % |
|
| 3,522 |
|
|
| 34.1 |
| % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
| 3,515 |
|
|
| 40.7 |
| % |
|
| 4,489 |
|
|
| 41.0 |
| % |
|
| 10,665 |
|
|
| 38.6 |
| % |
|
| 13,037 |
|
|
| 39.4 |
| % |
|
| 2,704 |
|
|
| 56.5 |
| % |
|
| 3,879 |
|
|
| 37.6 |
| % |
General and administrative |
|
| 3,210 |
|
|
| 37.1 |
| % |
|
| 2,685 |
|
|
| 24.6 |
| % |
|
| 8,114 |
|
|
| 29.4 |
| % |
|
| 8,691 |
|
|
| 26.2 |
| % |
|
| 3,010 |
|
|
| 62.9 |
| % |
|
| 2,393 |
|
|
| 23.2 |
| % |
Engineering and development |
|
| 1,126 |
|
|
| 13.0 |
| % |
|
| 1,277 |
|
|
| 11.7 |
| % |
|
| 3,665 |
|
|
| 13.3 |
| % |
|
| 3,927 |
|
|
| 11.9 |
| % |
|
| 991 |
|
|
| 20.7 |
| % |
|
| 1,424 |
|
|
| 13.8 |
| % |
Change in fair value of patent litigation settlement liability |
|
| — |
|
|
| 0.0 |
| % |
|
| 190 |
|
|
| 1.8 |
| % | ||||||||||||||||||||||||||||||||||||
Total operating expenses |
|
| 7,851 |
|
|
| 90.8 |
| % |
|
| 8,451 |
|
|
| 77.3 |
| % |
|
| 22,444 |
|
|
| 81.3 |
| % |
|
| 25,655 |
|
|
| 77.5 |
| % |
|
| 6,705 |
|
|
| 140.2 |
| % |
|
| 7,886 |
|
|
| 76.4 |
| % |
Loss from operations |
|
| (4,882 | ) |
|
| (56.5 | ) | % |
|
| (4,510 | ) |
|
| (41.3 | ) | % |
|
| (12,573 | ) |
|
| (45.5 | ) | % |
|
| (14,373 | ) |
|
| (43.4 | ) | % |
|
| (5,352 | ) |
|
| (111.9 | ) | % |
|
| (4,364 | ) |
|
| (42.3 | ) | % |
Non-operating loss |
|
| 570 |
|
|
| 6.6 |
| % |
|
| 106 |
|
|
| 1.0 |
| % |
|
| 1,627 |
|
|
| 5.9 |
| % |
|
| 133 |
|
|
| 0.4 |
| % | ||||||||||||||||||
Non-operating loss, net |
|
| 673 |
|
|
| 14.1 |
| % |
|
| 521 |
|
|
| 5.0 |
| % | ||||||||||||||||||||||||||||||||||||
Loss before income taxes |
|
| (5,452 | ) |
|
| (63.1 | ) | % |
|
| (4,616 | ) |
|
| (42.3 | ) | % |
|
| (14,200 | ) |
|
| (51.4 | ) | % |
|
| (14,506 | ) |
|
| (43.8 | ) | % |
|
| (6,025 | ) |
|
| (126.0 | ) | % |
|
| (4,885 | ) |
|
| (47.3 | ) | % |
Income tax provision |
|
| 26 |
|
|
| 0.3 |
| % |
|
| 49 |
|
|
| 0.4 |
| % |
|
| 68 |
|
|
| 0.2 |
| % |
|
| 91 |
|
|
| 0.3 |
| % |
|
| (19 | ) |
|
| (0.4 | ) | % |
|
| 15 |
|
|
| 0.1 |
| % |
Net loss |
| $ | (5,478 | ) |
|
| (63.3 | ) | % |
| $ | (4,665 | ) |
|
| (42.7 | ) | % |
| $ | (14,268 | ) |
|
| (51.7 | ) | % |
| $ | (14,597 | ) |
|
| (44.1 | ) | % |
| $ | (6,006 | ) |
|
| (125.6 | ) | % |
| $ | (4,900 | ) |
|
| (47.4 | ) | % |
Non-GAAP Disclosure
In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results and that, in some respects, these non-GAAP financial measures are more indicative of the Company’sour ongoing core operating performance than their GAAP equivalents.performance. In 2019, the Companywe revised itsour non-GAAP financial measures to include the change in allowance for doubtful accounts in an effort to better align its Adjusted EBITDA with our loan covenants and how management evaluates business performance. Prior year non-GAAP disclosures have been revised to conform to the current definition of Adjusted EBITDA.
Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in this Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Companyus may be different from similarly named non-GAAP financial measures used by other companies.
Non-GAAP Net Loss
Adjusted EBITDA
Management uses Adjusted EBITDA in its evaluation of the Company’sour core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation and amortization, stock-based compensation, and allowance for doubtful accounts.accounts and the change in fair value of our patent litigation settlement liability. Management uses adjusted EBITDA in its evaluation of the Company’sour core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Companyus may be different from similarly named non-GAAP financial measures used by other companies.
The following table contains a reconciliation of non-GAAP net lossAdjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||
GAAP net loss attributable to common stockholders |
| $ | (5,478 | ) |
| $ | (4,665 | ) |
| $ | (14,268 | ) |
| $ | (14,597 | ) |
| $ | (6,006 | ) |
| $ | (4,900 | ) |
Deemed dividend on convertible preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
GAAP net loss |
| $ | (5,478 | ) |
| $ | (4,665 | ) |
| $ | (14,268 | ) |
| $ | (14,597 | ) |
| $ | (6,006 | ) |
| $ | (4,900 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| 551 |
|
|
| 33 |
|
|
| 1,559 |
|
|
| 80 |
|
|
| 589 |
|
|
| 478 |
|
Income tax provision |
|
| 26 |
|
|
| 49 |
|
|
| 68 |
|
|
| 91 |
| ||||||||
Income tax (benefit) provision |
|
| (19 | ) |
|
| 15 |
| ||||||||||||||||
Depreciation and amortization |
|
| 268 |
|
|
| 202 |
|
|
| 754 |
|
|
| 712 |
|
|
| 177 |
|
|
| 258 |
|
Change in fair value of patent litigation settlement liability |
|
| — |
|
|
| 190 |
| ||||||||||||||||
Change in allowance for doubtful accounts |
|
| 1,131 |
|
|
| 87 |
|
|
| 1,243 |
|
|
| 316 |
|
|
| 987 |
|
|
| — |
|
Stock-based compensation |
|
| 770 |
|
|
| 604 |
|
|
| 1,974 |
|
|
| 1,862 |
| ||||||||
Stock-based and other non-cash compensation |
|
| 719 |
|
|
| 757 |
| ||||||||||||||||
Adjusted EBITDA |
| $ | (2,732 | ) |
| $ | (3,690 | ) |
| $ | (8,670 | ) |
| $ | (11,536 | ) |
| $ | (3,553 | ) |
| $ | (3,202 | ) |
Comparison of Results of Operations
Three months ended September 30,March 31, 2020 and 2019 and 2018
Net Revenue: The following table summarizes our unaudited net revenues by category, including each category’s percentage of our total revenue, for the three months ended September 30,March 31, 2020 and March 31, 2019, and 2018, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
| Three Months Ended |
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| March 31, |
| March 31, | ||||||||||||||||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| 2020 |
| 2019 | ||||||||||||||||||||||||||
Laser systems | $ | 5,167 |
|
|
| 59.8 |
| % |
| $ | 7,055 |
|
|
| 64.5 |
| % |
| $ | (1,888 | ) |
|
| (26.8 | ) |
| $ | 2,051 |
|
|
| 42.9 |
| % |
| $ | 5,964 |
|
|
| 57.8 |
| % |
Imaging systems |
| 4 |
|
|
| — |
| % |
|
| 382 |
|
|
| 3.5 |
| % |
|
| (378 | ) |
|
| (99.0 | ) |
|
| — |
|
|
| — |
| % |
|
| 552 |
|
|
| 5.3 |
| % |
Consumables and other |
| 1,478 |
|
|
| 17.1 |
| % |
|
| 1,902 |
|
|
| 17.4 |
| % |
|
| (424 | ) |
|
| (22.3 | ) |
|
| 1,472 |
|
|
| 30.8 |
| % |
|
| 2,112 |
|
|
| 20.5 |
| % |
Services |
| 1,994 |
|
|
| 23.1 |
| % |
|
| 1,594 |
|
|
| 14.6 |
| % |
|
| 400 |
|
|
| 25.1 |
|
|
| 1,260 |
|
|
| 26.3 |
| % |
|
| 1,695 |
|
|
| 16.4 |
| % |
Total products and services |
| 8,643 |
|
|
| 100.0 |
| % |
|
| 10,933 |
|
|
| 100.0 |
| % |
|
| (2,290 | ) |
|
| (20.9 | ) |
|
| 4,783 |
|
|
| 100.0 |
| % |
|
| 10,323 |
|
|
| 100.0 |
| % |
License fees and royalty |
| 3 |
|
|
| — |
| % |
|
| 3 |
|
|
| — |
| % |
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| % |
|
| 3 |
|
| — |
| % | ||
Net revenue | $ | 8,646 |
|
|
| 100.0 |
| % |
| $ | 10,936 |
|
|
| 100.0 |
| % |
| $ | (2,290 | ) |
|
| (20.9 | ) |
| $ | 4,783 |
|
|
| 100.0 |
| % |
| $ | 10,326 |
|
|
| 100.0 |
| % |
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 strongerhigher than average, due to the buying patterns of dental practitioners. We believe that this trend exists because a significant number of dentists purchase their capital equipment towards the end of the calendar year in order to maximize their practice earnings while seeking to minimize their taxes. They often use certain tax incentives, such as accelerated depreciation methods for purchasing capital equipment, as part of their year-end tax planning. In addition, revenue in the third quarter may be affected by vacation patterns which can cause revenue to be flat or lower than in the second quarter of the year. Our historical seasonal fluctuations may also be impacted by sales promotions used by large dental distributors that encourage end-of-quarter and end-of-year buying in our industry.
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended September 30,March 31, 2020 and March 31, 2019, and 2018, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):
| Three Months Ended |
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| March 31, |
| March 31, |
| Amount |
|
| Percent | ||||||||||||||||||||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| 2020 |
| 2019 |
| Change |
|
| Change | ||||||||||||||||||||||||||||||
United States | $ | 4,949 |
|
|
| 57.2 |
| % |
| $ | 6,953 |
|
|
| 63.6 |
| % |
| $ | (2,004 | ) |
|
| (28.8 | ) |
| $ | 3,129 |
|
|
| 65.4 |
| % |
| $ | 6,116 |
|
|
| 59.2 |
| % |
| $ | (2,987 | ) |
|
| (48.8 | ) | % |
International |
| 3,697 |
|
|
| 42.8 |
| % |
|
| 3,983 |
|
|
| 36.4 |
| % |
|
| (286 | ) |
|
| (7.2 | ) |
|
| 1,654 |
|
|
| 34.6 |
| % |
|
| 4,210 |
|
|
| 40.8 |
| % |
|
| (2,556 | ) |
|
| (60.7 | ) | % |
Net revenue | $ | 8,646 |
|
|
| 100.0 |
| % |
| $ | 10,936 |
|
|
| 100.0 |
| % |
| $ | (2,290 | ) |
|
| (20.9 | ) |
| $ | 4,783 |
|
|
| 100.0 |
| % |
| $ | 10,326 |
|
|
| 100.0 |
| % |
| $ | (5,543 | ) |
|
| (53.7 | ) | % |
Total net revenue decreased by $2.3$5.5 million or 21%53.7% during the three months ended September 30, 2019March 31, 2020 as compared to the same period in 2018.2019 primarily due to the impact of the global COVID-19 pandemic. In the U.S., net revenue decreased by $2.0$3.0 million, or 28.8%, primarily from laser systems sales, which decreased by $1.4 million, or 38.0%, during49% for the three months ended September 30, 2019March 31, 2020 compared to the same period in 2018. These decreases were largely due to open sales territories in the third quarter of 2019. Outside the U.S., net revenue declined by $0.3$2.5 million, or 7.2%,61% during the three months ended September 30, 2019March 31, 2020 as compared to the same period in 2018, primarily due to the decline in sales2019. Because a majority of our laser products outsidesales are typically made in the U.S.last month of $0.5 million, or 14.0%, duringa quarter, our sales were particularly adversely affected by the three months ended September 30, 2019 comparedstay-at-home orders issued in early to the same period in 2018. Sales of consumables and other revenue, which consists of consumable products such as disposable tips during the three months ended September 30, 2019 was $3.5 million was consistent with the same period in 2018.mid-March.
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,March 31, 2020 and March 31, 2019, and 2018, as well as the amount of change and percentage of change (dollars in thousands):
| Three Months Ended |
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| March 31, |
| March 31, |
| Amount |
|
| Percent | ||||||||||||||||||||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| 2020 |
| 2019 |
| Change |
|
| Change | ||||||||||||||||||||||||||||||
Net revenue | $ | 8,646 |
|
|
| 100.0 |
| % |
| $ | 10,936 |
|
|
| 100.0 |
| % |
| $ | (2,290 | ) |
|
| (20.9 | ) |
| $ | 4,783 |
|
|
| 100.0 |
| % |
| $ | 10,326 |
|
|
| 100.0 |
| % |
| $ | (5,543 | ) |
|
| (53.7 | ) | % |
Cost of revenue |
| 5,677 |
|
|
| 65.7 |
| % |
|
| 6,995 |
|
|
| 64.0 |
| % |
|
| (1,318 | ) |
|
| (18.8 | ) |
|
| 3,430 |
|
|
| 71.7 |
| % |
|
| 6,804 |
|
|
| 65.9 |
| % |
|
| (3,374 | ) |
|
| (49.6 | ) | % |
Gross profit | $ | 2,969 |
|
|
| 34.3 |
| % |
| $ | 3,941 |
|
|
| 36.0 |
| % |
| $ | (972 | ) |
|
| (24.7 | ) |
| $ | 1,353 |
|
|
| 28.3 |
| % |
| $ | 3,522 |
|
|
| 34.1 |
| % |
| $ | (2,169 | ) |
|
| (61.6 | ) | % |
Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. The 24.7%62% decrease in gross profit as a percentage of revenue for the three months ended September 30, 2019,March 31, 2020, as compared to the three months ended September 30, 2018,March 31, 2019, reflects the declineimpact of the decrease in revenues from the COVID-19 pandemic and our laser sales and the impact from a change in product mix .fixed manufacturing costs.
Operating Expenses: The following table summarizes our unaudited operating expenses for the for the three months ended September 30,March 31, 2020 and March 31, 2019, and September 30, 2018, as well as the amount of change and percentage of change (dollars in thousands):
| Three Months Ended |
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| March 31, |
| March 31, |
| Amount |
|
| Percent | ||||||||||||||||||||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| 2020 |
| 2019 |
| Change |
|
| Change | ||||||||||||||||||||||||||||||
Sales and marketing | $ | 3,515 |
|
|
| 40.7 |
| % |
| $ | 4,489 |
|
|
| 41.0 |
| % |
| $ | (974 | ) |
|
| (21.7 | ) |
| $ | 2,704 |
|
|
| 56.5 |
| % |
| $ | 3,879 |
|
|
| 38.7 |
| % |
| $ | (1,175 | ) |
|
| (30.3 | ) | % |
General and administrative |
| 3,210 |
|
|
| 37.1 |
| % |
|
| 2,685 |
|
|
| 24.6 |
| % |
|
| 525 |
|
|
| 19.6 |
|
|
| 3,010 |
|
|
| 62.9 |
| % |
|
| 2,393 |
|
|
| 23.9 |
| % |
|
| 617 |
|
|
| 25.8 |
| % |
Engineering and development |
| 1,126 |
|
|
| 13.0 |
| % |
|
| 1,277 |
|
|
| 11.7 |
| % |
|
| (151 | ) |
|
| (11.8 | ) |
|
| 991 |
|
|
| 20.7 |
| % |
|
| 1,424 |
|
|
| 14.2 |
| % |
|
| (433 | ) |
|
| (30.4 | ) | % |
Change in fair value of patent litigation settlement liability |
|
| — |
|
|
| — |
| % |
|
| 190 |
|
|
| 1.9 |
| % |
|
| (190 | ) |
|
| (100.0 | ) | % | |||||||||||||||||||||||||
Total operating expenses | $ | 7,851 |
|
|
| 90.8 |
| % |
| $ | 8,451 |
|
|
| 77.3 |
| % |
| $ | (600 | ) |
|
| (7.1 | ) |
| $ | 6,705 |
|
|
| 140.2 |
| % |
| $ | 7,886 |
|
|
| 78.7 |
| % |
| $ | (1,181 | ) |
|
| (15.0 | ) | % |
The quarter-over-quarter total operating expenses are explained in the following expense categories:
Sales and Marketing Expense. Sales and marketing expenses during the three months ended September 30, 2019March 31, 2020 decreased by $1.0$1.2 million or 21.7%30% as compared to the same period in 2018,2019. This decrease is primarily due to decreases of $0.4 million in sales commissions, $0.2 million in travel and travel related expenses, $0.2 million in trade show, and $0.1 million in advertising costs and $0.1 million in payroll and consulting related expensesbenefit costs which are primarily due to the impact of $0.6 million, stock-based compensation expense of $0.1 million, and marketing materials and advertising of $0.2 million. Wethe COVID-19 pandemic on our business operations. Additionally, given the recent dental office closures, we expect our second quarter sales and marketing expensesexpense to decrease as a percentage of revenue throughbe lower for the remainder of 2019.year ended December 31, 2020.
General and Administrative Expense. General and administrative expenses during the three months ended September 30, 2019March 31, 2020 increased by $0.5$0.6 million or 19.6%26% compared to the same period in 2018,2019, primarily due to an increase of $1.0 million in our provision for bad debt expense, partiallyof $0.9 million due to uncertainties surrounding our ability to collect on certain of our accounts receivable in light of the COVID-19 pandemic. The increase was offset primarily by decreasesa $0.1 million decrease in patentbank fees and legal fees of $0.5 million. We expect generala $0.2 million decrease in payroll and administrative expenses to decrease as a percentage of revenue through the remainder of 2019.benefits and compensation expense.
Engineering and Development Expense. Engineering and development expenses during the three months ended September 30, 2019March 31, 2020 decreased by $0.2$0.4 million or 11.8%30% compared to the same period in 2018,2019, primarily due to decreasesa $0.4 million decrease in payroll and consulting-related expenses of $0.2. driven by a reduction in engineering projects for 2020 as compared to 2019. We expect to continue our investment in engineering and development expenses to remain the same as a percentage of revenue throughactivity in the remainder of 2019.2020. However, our primary focus will be on our sales and marketing efforts.
Change in fair value of patent litigation settlement liability. During the three months ended March 31, 2019, we recognized a $0.2 million loss on patent litigation settlement with CAO Group, Inc., as described in Part I, Item I, Note 11 – Commitments and Contingencies above, due to the change in fair value of the restricted stock which is pending issuance. We did not recognize a change in valuation for the three months ended March 31, 2020 as our stock price remained below $1.00 per share.
Gain (Loss) Gain on Foreign Currency Transactions. We realized a $0.1million$84,000 loss on foreign currency transactions during the three months ended September 30, 2019March 31, 2020 compared to a $0.1 million$43,000 loss on foreign currency transactions during the three months ended September 30, 2018,March 31, 2019, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense.Expense, Net. Interest expense during the three months ended September 30, 2019March 31, 20, 2020 increased by $0.5$0.1 million primarily due to the additional interest and amortizationfrom incremental borrowing of debt issuance costs relating to$2.5 million on the SWK Loan we entered into in the fourthsecond quarter of 2018.2019. We expect interest expense to fluctuate depending on the movement in LIBOR through the remainder of 2019.2020 and the outstanding balance of our PMB Loan.
Income Tax Provision. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes was $26,000a benefit of $19,000 for the three months ended September 30, 2019March 31, 2020 as compared to a provision of $49,000$15,000 for the same period in the prior year. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.
Net Loss. Our net loss totaled approximately $5.5$6.0 million for the three months ended September 30, 2019March 31, 2020 compared to a net loss of $4.7$4.9 million for the three months ended September 30, 2018.
Nine months ended September 30, 2019 and 2018
Net Revenue: The following table summarizes our unaudited net revenues by category, including each category’s percentage of our total revenue, for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
| Nine Months Ended |
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| ||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| ||||||||||||
Laser systems | $ | 16,047 |
|
|
| 57.4 |
| % |
| $ | 20,678 |
|
|
| 62.5 |
| % |
| $ | (4,631 | ) |
|
| (22.4 | ) | % |
Imaging systems |
| 619 |
|
|
| 3.2 |
| % |
|
| 1,336 |
|
|
| 4.0 |
| % |
|
| (717 | ) |
|
| (53.7 | ) | % |
Consumables and other |
| 5,678 |
|
|
| 22.2 |
| % |
|
| 6,239 |
|
|
| 18.9 |
| % |
|
| (561 | ) |
|
| (9.0 | ) | % |
Services |
| 5,264 |
|
|
| 17.2 |
| % |
|
| 4,848 |
|
|
| 14.6 |
| % |
|
| 416 |
|
|
| 8.6 |
| % |
Total products and services |
| 27,608 |
|
|
| 100.0 |
| % |
|
| 33,101 |
|
|
| 100.0 |
| % |
|
| (5,493 | ) |
|
| (16.6 | ) | % |
License fees and royalty |
| 9 |
|
| — |
| % |
|
| 9 |
|
| — |
| % |
| — |
|
| — |
| % | ||||
Net revenue | $ | 27,617 |
|
|
| 100.0 |
| % |
| $ | 33,110 |
|
|
| 100.0 |
| % |
| $ | (5,493 | ) |
|
| (16.6 | ) | % |
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):
| Nine Months Ended |
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| ||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| ||||||||||||
United States | $ | 16,962 |
|
|
| 61.4 |
| % |
| $ | 19,810 |
|
|
| 59.8 |
| % |
| $ | (2,848 | ) |
|
| (14.4 | ) | % |
International |
| 10,655 |
|
|
| 38.6 |
| % |
|
| 13,300 |
|
|
| 40.2 |
| % |
|
| (2,645 | ) |
|
| (19.9 | ) | % |
Net revenue | $ | 27,617 |
|
|
| 100.0 |
| % |
| $ | 33,110 |
|
|
| 100.0 |
| % |
| $ | (5,493 | ) |
|
| (16.6 | ) | % |
Total net revenue decreased by $5.5 million or 16.6% during the nine months ended September 30, 2019 as compared to the same period in 2018. In the U.S., net revenue decreased by $2.8 million, or 14.4%, primarily from laser systems sales, which decreased by $2.0 million, or 20.8%, during the nine months ended September 30, 2019 compared to the same period in 2018. These decreases were largely due to open sales territories in the second and third quarters ofMarch 31, 2019. Outside the U.S., net revenue declined by $2.6 million, or 19.9%, during the nine months ended September 30, 2019 as compared to the same period in 2018, primarily due to the decline in sales of our laser products outside the U.S. of $2.6 million, or 23.9%, during the nine months ended September 30, 2019 compared to the same period in 2018. Sales of consumables and other revenue, which consists of consumable products such as disposable tips decreased by $0.1 million, or 9.0%, during the nine months ended September 30, 2019 as compared to the same period in 2018.
Imaging systems revenue decreased by $0.7 million or 54.0% during the nine months ended September 30, 2019 as compared to the same period in 2018, primarily driven by our focus on laser sales.
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change (dollars in thousands):
| Nine Months Ended |
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| ||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| ||||||||||||
Net revenue | $ | 27,617 |
|
|
| 100.0 |
| % |
| $ | 33,110 |
|
|
| 100.0 |
| % |
| $ | (5,493 | ) |
|
| (16.6 | ) | % |
Cost of revenue |
| 17,746 |
|
|
| 64.3 |
| % |
|
| 21,828 |
|
|
| 65.9 |
| % |
|
| (4,082 | ) |
|
| (18.7 | ) | % |
Gross profit | $ | 9,871 |
|
|
| 35.7 |
| % |
| $ | 11,282 |
|
|
| 34.1 |
| % |
| $ | (1,411 | ) |
|
| (12.5 | ) | % |
Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. The 1.6% decrease in gross profit as a percentage of revenue for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, reflects the decline in our laser sales which have a higher margin than our other product offerings.
Operating Expenses: The following table summarizes our unaudited operating expenses for the for the nine months ended September 30, 2019 and 2018, as well as the amount of change and percentage of change (dollars in thousands):
| Nine Months Ended |
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| September 30, |
|
|
| September 30, |
|
|
| Amount |
|
| Percent |
|
| ||||||||||||
| 2019 |
|
|
| 2018 |
|
|
| Change |
|
| Change |
|
| ||||||||||||
Sales and marketing | $ | 10,665 |
|
|
| 38.6 |
| % |
| $ | 13,037 |
|
|
| 38.6 |
| % |
| $ | (2,372 | ) |
|
| (18.2 | ) | % |
General and administrative |
| 8,114 |
|
|
| 29.4 |
| % |
|
| 8,691 |
|
|
| 29.4 |
| % |
|
| (577 | ) |
|
| (6.6 | ) | % |
Engineering and development |
| 3,665 |
|
|
| 13.3 |
| % |
|
| 3,927 |
|
|
| 13.3 |
| % |
|
| (262 | ) |
|
| (6.7 | ) | % |
Total operating expenses | $ | 22,444 |
|
|
| 81.3 |
| % |
| $ | 25,655 |
|
|
| 77.5 |
| % |
| $ | (3,211 | ) |
|
| (12.5 | ) | % |
The period-over-period total operating expenses are explained in the following expense categories:
Sales and Marketing Expense. Sales and marketing expenses during the nine months ended September 30, 2019 decreased by $2.4 million or 18.2% as compared to the same period in 2018, primarily due to a decrease in payroll and consulting related expenses of $1.6 million, convention related expenses of $0.2 million, media materials and advertising of $0.2 million, and sales commissions of $0.2 million. We expect sales and marketing expenses to decrease as a percentage of revenue through the remainder of 2019.
General and Administrative Expense. General and administrative expenses during the nine months ended September 30, 2019 decreased by $0.6 million or 6.6% compared to the same period in 2018, primarily due to a decrease in patent and legal fees of $1.2 million, and payroll and consulting related expenses of $0.4 million, partially offset by an increase in provision for bad debts of $1.0 million. We expect general and administrative expenses to decrease as a percentage of revenue through the remainder of 2019.
Engineering and Development Expense. Engineering and development expenses during the nine months ended September 30, 2019 decreased by $0.3 million or 6.7% compared to the same period in 2018, primarily due to a $0.5 million decrease in payroll and consulting-related expenses, offset by increases in operating supplies and other miscellaneous costs of $0.1 million. We expect engineering and development expenses to decrease as a percentage of revenue through the remainder of 2019.
(Loss) Gain on Foreign Currency Transactions. We realized a $0.2 million loss on foreign currency transactions during the nine months ended September 30, 2019 compared to a $31,000 loss on foreign currency transactions during the nine months ended September 30, 2018, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense. Interest expense during the nine months ended September 30, 2019 increased by $1.5 million primarily due to the interest and amortization of debt issuance costs relating to the SWK Loan we entered into in the fourth quarter of 2018. We expect interest expense to fluctuate depending on the movement in LIBOR through the remainder of 2019.
Income Tax Provision. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes was $68,000 for the nine months ended September 30, 2019 and $91.000, for the nine months ended September 30, 2018. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.
Net Loss. Our net loss totaled approximately $14.3 million for the nine months ended September 30, 2019 compared to a net loss of $14.6 million for the nine months ended September 30, 2018.
Liquidity and Capital Resources
At September 30, 2019,March 31, 2020, we had approximately $2.4$1.8 million in cash, cash equivalents and restricted cash. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in our cash, cash equivalents and restricted cash of $5.9$4.3 million at September 30, 2019March 31, 2020 as compared to December 31, 2018,2019 was primarily due to net cash used in operating activities of $8.1$4.1 million. The $8.1$4.1 million of net cash used in operating activities was primarily driven by our net loss of $14.3$6.0 million for the ninethree months ended September 30, 2019.March 31, 2020.
The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Net cash flows used in operating activities |
| $ | (8,074 | ) |
| $ | (10,590 | ) |
| $ | (4,134 | ) |
| $ | (5,034 | ) |
Net cash flows used in investing activities |
|
| (138 | ) |
|
| (74 | ) |
|
| (9 | ) |
|
| (8 | ) |
Net cash flows provided by (used in) financing activities |
|
| 2,416 |
|
|
| 1,231 |
| ||||||||
Net cash flows (used in) provided by financing activities |
|
| (117 | ) |
|
| 3 |
| ||||||||
Effect of exchange rate changes |
|
| (157 | ) |
|
| (23 | ) |
|
| (18 | ) |
|
| (49 | ) |
Net change in cash, cash equivalents and restricted cash |
| $ | (5,953 | ) |
| $ | (9,456 | ) |
| $ | (4,278 | ) |
| $ | (5,088 | ) |
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 ninethree months ended September 30, 2019March 31, 2020 totaled $8.1$4.1 million and was primarily comprised of our net loss of $14.3$6.0 million, partially offset by non-cash adjustments for depreciation and amortization expenses of $0.8$0.3 million and stock-based compensation expenses of $2.0$0.7 million amortization of debt discount and issuance costs of $0.2 million, andour provision for bad debtsdebt of $1.2$0.9 million. ChangesThe $1.4 million net increase in our operating assets and liabilities were $2.0 millionwas primarily due to a $3.0 million decrease in accounts receivable primarily due to the impact of the COVID-19 pandemic on our revenues offset by an increase of $1.2 million in inventory and a decrease in accounts payable and accrued liabilities of $1.0 million related to the timing of our payments and $0.5 million paid as part of the patent litigation settlement with CAO Group, Inc., as described in Part I, Item I, Note 11 – Commitments and Contingencies above, and a decrease in accounts receivable of $1.5 million, partially offset by a decrease in inventory of $0.7 million and a decrease in prepaid expenses and other current assets of $0.8 million.
Cash used in investing activities for the ninethree months ended September 30, 2019 wasMarch 31, 2020 were minimal. We expect cash flows from investing activities to remain consistent through the remainder of 2019.2020.
Financing Activities
Net cash (used in) provided by financing activities for the ninethree months ended September 30, 2019 increasedMarch 31, 2020 decreased by $1.2approximately $0.1 million as compared to the same period in 2018, primarily due to the additional commitment onpayment of the SWK Loan of $2.5 million that occurred on May 7, 2019, partially offset by payments of debt issuancecommon stock offering costs of approximately $38,000 as compared to the same period in 2018 in which the Company had approximately $1.5 million in net borrowings under its credit facility.remaining from 2019.
Effect of Exchange Rate
The effect of exchange rate changes on cash for the ninethree months ended September 30, 2019March 31, 2020 was $157,000$18,000 and primarily due to fluctuations between the U.S. Dollar and the Euro.
Future Liquidity Needs
As of September 30, 2019,March 31, 2020, we had negative working capital of approximately $9.2 million.$3.7 million primarily due to the reclassification of our Term Loan from a long-term liability to short-term. . Our principal sources of liquidity as of September 30, 2019March 31, 2020 consisted of approximately $2.4$1.8 million in cash, cash equivalents and restricted cash and $8.5$4.7 million of net accounts receivable.receivable and any availability under our credit facility with Pacific Mercantile Bank.
We have reported recurring losses from operations and have not generated cash from operations for the three years ended December 31, 2019 and the three months ended March 31, 2020. Our level of cash used in operations, the need for additional capital, and the uncertainties surrounding our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern. As a result of reduced sales due to the COVID-19 pandemic and actions taken to contain it, cash generated from our operations during the first half of 2020 will be less than we anticipated. There is no assurance that sales will return to normal levels during the second quarter of 2020 or at any time thereafter.
Furthermore, in order for us to continue operations beyond the next 12 months and be able to discharge our liabilities and commitments in the normal course of business, we must sell our products directly to end users and through distributors, establish profitable operations through increased sales, decrease expenses, generate cash from operations, or obtain additional funds when needed. We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expansion of our product offerings, continuing to expand and develop our field sales force and distributor relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of our advanced medical technologies, and reducing expenses.
Term Loan
On November 9, 2018, BIOLASEwe entered into a five-year secured Credit Agreement (the “Credit(“Credit Agreement”) with SWK Funding LLC (“SWK”), pursuant to which BIOLASE haswe borrowed $12.5 million (the “SWK(“SWK Loan”). Our obligations under the Credit Agreement are secured by substantially all of our assets. Under the terms of the Credit Agreement, repayment of the loan is interest-only for the first two years, paid quarterly with the option to extend the interest-only period. Principal repayments will begin in the second quarter of 2021 and will be approximately $0.7 million quarterly until the loan matures in the fourth quarter of 2023. The loan bears interest at London Interbank Bank Offered Rate (“LIBOR”) plus 10% or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. Approximately $0.9 million of the proceeds from the SWK Loan were used to pay off all amounts owed to Western Alliance Bank underBank. In connection with the Business FinancingCredit Agreement, as described in Part I, Item I, Notewe issued warrants to SWK (the “SWK Warrants”) on November 9, – Debt above,2018 to purchase up to 372,023 shares of BIOLASE common stock and we usedon May 7, 2019, to purchase up to 115,175 shares of BIOLASE common stock. The SWK Warrants were immediately exercisable and expire 7 years after the remaining proceedsapplicable issuance date. The exercise price of the SWK Warrants issued on November 9, 2018 is $1.34, and the exercise price of the SWK Warrants issued on May 7, 2019 is $2.17, both of which were based on the average closing price of BIOLASE common stock for the ten trading days immediately preceding the applicable issuance date.
The Credit Agreement contains financial and non-financial covenants requiring us to, provide additional workingamong other things, (i) maintain unencumbered liquid assets of no less than $1.5 million or (B) the sum of aggregate cash flow from operations less capital to fund our growth initiatives, such as broadening our customer baseexpenditures, (ii) achieve certain revenue and increasingEBITDA levels during the utilizationfirst two years of our products to drive recurring higher margin consumables revenue.the loan, (iii) limit future borrowing, investments and dividends, and (iv) submit monthly and quarterly financial reporting.
As of March 31, 2019, we were not in compliance with certain covenants in the Credit Agreement. InAgreement, as described in Note 9 to the consolidated financial statements included in Item 1 of this 10-Q, and in May 2019, SWK granted the Companyus a waiver of such covenants. On May 7, 2019, we and SWK amendedagreed to amend the Credit Agreement (the “First Amendment”)Amendment) to increase ourthe total commitment under the SWK Loan from $12.5 million to $15.0 million, and to revise certain of the financial covenants to (a)(i) adjust minimum revenue and EBITDA levels, (b)(ii) require the us to have a shelf registration statement declared effective by the SECSecurities and Exchange Commission before September 30, 2019, with a proposed maximum aggregate offering price of at least $10.0 million if we dodid not reach set minimum revenue levels for the three-month period ended September 30, 2019, and (c)(iii) require us to maintain minimum liquidity of $1.5 million at all times. The First Amendment providedprovides that if aggregate minimum revenue and EBITDA levels are not achieved by September 30, 2019, the minimum liquidity requirement wouldwill be increased to $3.0 million, until we have obtained additional equity or debt funding of no less than $5.0 million.
In connection with the First Amendment,amendment, we paid to SWK loan origination and other fees of approximately $0.2$0.1 million payable in cash and approximately $0.3$0.2 million in warrantsadditional SWK Warrants to purchase shares of BIOLASE common stock. We also paid anIn 2019, we borrowed the additional finder’s fee to Deal Partners Group, as described in Part I, Item I, Note 9 – Debt above of approximately $0.1 million in cash and $0.1 million in warrants to purchase shares of BIOLASE common stock.$2.5 million.
On August 20,September 30, 2019, BIOLASEwe entered into a Letterthe Second Amendment to Credit Agreement (the “Letter Agreement”“Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among us, SWK, and the Credit Agreement. Pursuant to the Letter Agreement, SWK agreed to waive the effect of the Company’s potential non-compliance with certain unencumbered liquid assets financial operating covenants as set forth inlender parties thereto. The Second Amendment amends the Credit Agreement and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through September 30, 2019, or earlier in the event of the consummation of an additional secured financing or an event of default under the Credit Agreement.
On September 30, 2019, the Company agreed to further amend the Credit Agreement (the “Second Amendment”). The Second Amendment providesprovide for a permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in the Company’sour inventory and accounts receivable, with a maximum principal amount of $5 million.$5.0 million and with such other material terms and conditions acceptable to SWK in its commercially reasonable discretion. In addition, SWK agreed to waive the effect of the Company’sour non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through October 31, 2019, or earlier in the event of the consummation ofthat an additional equity or subordinated debt financing is consummated with gross proceeds of not less than $5$5.0 million, or anin the event of a default under the Credit Agreement. The Second Amendment contains representations, warranties, covenants, releases, and conditions customary for a forbearance and credit agreement amendment of this type. In 2019 we obtained additional equity financing greater than $5.0 million.
On November 6, 2019, we agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the us a waiver of our non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, we and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, we consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019, and the exercise price was adjusted to $1.00.
As of December 31, 2019, we were not in compliance with our debt covenants under the Credit Agreement (as amended). In March 2020, we entered into a Fourth Amendment to the Credit Agreement. Under the Fourth Amendment, we obtained a waiver of our non-compliance with certain financial covenants contained in the Credit Agreement through March 31, 2020. Also pursuant to the Fourth Amendment, we agreed to revise (i) the financial covenants to adjust minimum revenue and EBITDA levels and (ii) revise the financial covenants with respect to unencumbered liquid assets. In connection with the Fourth Amendment, the Company amended the exercise price of the SWK Warrants to $0.49 per share.
Public Offering of Common Shares and Private Placement of Unregistered Preferred Shares
On October 29, 2019, we consummated the sale of 7,820,000 shares of BIOLASE common stock at a price to the public of $0.5750 per share in an underwritten public offering and in addition, granted the underwriters a 30-day over-allotment option to purchase up to an additional 1,173,000 shares of BIOLASE common stock at the public offering price, less the underwriting discount.
On October 29, 2019, we also sold to existing investors affiliated with Jack W. Schuler and Oracle Investment Management, Inc., 69,565 unregistered shares of our Series E Preferred Stock at a price of $57.50 per share in a concurrent private placement. Each share of preferred stock is automatically convertible into 100 shares of common stock at a conversion price equal to $0.5750 per share, subject to customary anti-dilution adjustments, at such time as BIOLASE increases the amount of its authorized common stock to permit the full conversion.
At the closing, we received approximately $4.2 million in net proceeds from the common stock offering, after deducting the underwriting discount, and approximately $4.0 million in gross proceeds from the concurrent private placement, resulting in total net proceeds from the offering and private placement of approximately $8.2 million.
On November 5, 2019, the underwriters exercised their over-allotment option to purchase an additional 1,173,000 shares of BIOLASE common stock at a share price of $0.5750 per share for approximately $0.6 million in net proceeds, after deducting the underwriting discount.
Line of Credit
On October 28, 2019, BIOLASE, Inc. entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“Lender”), which provides for a revolving line of credit (the “PMB Loan”) in, secured by substantially all of the Company’s assets, with a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in the Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated.
BIOLASE’sOur obligations under the Loan Agreement are secured by a security interest in substantially all of BIOLASE’sour property. No borrowings may be made under the Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and BIOLASE haswe have entered into a borrower agreement with Exim Bank. Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in the The Wall Street Journal, plus 1.5% per annum; provided, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, BIOLASE iswe are required to pay an initial and annual fee of $52,500 to Exim Bank, as well as a termination fee equal to $30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.
The Loan Agreement requires BIOLASEus to maintain unrestricted cash at Lender plus unused availability under the PMB Loan in an amount equal to at least the Burn Rate (as defined in the Loan Agreement).Rate. “Burn Rate” means our net profit/net loss plus depreciation plus amortization plus stock-based compensation, measured on a trailing three month basis. In addition, the Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions).
The Loan Agreement provides that the occurrence of any of the following events (subject to applicable cure periods, if any) will constitute an event of default: payment default, loans in excess of the credit limit, breach of representation or warranty, covenant breach, incurrence of certain liens, certain events with respect to the collateral, cross-defaults to certain other indebtedness or obligations secured by liens, a Material Adverse Change (as defined in the Loan Agreement) or a breach of a material agreement that may reasonably result in a Material Adverse Change, final judgement in excess of a certain monetary threshold, certain events of bankruptcy or insolvency, any guarantee or pledge ceasing to be in effect, payment of certain subordinated debt, a Change in Control (as defined in the Loan Agreement), a change in our President, Chief Executive Officer, or Chief Financial Officer under certain circumstances, a change in two or more members of our Board of Directors within 90 days under certain circumstances, or any felony indictment of any of our directors, officers or significant stockholders. Upon the occurrence and during the continuation of an event of default, (as described in the Loan Agreement), Lender may exercise any remedies available to it, including accelerating the repayment of the PMB Loan.
As of March 31, 2020, we had approximately $3.0 million of unused availability under this facility, and in April 2020, we borrowed $3.0 million on this facility.
Paycheck Protection Program Loan
On October 29, 2019, we successfully consummated an underwritten public offering ofApril 14, 2020, BIOLASE common stock andwas granted a concurrent private placement of BIOLASE Series E Participating Convertible Preferred Stock, and on November 5, 2019, the underwriters of the public offering exercised their over-allotment option to acquire additional shares of BIOLASE common stock. The underwritten public offering and concurrent private placement resulted in net proceeds of approximately $8.4 million after deducting underwriter discounts and other fees and expenses. See Part I, Item I, Note 15 – Subsequent Events for additional information.
On November 6, 2019, the Company agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenantsPPP Loan from Pacific Mercantile Bank in the Credit Agreement. Alsoaggregate amount of $2,980,000, pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increasePaycheck Protection Program under Division A, Title I of the minimum liquidity requirement basedCARES Act, which was enacted March 27, 2020.
The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by BIOLASE, matures on certain aggregate minimum revenueApril 13, 2022 and EBITDA levels asbears interest at a rate of September 30, 2019 (which was added pursuant1.0% per annum, payable monthly commencing on November 1, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the First Amendment).
In orderPPP Loan may only be used for uspayroll costs, costs used to continue operations beyond the next 12 monthsgroup health care benefits, mortgage payments, rent, utilities, and be able to discharge our liabilities and commitments in the normal course of business, we must increase sales of our products directly to end-users and through distributors, establish profitable operations through the combination of increased sales and decreased expenses, generate cash from operations or obtain additional funds when needed.interest on other debt obligations incurred before February 15, 2020. We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expansionuse the entire Loan amount for qualifying expenses. Under the terms of our product offerings, continuing to expand and develop our fields sales force and distribution relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patientsPPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as to the benefits of our advanced medical technologies, and reducing expenses. Additional capital requirements may depend on many factors, including, among other things, continued losses, the rate at which our business grows, demands for working capital, manufacturing capacity, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to raise capital, through either equity or debt offerings, or enter into another line of credit facility. We may not be able to successfully consummate any equity or debt financings or enter into any other line of credit facilitydescribed in the future or that the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to our stockholders.CARES Act.
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.
None.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any change in our internal control over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We identified a material weakness in internal control related to ineffective financial statement close process controls as they relate to the accounting for our Series E Convertible Preferred Stock. During our review of the consolidated financial statements as of December 31, 2019, we determined that the classification of the Series E Convertible Preferred Stock on the consolidated balance sheet was incorrect and that due to the fact that the Series E Convertible Preferred Stock is redeemable at the control of the stockholder, it should have been classified as mezzanine equity pursuant to the accounting guidance in Accounting Standards Codification Topic 480 – “Distinguishing Liabilities from Equity,” and not a component of permanent equity. We believe that these control deficiencies were a result of a misinterpretation of the terms and conditions of the Certificate of Designations with respect to the Series E Convertible Preferred Stock Agreement which led to the misclassification. The error was corrected and the material weakness did not result in any misstatements to the consolidated financial statements, and the correction of the error did not result in any changes to previously released financial results. Based on this material weakness, the Company’s management concluded that at December 31, 2019, the Company’s internal control over financial reporting was not effective. As of March 31, 2020, the material weakness in internal controls had not been remediated.
Remediation
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated and operate, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) additional levels of review; (ii) additional training; and (iii) use of external consultants on highly technical accounting matters; and (iv) enhanced quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors. We believe that these actions will remediate the material weakness. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2020.
The disclosure contained in Part I, Item 1, Note 11 – Commitments and Contingencies is hereby incorporated herein by reference.
Except for the following, there have been no material changes to the risk factors as disclosed in Part I, Item 1A “Risk Factors” in the 2018 Form 10-K.
Failure to meet Nasdaq’sNASDAQ’s continued listing requirements could result in the delisting of our common stock, negatively impact the price of our common stock and negatively impact our ability to raise additional capital.
On August 9, 2017,March 31, 2020, BIOLASE received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying BIOLASE that, based on the BIOLASE’s stockholders’ equity of $377,000 as of December 31, 2019, as reported in its Annual Report on Form 10-K for the year ended December 31, 2019, BIOLASE is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million. BIOLASE has until May 15, 2020 to provide Nasdaq with a specific plan to achieve and sustain compliance with the foregoing listing requirement. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the letter for the Company to evidence compliance.
On December 3, 2019, we received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock MarketNASDAQ stating that, for the preceding 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital MarketNASDAQ pursuant to NasdaqNASDAQ Listing Rule 5550(a)(2) (the “Bid Price Rule”). While the Company subsequently regainedIn accordance with NASDAQ rules, we have been provided an initial period of 180 calendar days, or until June 1, 2020 (the “Compliance Date”), to regain compliance with the minimumBid Price Rule. If, at any time before the Compliance Date, the bid price requirementfor our common stock closes at $1.00 or more for a minimum of 10 consecutive business days, the Staff will provide written notification to us that it complies with the Bid Price Rule.
If we do not regain compliance with the Bid Price Rule by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to provide written notice of our intention to cure the deficiency during the additional compliance period, by effecting a reverse stock split, if necessary, provided that it meets the Company’scontinued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement.
If we do not regain compliance with the Bid Price Rule by the Compliance Date and are not eligible for an additional compliance period at that time, the Staff will provide written notification to us that our common stock has recently traded at prices below $1.00 per sharemay be delisted. At that time, we may appeal the Staff’s delisting determination to a NASDAQ Listing Qualifications Panel.
We intend to monitor the closing bid price of our common stock and there is no assurance that we will maintainmay, if appropriate, consider available options to regain compliance with thisthe Bid Price Rule. However, we may not regain compliance with the Bid Price Rule or any of the other NasdaqNASDAQ continued listing requirements in the future.
As of September 30, 2019, we were not in compliance with Nasdaq requirements for stockholders’ equity because our stockholders’ equity on that date was below the $2.5 million required by Nasdaq Listing Rule 5550(b)(1). As of the date of this quarterly report on Form 10-Q, we believe that we have regained compliance with this requirement as a result of the October 29, 2019 public offering and concurrent private placement described elsewhere in this report. However, Nasdaq is continuing to monitor our ongoing compliance with the stockholders’ equity requirement and, if at the time we file our annual report on Form 10-K for the year ending December 31, 2019, we do not evidence compliance, our common stock may be subject to delisting.
If, in the future, we fail to comply with Nasdaq’sNASDAQ’s continued listing requirements, our common stock will be subject to delisting. If that were to occur, our common stock would be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our common stock. This would adversely affect the ability of investors to trade our common stock and would adversely affect the value of our common stock. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock. If we seek to implement a further reverse stock split in order to remain listed on The Nasdaq Capital Market,NASDAQ, the announcement or implementation of such a reverse stock split could negatively affect the price of our common stock.
Non-compliance with the objective and subjective criteria for the Paycheck Protection Program loan could have a material adverse effect on our business.
On April 14, 2020, BIOLASE availed of PPP Loan from Pacific Mercantile Bank in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by the Company, matures on April 13, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act
Future salesOn April 23, 2020, the Secretary of sharesthe U.S. Department of the Treasury stated that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan. In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our common stock may depressentire workforce, notwithstanding certain obvious “work-from-home” limitations associated with the pricenature of our shares.
The sales of a substantial amount of common stock in the public market in the future, or the perception that such sales may occur, could adversely affect the prevailing market price ofbusiness. We also took into account our common stockneed for additional funding to continue operations, and our ability to raise equitycurrently access alternative forms of capital in the future. Allcurrent market environment. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the shares of our common stock sold in our October 2019 underwritten public offering are freely tradable without restriction or further registration underPPP Loan is consistent with the Securities Act of 1933, as amended (the “Securities Act”), unless the shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. In addition, two of our stockholders held approximately 60% of our outstanding common stock, in the aggregate, as of September 30, 2019. Such stockholders also purchased the Series E Participating Convertible Preferred Stock in our October 2019 private placement. Substantially allobjectives of the sharesPPP of common stock currently held by those stockholders have been registered for resale under the Securities Act and,CARES Act. If it is later determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to certain limitations, including certain lock-up restrictions agreed to by those stockholders, all oradditional penalties and adverse publicity, which could have a portionmaterial adverse effect on our business, results of such shares may be offeredoperations, and sold to the public in the future. In addition, all such shares of common stock plus any shares of common stock issued as a result of the conversion of the Series E Participating Convertible Preferred Stock purchased by those stockholders are eligible for resale under, but subject to the “affiliate” restrictions of, Rule 144. If some or all of the shares held by those stockholders are sold, or if it is perceived that they will be sold, the market price of our common stock could decline.
financial condition.
Nasdaq Deficiency Letter
On November 6,March 31, 2020, BIOLASE received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying BIOLASE that, based on the BIOLASE’s stockholders’ equity of $377,000 as of December 31, 2019, as reported in its Annual Report on Form 10-K for the year ended December 31, 2019, BIOLASE is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million. BIOLASE has until May 15, 2020 to provide Nasdaq with a specific plan to achieve and sustain compliance with the foregoing listing requirement. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the letter for the Company agreed to further amend the Credit Agreement. Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The terms of the SWK Warrants remained the same.evidence compliance.
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1.1 |
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3.1.1 |
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| 12/23/2005 |
| 3.1 |
| 12/23/2005 |
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| 12/23/2005 |
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3.1.2 |
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| 05/10/2012 |
| 3.1 |
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| 05/10/2012 |
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3.1.3 |
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| 11/04/2014 |
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| 11/04/2014 |
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| 05/10/2018 |
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| 05/10/2018 |
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| Certificate of Elimination of Series B Junior Participating Cumulative Preferred Stock |
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| 3.1 |
| 11/12/2015 |
| Certificate of Elimination of Series B Junior Participating Cumulative Preferred Stock |
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| Certificate of Elimination of Series C Participating Convertible Preferred Stock of the Registrant |
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| 3.1 |
| 04/20/2017 |
| Certificate of Elimination of Series C Participating Convertible Preferred Stock of the Registrant |
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| 04/18/2017 |
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| Seventh Amended and Restated Bylaws of the Registrant, adopted on October 8, 2018 |
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10.5 |
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31.2 |
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32.1 |
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32.2 |
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101 |
| The following unaudited financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, (iv) Notes to Consolidated Financial Statements |
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Exhibit | Description | Filed Herewith | Form | Period Ending/Date of Report | Exhibit | Filing Date | |||||||
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32.2 | ** | ||||||||||||
101 | The following unaudited financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, (iv) Notes to Consolidated Financial Statements | X |
* | Compensatory contract or |
** | Furnished herewith. |
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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| By: |
| /s/ Todd A. Norbe | |||||||||
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| Todd A. Norbe | |||||||||
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| President and Chief Executive Officer | |||||||||
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| John R. Beaver | |||||||||
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| Executive Vice President and Chief Financial Officer | |||||||||
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| Principal Accounting Officer) |
47
48